Two strategies that governments have to help people on low incomes - providing them with financial support directly, and encouraging them to earn more - generally conflict. This report provides new evidence on the trade-off between redistributing income and improving work incentives.
Drawing on large-scale survey data spanning the last 26 years, the report analyses the incomes and work incentives facing thousands of individuals and families, and how they are affected by the tax and benefit system. It shows how work incentives vary across the population and how this has changed since 1979 and estimates how far tax and benefit reforms have been responsible for changes in work incentives. It compares these trends with trends in poverty and inequality and examines how various policy options for the future would affect the distributions of both income and work incentives.
The report is aimed at policy-makers, academics and students in the field of taxation and welfare reform, and all those who wish to improve their understanding of the trade-off between redistributing income and improving work incentives.
Stuart Adam is a senior research economist, Mike Brewer a programme director and Andrew Shephard a PhD scholar, all at the Institute for Fiscal Studies. They conduct research into how tax and benefit policies affect households in the UK.
Introduction; Measuring financial work incentives; Financial work incentives in Britain 1979-2005; Poverty, inequality and work incentives over time; The effects of possible tax and benefits reforms on work incentives and the distribution of income; Conclusion.