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 isn't true. I'm on a median wage (£45K) and a single parent and the only benefit I'm entitled to is child benefit. My ex husband is a higher earner (around £120K) and his take home pay is more than twice mine, as you'd expect.

Apart from that, this entire thread appears to be yanking the 'Labour will make you all pay more tax!' Tory chain ahead of the GE.

I'm confused by this - apparently I am missing out on about £1500 in benefits a month?
Do i need to put my child into childcare and then break up with my partner and I'll be better off?

I just did a quick benefits calculation. I appreciate they aren't always entirely accurate but if I was a single parent on 25k, apparently I'd be entitled to benefits of £3312 per month

OP I don't know what your aim was with this post

But it's actually made me do a 180 because I am now thinking far more people are claiming benefits than I thought.

But I'm also thinking that can't be correct.

Surely according to these figures, some people would be better off renting than trying to buy, at least for a while...?

I'm off sick today so forgive me if that's a brain fail.

I knew about the cliff edge but the rest is really puzzling me.

The calculation used in the example is for a single parent of two kids whose rent and childcare bill add up to more than their salary, so yes they get a subsidy. The govt figured that was better than them not working and relying wholly on benefits.

It's almost like the OP chose an extreme example to get everyone over excited about how much we're all being ripped off. How peculiar.

I think a lot of this is because you have assumed London-level housing support and London-level childcare costs through the benefit system.

outside of London/the south east, rental and childcare costs are, while still high, much more affordable, which would mean less income from the benefit system to pay for those things.

Our household income is approx £110k, we we had more disposable income when DH was in the military and I stayed at home receiving UC. A mortgage and two sets of nursery fees wipe out almost all of DH’s salary. In the long run we will be better off but short term it is quite frustrating, it doesn’t feel like there is much incentive to work!

How do you know the people in Costa don't have jobs? You are posting before 3pm on a weekday so you don't have a job either then?

I'm not saying that the system is perfect but you really can't look at a very specific scenario in isolation and make generalisations.

We have just had our first baby and we are above average earners who are entitled to no benefits. However for the last 10 years we have been DINKs. Our higher disposable income has allowed us to buy a house, save and invest. Its definitely easier for us coming into this period of life with all of that in place. And after the preschool/high cost childcare years then our disposable income will increase again. If higher earners are renting with no savings or investments then who is to blame?

You have missed the point. In the South East housing and childcare costs mean that those with 'high' salaries have the same take home income as those on benefits.

Except money paid to landlords and childcare providers isn’t income being paid to the individual.

They can’t use it as they wish, won’t have the opportunity to buy their own home and can’t make choices to reduce childcare costs and keep the resultant savings. There are many benefits to earning your own income and not being reliant on the State to pay for the roof over your head.

Can you explain where the almost £3,000 per month in benefits comes from for someone earning £25,000?

I agree that the benefit goes to the landlord and that is a direct consequence of the policy of selling off council houses.

Instead of building social housing, councils pay private landlords. These landlords can see what the council will pay and so have no incentive to charge less. It is a mad system.

We need to remove the right to buy or at least end the discount for right to buy.

Look up entitled to.com and add in the assumptions on children/childcare and rent.

Being paid a low salary doesn't mean you work less hard than someone on a high salary!
Many, many public sector workers work extremely hard doing extremely difficult, essential jobs but they are poorly paid.

what support is it you think other people get exactly?

No one paid my nursery fees when I was too disabled to work or care for my child.

I can’t afford to get a mortgage- don’t have enough spare money to save up a deposit- no one pays my rent.

I can’t have the care I need because my PIP doesn’t cover the cost of carers.

We don’t get WTC (now UC which we can get for £13 a week).

If people think it’s actually easier and they would be better off on sub £30,000 they could all quit their jobs to work part time as tas or shop assistants.

Funnily enough they don’t… because they all know they are actually very fortunate, and will be more so once they aren’t paying nursery fees.

I don't know if it's already been said because I haven't read every post but with such high childcare and rent costs (assuming UC would pay the full amounts for them but there are factors to consider like are both the children in childcare because they only pay up to around £1015 if it's only one child and whether the rent is private or not because in that case they'll only pay the LHA amount etc), the 2 people in your example would both be entitled to UC, just different amounts because of the salary deductions. But they would still both get a payment. Yep, even the one on 90k.

Exactly. When DD2 leaves nursery we'll have ~£1,000 a month extra to do with as we please. If UC is paying a chunk of your childcare, when the childcare stops you don't get to receive that money directly.
Plus we're paying decent amounts into pensions, and paying our mortgage.

Yes, for a few years of nursery we might be financially more similar to someone on a much lower income, but long term we'll be better off.

That ^^

I earn min wage and pay my mortgage myself, get 25% off council tax but everything else is down to me

Standard allowance: £393.45
Housing: £1500
Children: £2173.77
Total before adjustments: £4067.22

Taken off for earned salary: £744.03
Total payment for the month: £3312.19

That obviously includes quite a lot for rent as it's an expensive area. Also covers childcare for one child and wrap around care for another

You are focussed only on current salary. There are other factors and incentives.

If there weren't, you'd be handing in your notice, going to work in a minimum wage job and getting the Government to top you up, wouldn't you?

If that doesn't appeal, think about why it doesn't - and there's your answer as to what is the point.

My aim was not to bash UC claimants, but to highlight the madness of the current tax/benefits system on young families which is government policy.

The marginal rates of taxation on working families with children are very high.

If I had done the calculation on a pensioner, this would look very different as there is no rent, no national insurance, and no removal of childcare. This means that a retired person earning £60k has a higher take-home pay than a younger person.

If the person - like Sunak - got their income from capital gains, not work, the chart would be much steeper. The U.K. is a beneficial place for the very wealthy who have unearned income.

I've been saying this for years.

It's not that benefits are too high it's that salaries are too low and rents are too high.

The system worked when working people could get a mortgage (less than rent) pay it off and have no housing costs by retirement. This isn't happening for under 35s.

They are running out of time to get a mortgage before biology insists they TTC then need 2/3 bed places in the private rented sector. Close gaps so very high short term childcare costs. It wipes out more than one salary but without having a SAHP.

No wonder people are burned out.

It does not have to be so extreme. I reduced my hours to 80%, keeping my career going. This reduces tax receipts and the size of the economy.

We need to remove the right to buy or at least end the discount for right to buy.

Or allow councils to use the proceeds from right to buy to build or acquire more social housing. The market would correct itself if more social housing became available or private rents were capped at social housing levels.

It’s wrong to look at housing and childcare costs as an income for people who receive benefits though because it doesn’t actually sit in their account and there’s no flexibility in how they use that income - if their circumstances change, they’ll loose that element of their benefits claim.

A quick calculation with some basic assumptions about pension contribution amount, ages of children, council vs private rent etc, brings up a result of the person in this scenario who earns 90k being entitled to around £1200 UC monthly.