Poverty Trap | tutor2u Economics
Study notes

Poverty Trap

  • Levels: AS, A Level
  • Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC

The poverty trap affects people living in households on low incomes.

  • It creates a disincentive either to look for work or work longer hours because of the effects of the income tax and welfare benefits system.
  • For example, a worker might be given the opportunity to earn an extra £60 a week by working ten additional hours. This boost to his/her gross income is reduced by an increase in income tax and national insurance contributions.
  • The individual may lose some income-related welfare benefits and the combined effects of this might be to take away over 70% of a rise in income, leaving little in the way of extra net or disposable income.
  • When one adds in the possible extra costs of more expensive transport charges and the costs of arranging childcare, then the disincentive to work may be quite strong.

Revision Video: The rise and rise of Food Bank usage in the UK

Foodbanks usage - revision video

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