4.2.1 Absolute and relative poverty – Edexcel Economics A notes

This page contains notes for Edexcel Economics A, topic 4.2.1 on absolute and relative poverty.

Written by Tom Furber, an online A-Level Economics tutor. Published 17th September 2026.

Contents

Absolute versus relative poverty and measures

Absolute poverty counts those who cannot afford basic necessities, such as food, water and housing. 

• An example measure of absolute poverty is the number of people living on less than 1.90 US dollars a day.

Relative poverty means making a much lower income relative to the national average. 

• An example measure of relative poverty is the number of people earning less than 60% of the median income. 
• Relative poverty is in some sense a measure of income inequality.

What causes changes in absolute and relative poverty?

When thinking about poverty, consider a) factors that can influence income and b) factors that influence spending. If income decreases or spending on necessities rises, this could increase the rate of poverty.

Causes of changes in absolute and relative poverty include:

• Cuts to welfare benefits
  • Cuts to welfare benefits could reduce income for those that rely on benefits, such as the unemployed or those receiving disability-related benefits.
  • More generally it may be difficult to access benefits due to regulations and paperwork. An increase in difficulty accessing the same benefits could have a similar effect on poverty.
  • Evaluation: cuts to benefits could incentivise workers to increase their hours, which could prevent a fall in income. 
• Changes to education / training on offer
  • Higher quality or cheaper training could make workers more productive, leading to higher demand for their labour, boosting wages and reducing the rate of absolute poverty.
  • Evaluation: this depends on whether the training is for skills that are in demand or not.
• Changes to tax rates
  • Increase in income tax rates on low earners could reduce disposable income for those near the poverty threshold. This could force more people into absolute poverty.
  • An increase in the rates of regressive taxes such as VAT could push up the prices of necessities. This could increase the rate of absolute poverty.
  • Evaluation: this depends on how the government uses the extra tax revenue. For example if used for welfare spending, then a rise in income tax rates could decrease overall poverty rates.
• Declining influence of trade unions
  • Trade unions are organised groups of workers that bargain collectively to improve workers’ pay and conditions. 
  • Trade unions have other roles such as supporting worker training.
  • Trade union membership in the UK has fallen as a percentage of the workforce since the late 1970s.
  • This could leave workers with less bargaining power over wages, possibly contributing to slower wage growth relative to prices. This could push more workers into absolute poverty.
  • Evaluation: however, while fading trade union power may lead to lower wages, this could increase demand for labour and boost employment. This could reduce poverty rates. 
• Changes in the rate ofeconomic growth
  • An increase in the rate of economic growth could lead to higher derived demand for labour. 
  • This increase in labour demand could lead to higher equilibrium wages.
  • This makes it easier for workers to afford necessities, reducing absolute poverty.
  • The opposite could happen if there is a downturn, which could cause cyclical unemployment. 
  • Evaluation: automatic stabilisers, such as welfare benefits, could reduce the extent to which a downturn leads to higher poverty.
• Technological change 
  • Technological change could lead to some workers being replaced by cheaper machines. This could increase the rate of unemployment, leading to lower incomes for those becoming unemployed. 
  • Evaluation: however, technological progress could create new jobs, increasing labour demand and boosting wages. Alternatively, it could widen access to education (e.g. online lessons). 
• More generally, any factors that influence the level of unemployment may influence the level of poverty.
• Changes in the price of necessities.
  • A rise in the price of necessities, such as energy, could lead to more people being unable to afford necessities. So absolute poverty could increase. 
  • However, the government could provide extra welfare support to help people pay their energy bills or for other essentials. 
• Discrimination
  • Discrimination could lead to workers being paid less for the same work compared to other workers. 
  • However, anti-discrimination law and changing attitudes could reduce the extent of discrimination.
• Caring responsibilities, often unpaid, could leave people without the time or energy to find paid employment. 

Note you could use many of the causes of income inequality, to cover the causes of changes in relative poverty.

Practice question on poverty

According to data from the UK Government, the number of people in relative poverty has reached 13.4 million people in the year of March 2025, an increase by half a million compared to the year beforehand. As a proportion of the population, this is an increase from 19% to 20%. It should be noted that these numbers are estimates.

Changes to the two-child benefit cap may allow some families to receive more welfare payments from the government. Specifically, parents can now claim universal credit or tax credits for all their children, not just the first two. The government estimates this could lead to 450,000 fewer children in poverty by 2029-30. 

Sources (external links): BBC (1, 2), IFS.

Assess two possible factors that may influence the level of relative poverty in the UK. (10 marks)

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