What's stopping the low paid get up the ladder?

Howard reed nails it. 

http://classonline.org.uk/docs/2013_Policy_Paper_-_Richard_Murphy__Howard_Reed_(Social_State_-_Idleness.pdf

Around table 3 

The current tax and benefit system produces very high marginal tax rates for low earners who are in receipt of Working Tax Credit (WTC), Housing Benefit (HB) and/or Council Tax Benefit (CTB). Table 3 presents some calculations of marginal rates for people on low incomes in receipt of one or more of these benefits. Anyone on Working Tax Credit with a family gross income of above £6,420 faces a marginal deduction rate (MDR) of 41 pence on each pound of earned income. For people above the national insurance primary threshold (currently £149 per week) and the income tax personal allowance (currently £9,440 per year) this rises to 73%. For people also on in receipt of CTB and HB in addition to WTC, the total marginal deduction rate rises to a staggering 96% - i.e. these people keep only 4 pence of each additional pound they earn. Even for low earners not claiming WTC (for example, most childless people on low earnings) the marginal deduction rate for people on HB and CTB and above the Income Tax personal allowance is 90%

 

Teaching links

A hostile report on evidence-based policy by Jamie Whyte from IEA gives a nice example of adjustment along many margins:

Seeking to improve the diets of its pupils, a school in Northamptonshire
banished vending machines in 2006. William
Guntrip, an enterprising thirteen-year-old pupil of the school,
spotted the profit opportunity this created. He started buying
large quantities of sweets and soft drinks and resold them in the
playground, making a profit of £50 a day.  (School bans boy’s snack empire’, Metro, 4 July 2006).