What drives poverty and inequality, and how can governments tackle them?

This explainer is written in line with the Higher Modern Studies curriculum to support young people in Scotland to learn about poverty and social inequality. It has been designed to provide evidence and insight into the causes and consequences of poverty in the UK, as well as the effectiveness of measures taken to tackle these issues. The figures presented have been taken from Joseph Rowntree Foundation’s (JRF’s) anchor study UK Poverty and, unless otherwise stated, are from analysis of 2022/2023 data.

The figures will be updated next in May 2026.

Introduction

More than 1 in 5 people in the UK are living in poverty. This is equivalent to 14.3 million people. Yet children have consistently had the highest poverty rates, with more than 3 in 10 children in the UK living in poverty.

It is important that we understand what the causes of poverty and income inequality are. This allows us to know which groups of people are most at risk and enables us to design policies that tackle these structural inequalities. When talking about structural inequalities, we mean that there are aspects of the way our society is designed that create unequal outcomes for different groups of people – leading to some being at a greater risk of experiencing poverty and hardship than others. The emphasis here is on the impact that unfair systems and policies have on people’s lives, rather than individual characteristics or behaviour.

This explainer will explore 8 structural causes of poverty: family type, education, unemployment, low pay, disability, inadequate social security, housing and tax policy. It will then look at 3 examples of government responses to poverty and inequality: Universal Credit, the Scottish Child Payment and the National Living Wage. However, it is important first to define what we mean by poverty.

How we measure poverty

There are different ways that poverty is measured; however, in this explainer, we are using the relative poverty measure. Relative poverty means that people are considered to be living in poverty if their household income is below 60% of the UK median income (middle income in the UK) after their housing is paid for.

However, we also need to account for the different sizes and types of households. This means that the poverty line is adjusted to reflect the different amounts of money that different households need to have the same standard of living.

Measuring poverty in this way allows us to compare the living standards of people on a low income to the average (median) living standards of the UK population, and so highlight the impact that income inequality has on people’s lives.

What drives poverty and inequality?

Family type

Different family types have varying poverty levels. This means that some family types are at a greater risk of experiencing poverty compared to others.

As already mentioned, families with children face a higher risk of poverty than the rest of the UK population. This is caused by a number of barriers that parents face, such as a lack of affordable and flexible childcare options that enable parents to have well-paid jobs. This in turn means that parents are more likely to face higher living costs and receive a lower income. However, when you take a more detailed look at the risk of child poverty, some children in different family types have even higher levels of poverty.

Children in ethnic minority households have the highest rate of poverty (46%) among these groups. For children in large families (45%) and lone-parent families (44%), the poverty rate is only slightly lower.

Although the poverty rate is lower for children in families with young children (36%) and for children in families where someone is disabled (33%), these figures still highlight that these groups are at a greater risk of experiencing poverty compared to all children.

Different family types face different structural barriers and financial pressures. This could be due to facing discrimination when trying to access work, having caring responsibilities, not being able to access affordable childcare or facing additional costs and barriers to accessing employment as a result of a disability or long-term health condition.

For example, for lone-parent families, financial pressures tend to be greater due to them having to rely on a single income – which is likely to be low as parents may have to reduce their work hours, or decide not to work at all, to fulfil their childcare responsibilities.

In addition, some UK Government social security policies disproportionately affect some family types. For example, the 2-child limit prevents families with 3 or more children from receiving social security support for all their children. This is due to a policy decision to restrict eligibility to child-related benefits to the first 2 children. So, whilst the social security system should, in theory, provide a safety net to support families when they need it, policy decisions like the 2-child limit heighten the risk of poverty for large families.

It is important that we know which groups of people are at the greatest risk of experiencing poverty because we can then understand what the driving factors are and use this evidence to push for change.

Education

A good-quality education can open up opportunities in work and create the conditions for a fulfilling and healthier life. Yet many children are leaving school without qualifications that can help them secure jobs or further and higher education. This has led to an attainment gap between the most and least advantaged children, from early years through to graduate outcomes across the UK.

Source: Scottish Government

Source: Scottish Government

Note: Due to rounding, the attainment gaps may not equal the difference between the proportion of children from the most and least deprived areas attaining the specified level.

Education is a devolved power, meaning that the education systems vary across the 4 countries in the UK. Table 1 shows attainment levels in Scotland for the most and least deprived areas to illustrate the attainment gap. This shows that there is a 20 percentage-point gap between children in the most and least deprived areas in Scotland who leave school with at least 1 SCQF level 5 (which includes National 5) qualification.

We know that having qualifications creates greater opportunities for people in accessing good-quality and well-paid work, whilst having no qualifications increases the risk of being unemployed and experiencing poverty.

In 2021/22:

• just over 1 in 10 working-age adults with an undergraduate degree or above were living in poverty, compared to over 4 in 10 working-age adults with no qualifications
• 9 in 10 adults with a higher degree were in employment compared to over 5 in 10 people with no qualifications
• the gross weekly pay rate for working-age adults aged 16 to 64 with no qualifications was £369, £442 per week for someone with a qualification below degree level and £769 per week for someone with a higher degree.

This shows the role that education plays in supporting people to move into well-paid and good-quality work. However, children who grow up living in poverty face more barriers to reaching the same level of educational attainment as children from wealthier families. The impact of this inequality spans each level of the education system and reproduces income inequalities through job outcomes.

Unemployment

Being in work reduces people’s risk of poverty. Poverty rates are much higher (58%) for people who are unemployed (that is, out of work but available for and seeking work). Looking at Figure 2, we can see that this is almost 5 times the rate of working-age adults who are in employment. If you are not in work, then you are not earning the money you need to afford the essentials, like food, housing, heating and clothing.

Governments often talk about work as the key lever for lifting people out of poverty, and this has some truth to it. Work is an important protective factor from stopping people from falling into poverty, yet even though unemployment levels are historically low, poverty levels have remained stagnant over the last 2 decades. This tells us that increasing employment levels alone will not reduce poverty.

The type of work, quantity of work and rate of pay are all critical factors in reducing the risk of poverty for people who are in work. Therefore, the focus of governments and employers must be on supporting people to access well-paid jobs with reliable hours, and breaking down the structural barriers that prevent many people from accessing work.

It is also worth noting that some people are much less likely to be able to work, for example, those with full-time or part-time caring responsibilities, whether for an adult, child or disabled person.

Low pay

As mentioned, well-paid work is critical for ensuring people can afford the essentials and have a good standard of living. However, almost 7 in 10 (68%) working-age adults in poverty are in a household where at least one adult is in work. This shows that the quality of work in the UK is falling short, meaning that even people who are in employment often cannot rely on work to lift them out of poverty.

1. The type of work that people do has an impact on their risk of poverty. Some industries have a higher prevalence of in-work poverty than others. JRF looked at the scale of in-work poverty in Scotland and highlighted 5 ‘high-priority industries’ – that is, prominent industries with high levels of poverty within them. The industries identified were: retail, health and social work, hospitality, administrative and support services, and manufacturing. The reason that these industries are of particular concern is due to a combination of low pay, fewer hours, insecure contracts and limited progression opportunities. All these worsen the risk of in-work poverty for people.
2. For example, the retail sector has a high proportion of part-time workers (43%), and over half (53%) of low-paid workers (paid below the real Living Wage) were on part-time contracts. It is this combination of low pay and fewer hours that heightens the risk of poverty for people who are in work. This is reflected in the poverty rates for different employment statuses. 

For all people who are in work, the poverty rate sits quite low at 12% – showing that work is an important protective factor against poverty. When we break this down by employment status, we can see that only 8% of people in full-time work are in poverty. This figure is almost a third of the poverty rate for people in part-time work (22%), which highlights the connection between having fewer hours through work and an increased likelihood of experiencing low pay and a heightened risk of poverty.

Over the last 2 decades, the child poverty rate in the UK has remained fairly steady. However, Figure 3 shows that the proportion of children in poverty who are in working households has increased markedly over this period.

The main takeaway here is that the majority of children in poverty are growing up in working households. Over time, this shift in household work status for families with children in poverty has resulted in very little change to the child poverty rate. So, although parents are working, they are likely working in jobs with low pay, insufficient hours and insecure contracts. As a result, more children are growing up in in-work poverty.

Disability

Disabled people consistently face a higher risk of poverty than the rest of the UK population, with 30% of disabled people living in poverty. This is 10 percentage points higher than the poverty rate for people who are not disabled. This higher rate is driven in part by the additional costs associated with disability and ill health, as well as the barriers disabled people face when trying to access employment.

Disabled people and their families face higher costs because they require additional goods and services to ensure their care needs are met and to support them to live independently. For example, many disabled people need to buy specialist equipment and pay for services like physiotherapy, speech or language therapy. Some conditions require higher levels of energy usage, which affects energy costs, and public transport is inaccessible for many, meaning people must rely on taxis to get around. This means that disabled people require more money to have the same standard of living as non-disabled people. Yet in reality, disabled people are more likely to have a lower standard of living than the rest of the population.

Part of the reason for this is that disabled people and their families are less likely to be in work; this can be seen in the disability employment gap of 29 percentage points between disabled working-age adults and non-disabled working-age adults in the UK.

For some people, this is because they cannot work due to their disability or ill health, but for those who can work, there are many barriers created by society that prevent them from doing so. For example, inaccessible travel, a lack of workplace adaptations and support, and inflexible hours can make accessing work very difficult for many disabled people.

As a result, disabled people are more likely to rely on social security to make up a higher proportion of their income. However, payments received through disability benefits do not adequately support disabled people to have a basic standard of living, never mind cover the additional costs associated with having a disability. It is the combination of these factors that causes disabled people to experience poverty and hardship at greater levels than the rest of the UK population.

Social security

The social security system is a public service that everyone should be able to rely on at any point in life. The intended purpose of our social security system is to provide a financial safety net to support people when they need it. There are many reasons why you may need financial support through social security, such as being unable to work due to caring responsibilities or disability, if your relationship breaks down, if you lose your job or if you experience a sudden illness. In cases like these, the social security system should step in to ensure that you can afford the essentials.

Universal Credit is the largest income-related benefit that is targeted towards working-age families, meaning that you may be eligible to receive it if you are a working-age person on a low income, not in work or unable to work. Families with children, disabilities or caring responsibilities are the most likely to claim income-related benefits. However, people in families receiving low-income benefits are at greater risk of poverty than other people in the UK. People in receipt of Universal Credit have consistently been at least 3 times more likely to be in poverty compared to those not claiming any income-related benefits.

In some ways, higher poverty rates for families in receipt of income-related benefits can be expected because of the low-income eligibility criteria for claiming these benefits. However, this highlights that the level of support people receive from Universal Credit is not sufficient to lift people out of poverty. Nearly half (48%) of people in families receiving Universal Credit or legacy benefits were living in poverty in the UK.

So, while the social security system should, as its name suggests, provide people with a basic level of financial security when needed, it is not doing its job sufficiently. This inadequacy is one of the key drivers of poverty and income inequality in the UK. However, the principle of the social security system should be viewed as part of the solution.

Housing costs

Good-quality and affordable homes provide the foundation for a decent life. Yet high housing costs pull people into poverty, and in turn increase the risk of poor living standards. At the same time, experiencing poverty affects the type, quality and size of homes that households can access – creating a cyclical relationship between high housing costs, poor-quality housing and poor living standards.

The risk of poverty is higher for people who live in the social rented sector (that is, housing provided by councils or housing associations), with more than 4 in 10 (44%) social renters in poverty. For people who rent their homes privately, the poverty rate is lower, at around 35%, meaning that over a third of private renters are in poverty. The main reason for high poverty rates among social renters is that this group is more likely to have a low income – which is to be expected as social housing is allocated based on need. Private renters, on the other hand, are pulled into poverty due to high housing costs driven by the private rental market. When you look at the average cost of private rents across the UK, private renters spend around 60% more on their housing costs than people in the social rented sector. Since the turn of the millennium, there has also been a change in the housing market, with a smaller proportion of people in social housing compared to the private rented sector – meaning more low-income households having to rent privately and the resulting higher risk of poverty.

People who own their homes experience lower levels of poverty. The poverty rate is 14% for those who own their home outright and 10% for those who were buying their house with a mortgage. The slightly higher poverty rate for people who own their home outright is driven completely by low wages, as this group has very low housing costs. People who buy their home with a mortgage, on the other hand, are required to have a substantial level of income to be able to access a mortgage.

Rents in the private rented sector are growing quickly, and mortgage interest rates have also risen in recent years compared to the lows of the 2010s. Without intervention, this will likely lead to higher levels of poverty among private renters and homeowners – particularly for families who are already on a lower income.

It is important to note that while people in the social rented sector experience higher levels of poverty, the provision of social housing is crucial for providing decent, affordable housing, and it prevents families from experiencing deeper levels of poverty.

Tax policy

In order to tackle poverty, governments need to design policies that will meet the scale of the issue. It is no secret that the level of public investment required costs money.

Tax policy is a key lever for governments to raise the money they need to spend on public services and infrastructure – including things like the NHS, schools and the social security system. Governments can make different choices over the way they raise taxes, what they tax and who they tax.

We can see how these different choices play out when we compare the different income tax brackets in Scotland to the rest of the UK. The Scottish Government has set a wider range of income tax brackets and tax rates, with a particular focus on raising income from higher-wage earners. As a result, it has been able to raise more money through taxation, compared to if it had kept income tax policy in line with the UK Government’s approach. It argues that this allows it to invest in things like the Scottish Child Payment and other public services.

Source: Income Tax in Scotland and Income rates and Personal Allowances, GOV.UK

What is taxed is also an important political decision. Income tax is targeted at people’s earnings through employment, but other taxes target people’s wealth (such as their housing, company shares or other valuable assets).

What do the public think about tax?

The British public is supportive of the Government taking action to support people in poverty. Specifically, attitudes towards increasing taxes and spending on health, education and social benefits have increased since the late 2000s and early 2010s. In the latest data, 46% of the British public agreed to increasing tax and spending on these areas, while a very small share of the population said they would support cuts to tax and spending.

In keeping with this, the majority of the public believes that it is the Government’s responsibility to ensure that people who are unemployed have a decent standard of living, and believes that the Government is responsible for reducing income and wealth inequality between the rich and poor.

JRF would argue that it is the fundamental responsibility of the Government to ensure that people who are on a low income or out of work are adequately supported to have a good standard of living. Yet it is undeniable that public attitudes towards tax and spending, due to their highly politicised nature, do shape government decisions.

How have governments responded to poverty and inequality?

This section provides 3 examples of how the UK and Scottish Governments have designed policies to tackle poverty and inequality. It is important to think critically about whether these policies have been effective at tackling the issues discussed above, and if so, how.

Universal Credit

Universal Credit is a benefit that is designed to support people who are on a low income, out of work or unable to work, with their living costs. Universal Credit was introduced to replace a range of low-income benefits – it was designed as a tool to simplify a complex system by creating a single benefit that would be responsive to people’s changing circumstances.

Around half of all families in the UK receive some form of financial support from the Government, and Universal Credit is the most widely claimed benefit in terms of the number of recipients, with over 5 million families in Great Britain claiming it.

However, the basic rates of Universal Credit are close to historic lows – below destitution thresholds – meaning that for some people on Universal Credit, their incomes are so low that they are unable to buy essential items.

This is particularly acute for people under the age of 25, who receive a lower level of Universal Credit than older working-age adults, despite the fact that essential items cost just as much for under-25s as they do for older adults.

Other policies connected to Universal Credit, like deductions, sanctions, the benefit cap and the 2-child limit, restrict or reduce people’s entitlements even further and leave families with less than they need to live on.

These are policy decisions that can be changed. Given that people in receipt of Universal Credit are around 3 times more likely to be in poverty compared to those not claiming any income-related benefits, it is evident that Universal Credit does not go far enough to provide adequate support to families to ensure that they have a decent standard of living.

Scottish Child Payment

In 2017, the Scottish Government passed the Child Poverty (Scotland) Bill with the unanimous support of the Scottish Parliament. The bill set out legally binding child poverty reduction targets with the aim of considerably reducing the rates of child poverty in Scotland by 2030/31. The targets for relative child poverty are:

• 10% by 2030/31
• and an interim target of 18% by 2023/24.

In 2023/24, 23% of children were living in poverty in Scotland. This shows that the Scottish Government missed the interim target of 18% and is still some way away from meeting the target of 10% by 2030/31.

However, as part of the Scottish Government’s commitment to reduce child poverty, it introduced the Scottish Child Payment. The Scottish Child Payment is an additional social security payment for families in Scotland who are already in receipt of certain types of benefits, like Universal Credit and equivalent legacy benefits. It is a weekly payment of £27.15 for each child in the family who is under 16 years old.

It is difficult to tell exactly what impact the Scottish Child Payment is having on poverty levels. However, the latest figures show that Scotland’s child poverty rate remains lower than that of the wider UK, decreasing to 23% in 2021–24 compared to 30% across the rest of the country. While lower levels of poverty in Scotland can partly be attributed to Scotland having lower housing costs, they also show the positive effect that increasing the adequacy of social security payments can have on reducing poverty.

JRF has argued that raising the Scottish Child Payment to £40 and increasing efforts to ensure that every eligible family is claiming the benefit will help to reduce the child poverty rate further. However, there will have to be a much more significant investment in policies targeted at reducing child poverty, beyond the Scottish Child Payment, if the Scottish Government is to reach its target of 10% by 2030/31.

National Living Wage

The National Minimum Wage and the National Living Wage have created a more predictable floor for pay. This means that employers are required by law to pay their workers a guaranteed minimum hourly rate. The principle behind this policy is that work should provide people with enough money to afford life’s essential items and prevent them from experiencing poverty.

Together, the National Minimum Wage and National Living Wage have been effective in raising levels of pay without damaging the employment rate – which was their intended purpose.

Many employers have gone a step further by paying the real Living Wage as their minimum pay rate. The real Living Wage is calculated based on the cost of living and accounts for the higher costs people face in London.

• National Minimum Wage: £10.00 for those aged 18 to 20 and £7.55 for under 18s
• National Living Wage: £12.21 for those aged 21 and over
• (real) Living Wage: £12.60 or £13.85 in London

In addition to receiving a lower level of financial support from Universal Credit, younger adults also receive a lower rate of pay through the National Living Wage. It is evident that efforts are needed to address the disparity young adults face in both the social security system and in work.

JRF has argued that a real living wage for all workers aged 18 and up should replace the National Minimum Wage and National Living Wage – this should be tied to what people need to lead a dignified life and should be the statutory minimum.

As in-work poverty is rising, making improvements to hourly pay alone will not be enough to ensure that work provides a reliable route out of poverty. People also need security in the number and consistency of hours they can work. For many people, zero-hour contracts and other forms of insecure work cause stress and financial difficulty due to their unpredictable nature. Scotland has the highest proportion of workers on these contracts in the UK. While it is right that discussions around improving pay continue, the UK Government must work with devolved governments to address the wider structures of a labour market that continues to discriminate against some groups and push people further into poverty.

Conclusion

Many aspects of how our society has been designed have led to social inequalities being produced and reproduced over time. As a result, drivers of poverty have been built into the structures of our neighbourhoods, communities and systems that we interact with. These include how jobs and recruitment processes are designed, or how the housing market or social security system works. If these parts of society are designed in ways that create unequal outcomes for different groups of people, then we start to see how social inequalities are created. By measuring poverty, we can see how these inequalities have a financial and material impact on people's lives and how this varies for different groups.

This explainer has looked at a number of drivers of poverty and considered how the UK and Scottish governments have taken steps to tackle these issues. When thinking about the effectiveness of these measures, it is important to understand that the structures and systems that cause inequality can be redesigned to create a fairer and more equal society.