The Distribution of Income and Wealth
- Income is a flow. It measures the receipt of money per period of time ( e.g. £200 a week)
- Wealth is a Stock. It measures the value of a person’s wealth at a given point of time e.g. £150,000
The Size distribution of income in the UK
Top 20 % earned 51% of GDP
Bottom 20 % earned 2.3% of GDP after the receipt of benefits this was 6.8%
Absolute Poverty:
This measures the number of people living below a certain income level, which is necessary to be able to afford basic goods and services
Relative Poverty:
This measures the income of households compared to the average income in the country. Thus increased economic growth may lead to better living standards however if this is distributed unequally then relative poverty will increase.
- 1998 UN Human Development Report cited UK as a country with one of the highest levels of poverty in industrialised nations
- Nine million people in the UK receive income support from the govt
Progressive Tax:
This is a tax that when income rises people pay a higher % of their income in tax e.g. Higher rate if income tax
Regressive Tax.
This occurs when an increase in income leads to a smaller % of their income going on the tax. E.G excise duties
Proportional Tax.
This occurs when an increase in income leads to the same % increase in Tax
Causes of Relative Poverty
- Inequality in Wages and Earnings Growth.
Workers with high levels of skills and qualifications will be in demand and therefore will be able to gain higher wages. However those with low skills will find themselves in low paid jobs or even unemployed.
In recent years wage differentials have increased due to:
- De-industrialisation leading to more service sector jobs which tend to be lower paid
- Public Sector jobs have had low increases in wages
- Growth in part time and temporary jobs which tend to be low paid
- Decline of trades unions
- Increased demand for highly skilled workers
- Falling Relative value of State Benefits.
Pensions and other benefits are index linked (this means rising in line with inflation) However this will be less than wages which increase faster than inflation. Therefore those dependent on benefits will lag behind other members of society
- 1.3 mil pensioners are totally reliant on state pension
- Higher levels of Structural and long term Unemployment.
Unemployment is the biggest cause of poverty in the UK because people rely only on benefits
- 65% of the poor are not in work
- In the 1980s and early 1990s unemployment was high, however in 2003 it has fallen below 1 million (UK claimant count)
- Regressive Taxes.
Tax changes in the 1980s and 1990s have put a higher burden of tax on the poor. There has been a shift in taxes from progressive income tax to regressive Indirect Taxes, therefore causing an increase in inequality
- For Example the top marginal rate of income tax has fallen from 83% in 1979 to 40% in 1989. The basic rate has come down form 33% to 22%.
- However the overall tax burden has remained unchanged because the govt has increased VAT and indirect taxes on cig, alcohol and petrol and extending VAT to domestic fuel. These taxes take a higher % from those on low incomes
- Inheritance
This allows inequality to be passed on and is quite important due to the housing market.
