Poverty

The poverty trap

The poverty trap affects people living in households on low incomes. It creates a disincentive to look or work longer hours because of the effects of the income tax and welfare benefits system.

Example-

A worker may get given the opportunity to earn a extra £60 a week by working 10 more hours. This boost to their gross income is reduced by an increase in income tax and national insurance contributions.

They may lose some income related welfare benefits and the combined efffecs 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 you also add in extra costs of more expensive transport charges and the cost of arranging child care, then the disincentive to work may be quite strong.

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