Poverty and unemployment traps and trappings

Abstract

The existence of the poverty and unemployment traps within the United Kingdom's overall tax and benefit structure has been a cause of concern for several years, and has been thoroughly documented.¹ The concern is registered across the political spectrum from those who are worried about the effect on the individual welfare of those who are forced to forego all or most of any extra earnings they produce to those interested in the macroeconomic effect nationally of such disincentives. The way in which any reforms of either the systems of personal taxation or of social security operate on these traps is therefore important. This article examines how the traps operate in the case of a family under the present systems of social security and personal taxation, as compared with the new forms of social security proposed in the recent White Paper, Reform of Social Security–Programme for Action.²