Income is a flow of earnings from a stock of capital. Income is earned in the form of wages, interest from savings, dividends from shares, income from pensions or rent from properties. This means that the more capital you have (such as shares savings or property) the more income you get from them. This means that not everybody gets the same income and there are a lot of people that do not get enough. The amount of people currently living below the poverty line is 20 million across the EU. This means that there are a lot of people that are unable to support themselves on the income that they get. This is why the government intervenes and either redistributed the income in the forms of taxes and benefits or they use supply side policies to try and encourage people into higher earning jobs. Redistributing income can be done in several ways; it can be done through a progressive tax system, tax credits or wealth taxes or benefits. A system of progressive direct taxation can reduce income disparities and if combined with a high level of government spending on benefits can achieve income redistribution. In the UK the highest rate of income tax is 45% for those earning more than £150’000 and the lowest income tax rate is the ‘basic rate’ at 20% for earnings of £10’600 to £31’785. The problem that is caused for those taxed and those on benefits is the disincentive effect. Those on higher incomes may decide to work less so that they do not reach the next tax bracket, or take higher incomes in the form of other benefits. Those relying on benefits to live may be caught in the poverty trap as they are better off relying on benefits as they would be taxed too much if they got a job and started earning income themselves. The thinking behind this is that a dependency culture is created often between generations where living on benefits is acceptable. In order to combat this,