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Inequality in the UK.

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Introduction

Inequality in the UK The Oxford English Dictionary defines inequality as "the quality of being unequal or uneven". The instance of being unequal may arise from the disparity of distribution or opportunity and spans all social dogmas including: gender, race, political or religious persuasion. There are many forms of measuring inequality wealth, consumption and opportunity but there are problems inherent in each. Perhaps the most effective way of measuring inequality is comparing income earned, as there is sufficient raw data, it is easily conceptualised and it does not entail normative statements or value judgements. The most widely used measure of income inequality in society is the Gini co-efficient. It is a precise way of measuring the position of the Lorenz curve (see diagram below), a graph that shows, for the bottom x% of households, the percentage y% of the total income which they have. To compute the Gini Coefficient, the area between the Lorenz Curve and the 45 degree equality line is measured. This area is divided by the entire area below the 45 degree line (which is always exactly a 1/2). The quotient is the Gini coefficient, a measure of inequality, expressed as a percentage or as the numerical equivalent of that percentage, which is always between 0 and 1. The higher the figure for the Gini co-efficient, the greater is the degree between high and lower income households. ...read more.

Middle

Therefore, households partly or wholly dependent on welfare assistance see their relative incomes fall over time. Those who are unemployed must rely on these state handouts and subsequently they fall further behind those employed in terms of income levels. Twice since 1980, mass unemployment has affected Britain resulting in a large rise in relative poverty. To compound this income tax rates have fallen, specifically those targeting high income earners; during the 1980's the top rate of tax was cut from 80% to 40%. These tax reductions have worsened relative poverty as people in work are able to keep a higher proportion of what they earned. Ultimately cuts in any form of direct taxation will tend to disproportionately favour the better off. Other factors that affect inequality in society include the composition of the household. Although an individual may be a high income earner, supporting a large family will mean the income per person in the household is relatively low. Conversely a household where all members of the family are earning a wage despite the fact it is low may have a high household income. Subsequently inequalities differ depending on whether they are being measured per individual or per household. Generally it is accepted by the government that income inequality constitutes market failure as the market mechanism produces an allocation of resources which is sub optimal. ...read more.

Conclusion

Essentially free market economists claim that redistribution policies employed by the government will lead to increased unemployment which will inevitably lead to lower economic growth. They argue that income inequality cannot be improved without producing significant negative effects on the National economy and therefore reason it is impractical to narrow the gap between poor and rich. Instead they argue that income differentials should be widened through low taxation, minimal government legislation in the private sector and the bare minimum of state provision, in order to improve the welfare of those less fortunate in society i.e. to improve poverty. Although the poor may lose out in state benefits they will be more than compensated through increased growth which in theory should 'trickle down' from the better off in society to the less fortunate. Although inequality rises it can be argued that being better off is a matter of absolute quantities rather than relative quantities. Through this theoretical mechanism a system is created where wealth in society will benefit not just the rich but also the poor, particularly those who are unable to work. As it can be seen from free market theory inequality is not necessarily a bad thing, but rather it acknowledges that poverty, a symptom of inequality must be addressed. However it must be questioned whether the use of increased economic growth to tackle poverty is sustainable or indeed viable. ...read more.

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