Explain the causes of Absolute & Relative Poverty in the UK

When all incomes grow, absolute poverty falls, however, relative poverty only falls if low incomes grow at a faster rate than average incomes. For the most part, the problem of poverty in the UK is one of relative poverty. Because the UK is a high-income, developed economy in which welfare benefits provide a minimum income and safety net for the poor, very few people suffer from absolute poverty.

There are three main causes of relative poverty and one I will discuss in relation to absolute poverty. The first of the causes of relative poverty is old age. Old age causes poverty largely because many old people rely on the state pension and lack a private pension. Before the 1980’s, the state pension rose each year in line with average earnings. This meant that pensioners, albeit from a lower base, shared in the increase in national prosperity delivered by economic growth and higher real earnings. However, since the early 1980’s, the state pension has risen in line with the retail price index (RPI) rather than with average earnings. This has kept the real value or purchasing power of the state pension at its early 1980’s level, while the real earnings of those in work continue to rise. Pensioners reliant solely on the state for a source of income have become relatively worse off, even though the real value of the state pension has not fallen. The state pension is now regarded very much as a poverty income.

Unemployment benefits are also now linked to the RPI and, for similar reasons as the state pension, have fallen behind average earnings. An increase in unemployment therefore increases poverty. It follows that absolute poverty can best be reduced by fast and sustained economic growth and by creating jobs, hence the causes behind absolute poverty are lack of (job) opportunity and lack of economic growth. Economic growth can also create the wherewithal, if the electorate and state are so minded, to increase the real value of the state pension and unemployment benefits.

The last cause is low wages. When discussing the nature of both absolute and relative poverty in the UK, we must distinguish between the low-waged and the un-waged. The latter group includes pensioners and people whose only sources of income are unemployment benefits, income support or incapacity benefits.

Income support is an extra benefit to people on low incomes, such as the elderly who would otherwise be completely reliant on the state pension, and to families otherwise dependent solely on the unemployment benefit paid to one of the families members. Incapacity benefit is a weekly payment for people who become incapable of work while under the state pension age.

The low-waged, unlike the un-waged, are workers with jobs, albeit jobs in which their hourly and weekly earnings are low. The low waged include many unskilled workers, together with the skill workers who have lost their jobs in the manufacturing industry and who have had to trade down to unemployment in more menial unskilled activity. The low waged poor are almost always relatively poor rather than absolutely poor. In contrast the many homeless people living on the street fall into the category of absolutely poor. The introduction of the national minimum wage was an attempt to reduce the poverty of the low waged.