Comparing incomes when needs differ: Equivalisation forthe extra costs of disability in the UK

Equivalisation of incomes for household size and composition is acceptedpractice when measuring poverty and inequality; adjustments to take account ofother variations in needs are rarely made. This paper explores the financialimplications of one possible source of additional needs: disability. Using twoUK household surveys, we seek to establish whether there are extra costs ofliving associated with disability, and to quantify them using the ‘standard ofliving’ approach. The underlying theory is that a household’s standard of livingis a function of income and needs. The extra costs of disability can be derivedby comparing the standard of living of households with and without disabledmembers at a given income, having controlled for other sources of variation.Results show that the extra costs of disability are substantial, especially fordisabled people living alone, and that these costs rise with severity of disability.To bring out the policy implications of these results, we compare and contrastthree different income distributions which differ in their adjustment for the extracosts of disability, for the population as a whole and for various subgroups. Wefind that unadjusted incomes significantly understate the problem of low incomeamongst disabled people, and thereby in the population as a whole.[...]