Government Policies to Reduce Inequality

Governments use a range of fiscal, labour market, and social policies to reduce inequality and poverty. This lesson examines the main policy tools available, evaluates their effectiveness using UK evidence, and considers the trade-offs involved. Understanding these policies — and being able to evaluate them critically — is essential for A-Level Economics.

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The Tax System

Progressive Taxation

Key Definition: A progressive tax is one where the proportion of income paid in tax rises as income rises. The marginal tax rate exceeds the average tax rate.

UK Income Tax Rates (2024/25):

Band	Taxable Income	Rate
Personal Allowance	Up to £12,570	0%
Basic Rate	£12,571 – £50,270	20%
Higher Rate	£50,271 – £125,140	40%
Additional Rate	Over £125,140	45%

Income tax is clearly progressive — a worker earning £20,000 pays approximately 5% of their total income in income tax, while a worker earning £200,000 pays approximately 35%.