The UK government is considering a Fair Start Plan. It would increase taxes on very high incomes and use the revenue for childcare, training and cash benefits in low-income areas. Table 1 shows selected current indicators and government forecasts if the plan is introduced.
| Economic indicator | Current | Forecast with plan |
|---|---|---|
| Real GDP growth | 1.2% | 1.0% |
| Unemployment rate | 5.0% | 4.6% |
| Inflation rate | 2.5% | 2.7% |
| Current account balance | -£40 billion | -£44 billion |
| Income share of lowest 20% | 7% | 9% |
| Income share of highest 20% | 45% | 42% |
[ITEM A] The Fair Start Plan would provide free childcare, training places and additional cash benefits to 180,000 low-income households. Supporters argue that childcare would help parents enter work and that training would improve workers' skills. The government expects inequality and unemployment to fall. The plan would be financed by higher taxes on annual incomes above £150,000.
[ITEM B] Business groups argue that higher taxes on very high incomes could discourage enterprise and investment. Some firms say senior employees may work fewer hours or move abroad. Government economists forecast slightly slower growth, higher inflation and a wider current account deficit, although they accept that these forecasts are uncertain.
Define the term 'income inequality'.
Using Table 1, calculate the forecast decrease in the percentage-point gap between the income shares of the highest 20% and lowest 20%.
Explain two possible benefits of the Fair Start Plan for low-income households.
Using Table 1, analyse how the Fair Start Plan may create conflicts between government economic objectives.
Do you think the UK government should introduce the Fair Start Plan? Use Items A and B and your own economic knowledge to justify your view.
189 exam-style questions on AQA GCSE Economics 2.2 Government objectives, covering 2.2.1a The main economic objectives, 2.2.1b Conflicts between government objectives, 2.2.1c Other objectives and ethical considerations, 2.2.2a The significance of economic growth, 2.2.2b Causes, costs, benefits and policies for growth, 2.2.2c GDP measures and calculations, 2.2.3a Measuring employment and unemployment, 2.2.3b Types and causes of unemployment, 2.2.3c Consequences and policies for unemployment, 2.2.4a What inflation is, 2.2.4b Measuring inflation with the CPI, 2.2.4c Causes, consequences and control of inflation, 2.2.5a Balance of trade and balance of payments, 2.2.5b Current account surpluses and deficits, 2.2.5c Policies to influence the balance of payments, 2.2.6a Income and wealth inequality in the UK, 2.2.6b Causes and consequences of inequality, and 2.2.6c Redistributing income and wealth. Each one has a worked solution and a mark scheme showing where the marks go.