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?

OP using your imaginary "family" and basing it off an address in Walthamstow. I predicted what would happen to the mother once the children move out.

She is still earning minimum wage, I decided she prob had either paid off her student loan or was earning below the line to clear it.

Her children have gone so she hasn't got any benefits for them. She now gets £1,168.62 off her £1.500 p/m rent, she has less than £1k per year in pension contributions and earns £250.39 a week for everything else she needs including topping up her rent.

Now, you (collective) are a higher earner with 2 children but on a good wage. You own your home. By the time your children have flown the nest you are within reach of paying off your mortgage.
You've earned promotions in work, you are putting more than 1k a year in your pension.
You have savings, you have a partner, you have social mobility.

But keep on punching down, give up your job, sell the house, split from your partner. Why bother.....its a great few years to ride the benefits gravy train.
Just don't look too far into the future

So because it’s a relatively small number of people… it doesn’t matter that they are being taxed at 100% rates?

It’s not that short a period of time - if you have two kids you might be paying nursery fees over 6+ years.

My partner is a high earner and I've always been aware that statistically we are cannon fodder for news stories etc. But there is a huge difference in single earner vs two lower incomes due to tax rates, top ups etc.

No one is being taxed at 100% rates.

The mental gymnastics you all attempt to get to this "rate" are ridiculous.

"It’s not that short a period of time - if you have two kids you might be paying nursery fees over 6+ years."

So in which case the fees will be lower in each year than the 1,500 pcm for two children quoted by the OP then won't they?

Again, juking the stats to get outcomes you want is not accurate representation.

I appreciate that this is shocking but can't understand the argument that it's a disincentive to 'work harder'. No one I know works harder than people on minimum wage or close to it. Carers in children's homes and residential homes for the elderly, working unsociable shifts, dealing with challenging situations, deaths, meltdowns all day long. Most 90k jobs are paper pushing.

Sorry for quoting OP. I was distracted and didn't realise it was the OP. Can;t seem to remove it in the edit.

You have totally misunderstood the point. My main objection is the removal of universal child benefit and childcare support, and tax cliff-edges which mean that people can have basically the same take-home pay if they reduce their hours in the same job.

Yes, in the long run you may be better off by working 5 days a week and not seeing your children, but as a famous economist once said, 'In the long run, we are all dead'.

Why is the system so set up to disincentivise work? There used to be only cliff-edges for coming off benefits. Now they exist all the way up to £120k.

Instead of 'working harder', how about 'working full-time rather than part-time'.

If you can work part-time for several years and earn almost the same as full-time, why wouldn't you?

But her situation will get worse once the children leave school, and yours will get better.
She will likely always be in a pretty precarious situation compared to you.

ETA leopardsrockingham explains this better than me.

In Scotland if you have a student loan and earn between £100-£125k your marginal tax rate is 69.5%.

@Aladdinzane sure they are.

Over £100k:

1. Personal allowance. This means a 60% tax rate on earning £100-125k. Your take home £9,516
2. Less tax-free childcare of £2k x 2. Your take home is now £5,516
3. Less 15 free hours at ~ £400 a month x 2. Your take home is now…. Oh wait it isn’t, you are now at -£4,084.

Earning £125k you would be £4,084 worse off than earning £100k.

As @Charlie2121 described in an earlier comment, she got a £20k bonus and got £0 of it due to losing childcare support.

There are no mental gymnastics - that’s how it works.

@PAYE But look at the chart between 100k and 120k - look at how flat it is. Wouldn't you reduce to 80% of hours if your take home was essentially the same? What is the impact on the economy if millions do likewise?

About 330,000 people (1% of workers) are in the £100-120k bracket so it's a fairly niche problem.

For what it's worth I'm one of them but don't see the cliff edge because of pension contributions, so I'm not about to drop back my hours any time soon.

How on earth would I get all those benefits?
The net pay you have for my salary is correct but all I bring home is the blue line

I had an effective marginal tax rate of over 100% when I was paying 62% marginal rate of income tax and also lost funded childcare hours and access to tax free childcare savings.

I received a £20k bonus and kept none of it.

But the free hours aren't tax, they are a benefit. Removing them does not increase the tax you pay.

The personal allowance isn't fully removed at this rate but done so incrementally, but you've removed it all to make your point.

Tax free child care is also a benefit, not a tax, so nope can't count it.

See, mental gymnastics are easy to dismiss.

Pension contributions simply shift the cliff edge to a different salary. They don’t remove it.

Oh and I forgot to add, calculating just based on the marginal rate? Disingenous.

BTW did you calculate what your "earnings" were when you added the benefits on below this rate?

Bet your bottom dollar you didn't.

This is very depressing.

In our industry (construction) we have another issue - technical highly skilled administrators who were earning average for the area (low paying area but IMO should be on a lot more!!) but are now earning similar to NMW as it has risen.

People are leaving those technical roles and are now working in shops instead for more flexibility and less stress. As pay rises are so sporadic and minimal it benefits them and they don’t lose much in their salary.

It irks me because these people should be paid a lot more as they’re so valuable but also it affects mainly the women in our industry

grrrr to everything

It’s exactly the same thing.

If you earn the same at £100k vs £130k because of the increased tax rates and cliff-edge removal of childcare benefit - that’s an effective tax rate.

Feel free to call it whatever you like, the facts remain the same.

The personal allowance is removed between £100-125. That’s why I have used that bracket.

It’s not ‘easy to dismiss’, you’re just entirely ignoring the facts being laid in front of you, the reasons for which I am not entirely clear on.

@ThinkAboutItTomorrow
if all those 330000 taxpayers did this and reduced their hours, the immediate loss to HMRC is £4.1bn - that's how much tax they pay out of that 25k bracket so not a niche problem.

You as an individual put this into pension at the moment - you're unlikely to be able to in 2-3 years time with Labour in power. They are nearly certain to remove this option, as I explained earlier on this thread.

Edit to add - there are many more highest rate taxpayers than 330,000 now means people on over 125k

125k PA leaves you 77,303 after tax a year.

Or 6,411 PCM.

This is an average tax rate of 38.1%

That's your tax burden.

Not the mental gymnastics you're doing to get to 100% marginal rate.

@Aladdinzane

You’re doing a great job of missing the point here.

£125k income is £78,033 a year take home pay.

£99.9k income inc tax free childcare and 2x 15 free hours is £82,122 equivalent take home pay.

You are better off earning £99.9k vs £125k if you have two children in this scenario - you will have more money in your pocket each month.

To repeat - it is posts such as this which demonstrate how we have got to this point. Factual arguments are dismissed with soundbites.

Removing child benefit in line with income has the exact same impact as imposing a specific tax only for families with children.

It's not exactly the same thing, at all.

"If you earn the same at £100k vs £130k because of the increased tax rates and cliff-edge removal of childcare benefit - that’s an effective tax rate."

But you don't "earn" the same, there are some removals of benefits, which effect a tiny number of people for a very short time.

"Feel free to call it whatever you like, the facts remain the same."

Mental gymnastics, they aren't "facts".

"The personal allowance is removed between £100-125. That’s why I have used that bracket."

But its removed incrementally, not entirely as you have done, it's only completely gone at 125k.

Again, mental gymnastics.

"It’s not ‘easy to dismiss’, you’re just entirely ignoring the facts being laid in front of you, the reasons for which I am not entirely clear on"

It is, see above.

As said, you didn't factor tax free childcare or free hours into your earnings before it was removed, you accepted them as a benefit. You didn't go around telling people the value of your package included them.

Mental gymnastics.

Easy.

"Has exactly the same impact"

Ah so it isn't a tax? It's like a tax.

Fact?

Dismissed.

See, easy.