UK Government policies addressing inequality
Government policies can narrow or widen income and wealth inequality.
UK Government policy
Between 2010 and 2019, the UK Government鈥檚 main priority was to apply a 鈥渄ownward pressure鈥 on government spending to reduce government borrowing. This policy was known as austerity.
As a result, changes were introduced affecting Social Security benefits, including:
- the introduction of Universal Credit
- a cap on the total benefit that can be paid to any single household
- the implementation of the under-occupancy penalty, this is more commonly known as the 鈥渂edroom tax鈥 (or the removal of the 'spare room subsidy')
- a cap on total welfare spend
- a two-child limit for some types of benefits
What are the consequences of the government's 'austerity programme'?
The consequences of the government's decade-long 'austerity programme' have been profound. The Joseph Rowntree Foundation (JRF) reported big rises in the numbers of people falling into poverty, including many of those in employment. In 2023, most working-age adults (60%) who were in poverty were in work or in households where someone was working.
The Joseph Rowntree Foundation (JRF) would argue that too often work does not pay enough 鈥 even with a National Living Wage (over 23 years = 拢10.42 per hour), some pay falls below the 'real living wage鈥 (拢12 per hour outside London).
Taxation policy
Taxation policy can be described as either progressive or regressive.
What is progressive taxation?
Taxation is progressive where:
- greater proportion of total taxation falls on the wealthiest
- the poorest, proportionally, pay less tax
- income inequality tends to fall
What is regressive taxation?
Taxation is regressive where:
- more tax, proportionally is taken from people on lower incomes
- the wealthiest, proportionally, pay less tax
- income inequality tends to rise
Taxation in the UK in recent years
The Institute for Fiscal Studies said that in 2019, the top 1% account for over a third of income tax and that 42% pay no income tax at all.
In 2022, the then Prime Minister Liz Truss proposed that her Conservative UK Government would cut the top rate of income tax from 45% to 40%. However, a Conservative backbench revolt against a backdrop of financial criticism led to this policy being quickly withdrawn.
In Scotland in 2023, the Scottish Government鈥檚 top rate of income tax is 47%, for those earning above 拢125,140. In the rest of the UK the top rate of income tax is a lower 45%, for those earning over 拢125,140.
Indirect taxes such as VAT, alcohol and fuel duty also have an impact on inequality. Higher rates of these taxes represent a higher proportion of poorer people's income compared to wealthy people.
What is National Insurance?
National Insurance (NI) is a different tax on earnings. NI rates are set by the UK Government. NI payments go into a fund and from this, some state benefits are paid 鈥 the state pension, statutory sick pay, maternity pay etc.
Who pays National Insurance?
People pay NI if they earn at least 拢242.01 per week, until you reach state pension age, which is currently 66 years (as of 2023 but rising to 67 years in 2026).
Rises in National Insurance
In September 2021, the Conservative Government announced that National Insurance contributions would rise by 1.25% from 2022, to pay more towards health and social care. At the time, this decision was widely criticised for several reasons including raising taxes when many people were struggling with the cost-of-living crisis. In October 2022, the Conservative government scrapped the National Insurance rise. (Source: 91热爆 News)