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  • Jack Lomas

To what extent is inequality needed in the UK economy?

Currently, the UK has a Gini co-efficient value of around 0.4. This means that a large proportion of the UK’s income is earned by the top percentage of society. Although the UK’s inequality isn’t as bad as countries such as South Africa with a value of 0.63, it is still unequal and a problem in today's society.

Firstly, it could be argued that inequality is needed in our society. With some people being richer than others, it creates an incentive for people to work hard and to take risks such as starting a business. If there was no inequality, then people wouldn’t want to leave their current jobs and there would be a lack of hard work and thus, productivity would fall. This could reduce real GDP since our total output could be lower. Furthermore, it could be argued that an equal society isn’t equitable because it is not fair to reward somebody who works long hours in a high skilled job the same as somebody who works in a low skilled job. Therefore, we need inequality in order for people to be incentivised to work hard, achieve good qualifications to earn a higher income. Without it, the quality of the labour will decrease since education isn’t likely to be taken seriously and as a result, our long-run trend rate of growth could decrease.

However, it could be argued that wealth inequality disincentivises those from deprived areas. This is because they have a lack of opportunity with a lower quality of education, meaning that they are already at a disadvantage when aiming for good qualifications. This is present for those especially with learning difficulties, who may be able to get the help they need at a private school. Therefore, they are discouraged from getting a high level of education since the possibility of them achieving it is slim. Furthermore, inequality can limit economic growth in an economy. This is because poorer people have a higher marginal propensity to consume, meaning that for every 1 extra pound of disposable income they earn, they will spend a high percentage of it. This means that consumption in the economy is limited and thus, aggregate demand is reduced. This means that real GDP is limited. In addition, with an unequal distribution of income, there will be more people with a low income. This can increase absolute poverty since some people’s incomes may be so low that they cannot afford basic necessities such as food or water. This means that inequality can result in low living standards for those who earn less, and with the UK’s current inflation rate of 6.7%, they are likely to suffer massively with the low income that they earn being worth less as time passes.

Overall, it could be argued that we should have inequality to some extent in order for people to be encouraged to work harder and to achieve a greater standard of living for themselves as a reward. However, taking steps to reduce the UK’s Gini- coefficient would likely have the impact of reducing absolute poverty, and thus the lack of opportunity that people in deprived areas have.


Jack Lomas is a student at Altrincham Grammar school for boys. He is currently studying economics at A level and hopes to continue his studies at university. The subject of inequality particularly interests him as it is an issue with no definitive answer and is always up for debate due to its trade-offs.

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