To be shocked at the difference in take-home pay between £30k and £90k

[PAYE]

So many times on MN, we hear people telling high earners to stop complaining. It appears that people think that someone on 90k has three times as much money as someone on £30k. However, progressive taxation and the benefits system means that there is surprisingly little difference in take-home pay between 'low' and 'high' salaries.

I used the Listentotaxman and EntitledTo websites to look at the difference in net pay and benefits at every salary level from £25k to £130k. I assumed a single earner with two kids, £1.5k in rent and £1.5k in childcare costs, a student loan and 5% autoenrollment pension contributions.

The light blue bars are for monthly post-tax income from Listentotaxman.com. This assumes no benefits and shows take-home pay rising with income.

The dark blue show post-tax income after benefits. The benefits are taken from Entitledto and added to the post-tax income.

This shows that

1. If you have kids and pay rent, there is little difference in take-home pay regardless of the actual salary
2. The net monthly income for someone on £25k in London with 2 kids, is the same as for a £90k salary without benefits.
3. For the person in my assumption, their post-tax and benefit income would be just 15% higher at £90k than at £30k
4. Monthly income is very flat at all income levels, however, someone earning £30k on universal credit is allowed to complain, but someone on £80k is told to shut up, even if their take-home pay is lower.

The reason take-home pay is so flat is due to:

1. tax-credits/universal credit topping up salaries
2. Housing allowance paid to private landlords
3. child benefit being removed at £60-80k
4. Childcare support removed at £100k
5. Removal of personal allowance from £100-120k.

While no one wants children in poverty, what is the incentive to work harder if take-home pay is the same? Why increase working hours, go for that promotion or take that extra qualification?

AIBU to be shocked at the difference?

This is true but people can’t admit it and they don’t understand the economical mess caused by the bloated and entitled state.

There was someone on here and short while go saying how much they took home in a part time salary and tops ups and they ended up getting more than I do on a full time salary. It's niggled me a bit and I've never forgotten it.

@PAYE yes exactly and yet, on mumsnet, people are still denigrating the high earners. In scotland it is even worse because we pay a lot more tax than england wales and northern ireland. the high earners are actually subsidising the low earners by a lot more than people think. high earners are overtaxed on everything.

That is pretty stark! Presumably that chart only works for single income households. If DH earned 30k he wouldn’t get any of the top ups due to my income so he’d be much better off on 90k.

The issue is surely declining wage share and the state propping up business.

Great thread. As you have outlined quite nicely there is no incentive to work harder. Once you’ve hit the 120k mark, it’s mostly tax you’re paying, responsibility levels/work loads are quite high (satisfaction levels often quite low), so you invariably have to pay someone to do jobs you would otherwise do… So you can pay more tax, that will be reapportioned to provide benefits to top-up a lower earner? It’s all so counterintuitive. I think it’s why everyone wants to WFH, they can’t be fucked with it all. 😀

Yes this is pretty grim. I am taxed left, right and centre. On top of this, I am going to have to fork out extra for the impending VAT for school fees.

That's an extreme example, but the principle is correct. Some years ago, my sister had a higher income from a few hours part time work and top ups than my £40k salary, and she was a homeowner without childcare costs so those factors didn't come into it, it was all tax credits for the right combination of a few hours low paid work and top ups.

Wow. How demotivating. I knew about the 100-125k tax trap, but not that it is basically not worth me doing my high pressure reasonably well paid job. I realise now that a no pressure school hours role would be better….

Can you do a breakdown of the benefits received on the £25k salary with two kids, to get you to the same take home pay as being on £90k?

And is under the allegedly "low tax" Tory government - what are they spending the money on (apart from crap ppe)

This is very interesting.

I think the main reason to keep in highly paid work during the nursery period (when childcare costs are typically highest) is to be able to keep earning once there is no need for these benefits.

If childcare benefits were not offered, what exactly would these lower paid single parents be doing? Just living on the dole? They need childcare to enable them to work.

Only in very specific circumstances. You’d need to be renting and have no partner bringing in an income.

It’s still depressing though - high earners and subsidising big business’ shareholders by allowing them to pay far too low wages. It’s insane and deeply unconservative so not sure quite how we’ve got here given the government’s declared position.

I can't see this being correct. I earn a salary somewhere in the middle of that and don't get any benefits so not sure what these so called benefits are that we are supposedly meant to be claiming? Questioning the validity of this...

Yanbu.
But the benefits are back loaded.
The person with the £90k salary gets to 60 with a mortgage free house.
And once the childcare days are finished, the difference increases.

So you're not wrong, and many people don't get it (I bet in the time I've typed this someone hasn't got it, read it, nor understood it and has written a tiny violin) but in the end, they do reap the rewards.

This doesn't take savings into account though does it? Once you have a certain amount of savings you aren't entitled to universal credit. I'd rather be on a high wage with savings and a mortgage than reliant on the state for top ups.

But I agree there are certain points where earning what looks like a much higher amount on paper doesn't translate into that much more take home.

I am generally as economically liberal as they come, but even I am frustrated at how little an increase in salary makes to my take home pay.
Because of the loss of personal allowance between £100k and £125k, any additional income I have received over £100k is taxed at 40% , reduces personal allowance and THEN 9% student loan deductions. So I probably see about 30% of any bonus in my take home pay.

💯 . I question why me and my husband bother sometimes. I think we’d have the same disposable income if we earned less and had benefit support. No incentive !

The figures look absolute nonsense to me. I earn £90k and take home what is stated for £120k.

Tax free childcare and child benefit. The OP assumes single parent with two kids and £1500 childcare costs per month. There may be other benefits that I’m not aware of.

Household income here of 30k after tax. We get child benefit for one child and nothing else. Not everyone on low wages gets high top ups.

Do you rent? Do you have a childcare bill? If neither, these figures won't apply. The OPs post is about a very specific set of circumstances.

The cliff edge removal of childcare support plus the removal of the personal allowance at £100k mean that over this, you might be paying an effective 100% tax rate on £20-30k of income.

Over £100k I lose:

1. Personal allowance. This means a 60% tax rate on earning £100-125k. I take home £9,516
2. Less tax-free childcare of £2k. I now take home £7,516.
3. Less 15 free hours at ~ £400 a month. I now take home £2,716.

So for £25k of income, I benefit to the tune of £2,716 a year. This without a student loan - with it would be worse.

Id like to have another baby but then I’ll basically earn £0 between £100-135k.

It’s absolutely moronic.

So what happens to the lower earners once there's no childcare costs? What happens when the children are eighteen? Are you including nursery fees in that?

I'm a lifelong Labour voter and I have to say I've been really shocked at how much people who are working (on here) are getting in benefits. It's just shoring up low salaries, surely?

That graphic is depressing, really shows how the middle is squeezed .. and here come labour wanting to up income tax…