What this lesson teaches
I can describe the policies that reduce poverty and redistribute income.
Syllabus K343, 5.2.3. Policies to alleviate poverty and redistribute income: promoting economic growth; improved education; improved healthcare provision; more generous state benefits; progressive taxation; national minimum wage (NMW)
Make a guess
Which policy helps poor families most quickly?
- Cash benefits paid straight to them.
- Better schools for their children.
- Faster economic growth.
Show the answer
Cash benefits paid straight to them.
Money reaches families at once. Education and training tackle the causes of poverty but take years to pay off.
Growth, education, healthcare, benefits, progressive taxes and minimum wages can all reduce poverty, each with trade-offs.
Promoting economic growth creates jobs and raises incomes, reducing absolute poverty. But the gains may not reach the poorest.
Improved education and healthcare raise people's skills and ability to work, so they can earn more in the long run. These take years to pay off.
More generous state benefits give money directly to those in need, such as the unemployed, elderly and disabled. They help quickly, but cost taxpayers and, if badly designed, can reduce the reward for working.
Progressive taxation takes a larger share from high incomes, funding benefits and redistributing income. A national minimum wage raises the pay of low-paid workers, but if set too high, it may cost some jobs.
- Policies
- Growth, education, healthcare, state benefits, progressive tax, NMW.
- Quick help
- State benefits.
- Long-term help
- Education, healthcare, training.
Worked example: A package against poverty
Suppose a government designs a plan for low-income families.
- Short term: cash support and help with school costs.
- Medium term: subsidised training so parents can move into better-paid work.
- Long term: good schools and healthcare so children can earn more as adults.
- Funding: progressive income tax, so higher earners pay a larger share.
Watch out for this
Giving people money is the only way to reduce poverty.
Cash benefits help quickly, but education, healthcare, training and growth tackle the causes and help people earn more themselves.
Check your understanding
Which policy redistributes income from rich to poor?
- A higher tax on basic food, paid by everyone who buys it
- A cut in the top rate of income tax
- Progressive income tax funding benefits for low-income households
Show the answer
Progressive income tax funding benefits for low-income households
Right. Higher earners pay a larger share, which funds support for the poor.
Check your understanding
Which policy redistributes income from richer to poorer households most directly?
- A cut in the top rate of income tax
- Progressive income tax used to fund cash transfers
- A higher rate of GST on all goods
- Lower interest rates for home loans
Show the answer
Progressive income tax used to fund cash transfers
Right. It takes a larger share from high earners and gives the money to low-income households.