Cause and Effects of Income Inequality in United Kingdom

INCOME INEQUALITY IN THE UK 2

Causeand Effects of Income Inequality in United Kingdom

IncomeInequality in the UK

Incomeinequality is the United Kingdom grew significantly in the 1980s and1990s but has reduced in the 2000s although it remains relativelyhigher compared to other OECD states (OECD 2014, p.1). A sequencelinking education, wealth, globalisation and labour market hasgenerated a set of conditions for inequality to thrive and feed onitself. This paper will explore the cause of income inequality in theUnited Kingdom and assess the effects it has on the UK population.

Causesof Income Inequality

Thereare numerous factors that cause income inequality in the UK. Thesefactors have varying influence of income disparity but can be groupedinto five main categories:

Taxand Political system: The political system at a given time has animmense influence on regressive and progressive. Progressive taxationmeans that the more that an individual earns, the more they pay inform of taxes. Even though it is tax system in Britain isprogressive, people are divided into five bands, the bottom band ismade of lowest earners while the top is made of the higher tax payers(Cribb 2013, p. 3). Nonetheless, because indirect taxes hits the poormore than the rich, the bottom band ends up paying more than the highearners. In this light the tax system in the UK is significantlyskewed towards the top band (richest 10 percent), On average thebottom 10 percent pays 8 percent more in taxes that the top 10percent (Cribb 2013, p. 1). When all forms of taxes are put intoconsideration, Britain taxation system falls under regressivetaxation. Under regressive taxation the more you earn, the less youcontribute in form of taxes, and as such the richest benefit fromthis and, as a result, the income inequality cannot reduce.

InitialCondition: This encompasses the prevailing economic situation in agiven setting at the time a person is born. Children that are born ina family that has immense assets and wealth are generally expected tobe in the upper-income bracket. In the same vein, those born poor andin families with limited assets are likely to struggle and remain inlower income bracket. Ceteris Paribus, the gap between the wealthyand the poor is, therefore, likely to remain unless there are massivechanges in fortunes, education and opportunities (Cribb 2013, p. 3).

Externalfactors that influence Britain’s labour market: This encompasseselements such as liberalisation and globalisation. These factors havedirectly caused inequality and has played a huge role in shaping theUK labour market and economy (Cribb 2013, p. 2).

Thenational economic system: This entails the nature of labour marketand what constitutes the sectors. For example unemployment rate inBritain for college leavers has always increased considerably duringrecessions. Most notably the 2009 recession pushed unemployment by4percent from 15 to 19% (Cribb 2013, p. 3). Nonetheless, theunemployment rate had been increasing for a couple of years evenbefore the slump, from 12% in 2004 to about 15% by the end of 2008(Cribb 2013, p. 2). The average rate of unemployment has been at 7%but the most unfortunate thing is that the sectors and industriesthat are hit hardest are filled by individuals in the lowest incomebracket. In difficult economic times, the poor suffer more than therich.

Finally,the channels that shape early life have also caused income inequalityin the UK. The path that could potentially escalate imbalancedstarting points such as childhood care and education, college degreeare shaped by the level of income. Technological advancement andglobalisation have significantly augmented the financial returns toeducation in the U.K labour market causing income inequality (Cribb2013, p. 3).

Effectsof Income Inequality in Britain

Incomeinequality in the U.K has been documented to cause stunt the mediumterm growth. The largest effect on growth is reflected by the gapthat exist between the poor households and the middle class comparedto the rest of the society (OECD 2014, p.1). As stated above theeconomic fluctuations has more effects on the poor than the rich. Itis estimated that the increasing income inequality has wiped up to 9%off the cumulative growth rate in U.K (OECD 2014, p.1).

Lackof education for children from poor families is the main element thatmakes income disparity hurt the economy. If the level of educationfor the parents is low, the same outcome is expected for theirchildren. Families at higher income level are not (little) affectedby income inequality but the situation for the low-income earners isvery complex (OECD 2014, p.1).

Britishscholars Wilkinson and Kate Pickett have indicated that incomeinequality weakens the social bonds and deteriorate the health ofmany civilians. It has been linked to mental problems, and risinglevels of obesity, crime and teenage pregnancy. It has also beenlinked with reducing the life expectancy of the affected group(Porter 2014, p.1).

References

Cribb,Jonathan.2013. Incomeinequality in the UK. Institute for Fiscal Studies.Available at: http://www.ifs.org.uk/docs/ER_JC_2013.pdf

OECD.2014. Economicinequality is preventing growth in the UK.Available at:http://leftfootforward.org/2014/12/economic-inequality-is-preventing-growth-in-the-uk/

Porter,Eduardo. 2014. Income Equality: A Search for Consequences. TheNew York Times.Available at:http://www.nytimes.com/2014/03/26/business/economy/making-sense-of-income-inequality.html?_r=0