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Scaling the ‘Poverty Mountain’: Methods to Extend Incentives to all Workers

In: Improving Incentives for the Low-Paid

Author

Listed:
  • Tony Atkinson
  • Holly Sutherland

Abstract

A person on £35,000 a year who earns another £50 a year pays 40 per cent of the extra in income tax. There may be a further deduction for contributions to an occupational pension scheme, and possibly an increase in the parental contribution assessed for student grants, but leaving these aside such families keep 60 per cent of their marginal earnings. In contrast, a person earning only a quarter of this amount may face a much higher marginal tax rate. Someone with two children aged 12 and 14, with savings below £3000, is eligible for Family Credit on an income of up to some £9000 a year. This generates a marginal tax rate of at least 70 per cent. (All figures relate to the situation in January 1990.)

Suggested Citation

  • Tony Atkinson & Holly Sutherland, 1990. "Scaling the ‘Poverty Mountain’: Methods to Extend Incentives to all Workers," Palgrave Macmillan Books, in: Alex Bowen & Ken Mayhew (ed.), Improving Incentives for the Low-Paid, chapter 2, pages 55-71, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-21012-1_2
    DOI: 10.1007/978-1-349-21012-1_2
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