Income And Wealth Inequlity

Question 1

Introduction

Answer 1

Income and wealth inequality has increased in recent years due to many factors. These factors include government policies and legislation , changes in the economy and also wealth concentrations

Question 2

Government legislation

• 4 for tax
• 3 for VAT

Answer 2

• one reason why income and wealth inequality exists is due to government legislation. Tax has had a significant impact on wealth and income inequalities.
• income tax is progressive , which means that more you earn the more you are obliged to pay. Tax has recently become less progressive due to government changes , creating less of a burden for the rich compared to the poor
• eg: those in the additional rate tax bracket (those earning more then 150000) had to pay 50% tax in 2014 but in 2015 it decreased to 45% meaning those earning this amount retain 5% more money
• this directly causes wealth and income inequality as it allows the rich to basically get richer whilst the poor pay the same amount of tax meaning the gap between rich and poor is widened.
• furthermore government changes to VAT (consumption tax) has further caused inequality
• eg : in 2011 the vat tax was raised for 17.5% to 20% (greater proportion of income taxed on)
• this is a cause of income and wealth inequality as it disproportionately affects the poor as they spend most of their money on necessities such as food and heating - whereas for the rich it doesn’t make a massive difference for them to be taxed on slightly mor

Question 3

Changes to the economy
4 for sectors
3 for trade unions
1 for gvt leg is still main reason

Answer 3

• changes to the economy have had significant impact on wealth and income inequality due to the increase in employment in the tertiary sector , due to erosion of jobs in primary and secondary sectors- levels or employment in these sectors ( fishing, mining ) have fallen gradually through the decades .
• eg : china now produces 50% of the worlds steel , in the Uk the number of jobs in steel has declined from 32,300 in 1971 compare to 32000 today , despite the demand of steel doubling during this time.
• this has led to income and wealth inequality as jobs in these sectors that were well and unionised have now been replaced with low skilled and poorly aged jobs such as zero hour contracts which have no job security or access to sick pay therefore ..
• as well as eradication of middle income jobs , jobs in the quaternary sector are growing : the impact of this is that there are few well paid jobs in manufacturing industries creating wealth and income inequality as it creates a growing bridge between those on high pay and those on low pay
• furthermore, the erosion of trade unions also has been linked to an increase in wealth and income inequality : union workers are an important source for employees as they can provide protection to wages/ working conditions by negotiation.
• for example between 1979 and 2014 a period where union membership fell by 47% M the share of wealth that went to the richest 1% more than doubled
• this causes income and wealth inequality as the decrease in union influence means that wages /conditions aren’t protected as better wages and conditions can’t be won, so wealth becomes concentrated with the rich increasing the gap between rich and poor.
• however gvt legislation is still the main reason for income and wealth inequality - morevrrr it is the lack of government legislation here or even recognition of the effect of the changing economy which is allowing companies (even those who cutting wages of workers to pay less in tax. The corporation tax rate was set to 20 in 2016 April , but has since decreased - 18 % in 2020

Question 4

Wealth concentrations

Answer 4

• another factor contributing to the creation of income and wealth inequality , is the concept of wealth concentration. This is when wealth is concentrated in possession of people who are already wealthy - this is because those who are wealthy have resources to invest in the accumulation of wealth creating more wealth.
• eg over the last 10 years the number of billionaires in the Uk has almost doubled and their wealth has more than doubled.
• this directly causes income and wealth inequality as it shows how wealth continues to be concentrated in the hands of the rich: this impact of this is that the gap of inequality will grow further

Furthermore : globalisation of the capital (ability to move wealth from one country to another ) allows wealth to be further concentrated : this is because it allows money to cross borders and avoid systems of high tax

• eg the equivalent of 10% global GDP is held offshore by rich individuals in from of bank deposited / equities etc
• this creates income and wealth inequality as people who already have wealth have the ability to keep a larger share of their wealth relative to others meaning they can accumulate more and more. Creating wider gap

Despite this gvt legislation remains the main reason for income and wealth inequlty - this is because despite all of these things occurring the government just helps increase inequality by limiting inheritance tax - married couples can now leave a property worth 1 million without paying tax- if they payed tax the government may be able to redistribute this and help people

Question 5

Conclusion

Answer 5

• Changes to economy - lack of intervention by the government to support those in low paid jobs + cuts in corporation tax mena gvt can be blamed. Bug companies such as Google and Amazon pay less than 6% corporation tax which just means more money for bosses and greater share dividends
• government decision to decrease inheritance tax allows wealth concentration to continue on through generations