Causes of Relative Poverty in UK

1. 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:

  • i) De-industrialisation leading to more service sector jobs which tend to be lower paid
  • ii) Public Sector jobs have had low increases in wages
  • iii) Growth in part time and temporary jobs which tend to be low paid
  • iv) Decline of trades unions leaving many workers unable to bargain for higher wages.
  • v) Increased demand for highly skilled workers

 

2. Falling Relative value of State Benefits.

Pensions and other benefits are index linked (this means rising in line with inflation) This tends to be less than wages which increase faster than inflation. Therefore those dependent on benefits will lag behind other members of society

E.g. 1.3 million pensioners are totally reliant on state pension.

3. 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) But increased again in 2009, 2010.

4. 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 alcohol and petrol and extending VAT to domestic fuel. These taxes take a higher % from those on low incomes

5. Inheritance

This allows wealth inequality to be passed on and is quite important due to the housing market.