Week 20 Flashcards
Poverty definition
individual/household considered extremely poor if they’re perceived to have insufficient funds to meet their basic life sustaining needs and wants
what are the 2 types of poverty
- absolute poverty
- relative poverty
absolute poverty definition
individual/household that earns an income below minimum income standard and what is required to meet their basic human needs
e.g food, shelter and water
what is the minimum income standard (poverty threshold based on)
less than 60% median income in 2010/11
stays at a fixed level and does not change over time only is adjusted for inflation, so we can compare across time easily
relative poverty definition
any individual/household that earns an income below a specific proportion of a country’s median income
what is the relative poverty threshold based on
below 60% of the median household income level in the current year
isn’t a fixed rate and changes overtime, changes to represent housing costs and changes in income
what does it mean to be in relative poverty
means they’d be excluded from the type of material activities and opportunities that other can afford
> unequal opportunities
what are 3 reasons poverty is caused
- ageing population
-unemployment and the benefits system - low and depressed wages
-discrimination
how does an ageing population cause poverty
increases the number of people that rely on pension to supplement their income
> does the state pension keep up with living standards
–> if no then could be relatively/absolute poverty
how does unemployment and the benefit system cause poverty
if individuals lose their jobs and claim benefits, the income they receive is far below that of the average household
how does low and depressed wages cause poverty
workers in industries that have seen their wages reduced to a low level are inevitably going to be relatively poor
what are 2 individual consequences of poverty
- reduces opportunities
- damages confidence
what are 2 social consequences of poverty
- increased crime rates
- skill erosion (damages local economy)
what are 2 national consequences of poverty
- educational deprivation
- economic damage
fiscal drag definition
the failure of the government to raise tax thresholds to keep up with inflation results in people on lower incomes paying more tax over time
It is where nominal incomes increase to match inflation (real incomes stay the same), but the tax bracket doesn’t change so they get pushed into higher tax bracket groups
How can fiscal drag be explained
A person earning £10,000 in 2018 will not get taxed but if many years down the line with inflation prices rise by 2x so their income rises by 2x so their real income doesn’t change
If the government fail to bring the tax brackets up too they will no be taxed 20% due to being over the tax threshold
Poverty trap definition
people on a low wage get trapped in relative poverty due to the overlap between the point at which tax gets paid on income and benefits are received
every £1 earned in the overlap leads to:
> reduces benefits
> tax liabilities
what are 3 ways to solve the poverty trap
- reform the benefits system
> everyone gets the same flat benefits so there is no cap to benefits - change tax free threshold
> raise it so they can earn more money without paying tax - employment legislation
> force firms to pay higher wages (standard living wage or up the minimum wage)
unemployment trap definition
those unemployed choose to remain out of work due to the generosity of the benefits system
for low skilled workers the incentive to work becomes twisted
> due to having to pay income tax
> national insurance contributions
> and potentially loss of welfare benefits
3 ways to solve the unemployment trap
- reform the benefits system
> to increase work incentive - tax reforms
> reduce low wage tax burden - employment legislation
> enforcement of national minimum and living wage
what is an issue of dealing with poverty
perception of fairness
> who is to say what is fair or not
