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UK: Live Below the Line - Why 1 pound?

 

As our Live Below the Line campaign gains momentum and groups at schools, workplaces, universities and community groups around the country sign up to take the challenge – the Live Below the Line team wanted to explore the reason behind the £1 a day Line we’ve set for the challenge this May.

Live Below the Line is a challenge designed to provide people across the UK with a small insight into the challenges faced by the 1.4 billion people in our world trapped in the cycle of extreme poverty, and to raise funds for crucial anti-poverty initiatives creating change for those who need it most.

The challenge is set at £1 a day, because this is the current UK purchasing power equivalent of the World Bank’s International Extreme Poverty Line – the US$1.25 on which the world’s poorest people survive on every day – for all their food, health, transport, education and general living costs.

As Brits we could never begin to understand the lack of opportunity and constraint in living on this tiny amount, but by just trying to feed ourselves with the same amount, we can start to get a small understanding of the lack of choice and opportunity available to those trapped in the cycle of extreme poverty.

So – how do we figure out what the UK equivalent of the International US$1.25 a day figure is?

There are a few steps involved:

1. Understanding how the World Bank arrives at the US$1.25 a day figure.

The International Extreme Poverty Line was last set by the World Bank in 2005. They came up with the number by finding the purchasing power adjusted average national poverty line of the world’s 10 – 20 poorest countries.

That is, they created the line by analysing of what it means to live in poverty in the poorest nations of our world (as opposed to what it means to live in poverty across all nations).

International Extreme Poverty Line = Average of national poverty lines in world’s poorest nations.

The national poverty lines of the poorest countries are typically set using some version of the ‘cost of basic needs’ method. This generally involves:

  • Setting a ‘Food Poverty Line’ - established by pricing a food bundle that provides a minimum calorie intake required to survive,
  • Adding an allowance for non-food spending (typically obtained from data on the non-food spending of people near the food poverty line),
  • Then setting an ‘absolute’ Poverty Line – determined using the minimum value of consumption needed to be deemed ‘not poor’ in the world’s poorest countries.

National Poverty Lines = Cost of minimum calorie intake + equivalent non-food allowance

These National Poverty Lines try to establish a level of relative deprivation that defines what it means to be poor in the world’s poorest countries. The World Ban then averages and standardises these National Poverty Lines – using a method called ‘Purchasing Power Parity’ (PPP).

This is a method used to compare the value of products across countries, by taking into account the difference in domestic prices for the same goods. That is - how much of a country’s currency is needed in that country to buy what $1 would buy in the United States. Using this method, the World Bank was able to set an international Extreme Poverty Line taking into account the comparative welfare of the world’s poor in ‘real terms’, rather than exchange rate terms, which wouldn’t reflect the different cost of basic goods in relevant countries.

International figure = National figure, adjusted to reflect comparative cost of goods (PPP)

To learn more about Purchasing Power Parity and why it’s the best measure for comparative cost of living, see this World Bank document. Or, if you’d like to find out more about how the World Bank arrives at their US$1.25 a day figure, read this World Bank document, or the full report here.

2. Translating the international figure for the UK context.

To figure out the UK equivalent of this figure, the first thing we need to do is translate it for the UK context.

Using the same method as the World Bank used to translate its domestic poverty figures to an International Extreme Poverty Line, we use Purchasing Power Parity to convert the International Extreme Poverty Line back to a domestic line.

UK equivalent = US$1.25 x Purchasing Power Parity for UK

World Bank figures tell us that in 2005 (When the World Bank’s International Extreme Poverty Line was set), for every US$1 spent, Brits needed to spend £0.65GBP to buy the equivalent things. This means that the UK equivalent of the US$1.25 figure is £0.8125GBP.

3. Factoring in inflation since this figure was set

As the World Bank’s figure was set in 2005, we need to bring it up to current figures, accounting for inflation and changes in the value of goods – such as food.

Using Bank of England figures, we can see that since 2005 the price of goods has increased by 16.5% to 2010 (when we last got updated figures), which means we need 16.5% more money to buy the same things as we could buy for £0.8125GBP in 2005 – or GBP£0.9465.

Current figure = 2005 World Bank figure x Inflation

Therefore the UK equivalent of the International Extreme Poverty Line of US$1.25 is 95p. Allowing for inflation in 2011 (which is estimated at 4%) and rounding up, we're calling it £1. This means that someone living in extreme poverty survives on the equivalent of a about £1 in the UK.

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