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?

I think the renting part makes a massive difference. If someone on a low income rents, they'll get the rent (up to the rate the local council allows) added to their universal credit. However if they own as opposed to renting, that's a huge chunk that they wont be getting added to their universal credit.

The marginal rate is key because that is what incentivises people to work more or less.

If the marginal rate of tax on your next £1 of earnings is 100% you are not going to make any effort to earn that additional £1 regardless of what tax rate you are paying on all earnings below that level.

I think they are getting the 30 hours funded childcare and child benefit that I am not entitled too. I am privileged but that does not exclude me being highly frustrated with the system and my tax burden.

@Aladdinzane it is not mental gymnastics that the loss of tax-free childcare + free hours creates some really silly marginal rates at £100k.

Here is an article about it by Dan Neidle, who was a Partner in tax law at Clifford Chance.

https://taxpolicy.org.uk/2024/03/11/marginal2024/

If you have two children under 5 in childcare you will earn more at £99k vs £135k. They are the facts.

Considering the poll results and the huge amount of likes (never seen so many) there must be 100s of silent and frustrated people on this thread. Ignore the obvious at your peril. When they stop paying - no one is funding the state.

I didn’t get 30 hours free childcare.

I do get £20 a week child benefit it’s true.

Are you in such dire financial straits earning over £80,000 a year that you can’t cope without the £20 a week?

Have you taken Local Housing Allowance into consideration?

You have engineered a very specific set of circumstances to fit your agenda that people claiming top up benefits are better off than very high earners.
You have given a rent of £1500 a month, yes there will be a small number of people who can claim that on benefits but in my area the maximum per month for a single person with two preschool kids can claim is £585 a month.

I absolutely agree with you that selling off council houses and then private landlords renting them out for very high amounts needs to stop, we need to build more social housing, give child benefit to all parents and somehow subsidise high quality childcare for all parents.

This is partly the reason that our economy is in such a mess. There is not incentive to earn more. You have to earn around £40k to be a net contributor and the number of net contributors is now less than 50%.

That means the majority of the people in this country are living off the minority.

Public spending is too high and high earners are due incentivised to earn more

As this trend continues, there will be less and less in the pot for the net takers. And then everyone can complain even more about not getting freebies. Someone has to pay for the freebies.

I feel guilty admitting this...

I'm a widow. Left my permanent teaching post a couple of yrs early because of my late husband's health.

My teaching pension isn't enormous, but I'm better off than many other folk. Together with the smaller pension I inherited from DH, I get about 2k a month after tax.

I've now gone back on the supply list, but have told the school where I normally work that I can only do a day a week if I'm working most of the year. Much more than that, and I'll fall into the 42% tax band which kicks in at around the 43k mark here. (Yes, I know that it's only for the earnings above the band cut-off, but I'll be damned if I'm going to put up with the stress, only to work for about half a day's pay once tax and NI kick in. Yup. I know that I'm privileged.)

It’s ridiculous. No incentive

My point is a different one. The marginal tax rate on working families is extremely high so that apparently 'high earners' have little to show for it. This is terrible for the country as a whole.

In my chart, it you have no children, the situation is like the light blue line. Working more hours pays more.

If you are retired and have the same income, you get much higher take-home pay because you won't pay NI, state pension is not tapered and you are more likely to vote.

This is a specific effect on working families with young children. As multiple posters have pointed out, decisions made at this age have long-lasting repercussions. This is why we should not be disincentivising this group from working more hours, getting promoted, getting a bonus etc.

I find this hard to understand. I have young kids and have to stay home until the youngest is at nursery. We rent out my old home, the rent covers the mortgage. We cant afford to sell the house as it would only cover the mortgage not selling fees etc.
OH earns 28k before tax. We are entitled to nothing.

You own a second property - why do you think you should be entitled to something?

@WearyAuldWumman nothing to be embarrassed about, your position makes complete sense and highlights the fact that if our tax system is designed to raise as much tax as possible rather than punish people it isn’t working.

I don’t understand why you would not - is it because you could not work because of disability? I also think that is wrong and childcare funding should be for everyone.
I just object to the principle of exclusion for arbitrary reasons.
with regard to my personal background, I have not always been a high earner and I don’t have a wealthy background. I don’t have lots of savings and a wealthy family so there have been financial challenges. They are much reduced now and I’m aware of my privelige. My frustration is with the system.

It's not really working families though. It's single parents who use nurseries and have no savings. That's quite a specific group.

Obviously it's not "fair" that single parents get more money but nor do you want a situation where they can't afford to raise their child which then ends up in the workhouse.

As a high earner though, you can choose to reduce your rent costs and reap the benefit of that whereas a benefit recipient would not end up with any additional money in their pocket. Same for childcare costs, once the children have grown a bit, the high earner will have more disposable income whereas the low earner will still have the same as before.
I still think the current set up of the tax payers propping up businesses so they can pay stupidly low wages is wrong though! The system is broken and nobody wants to fix it.

Well as this post proves on a shed load of top ups for those lower earners

@Whyhaveibeencutoutofmamsnot And is under the allegedly "low tax" Tory government -* what are they spending the money on (apart from crap ppe) paying unemployment benefit and child benefit to the great number of people who have never held down a job and thinks the system should pay for their five kids, three bedroomed house and school lunches and uniforms while they continue to get their nails done, their eyelashes done, their eyebrows done, new tattoos etc etc!!!*

'Even Bojo was trying to bring in a capital exemption for saving towards home purchase deposit, but that got canned when he went'

That would be very unfair, you would basically giving UC claimants their house deposit via housing benefit.

Nope, it's families with a sole breadwinner, or also families where both parents earn below £125k, but just less stark.

I see your point but if child benefit is not means tested, tax would have to go up to pay for it. It hardly seems fair for lower earners to pay for rich peoples kids. So it would have to be better off people who pay for it, those with and without children. Would tax rises to pay for people on high incomes to get child benefit be a vote winner?

Total backdoor communism. They try to keep us down. Indeed, what is the point of the years of hard work and qualifications sometimes. Suck it up and don’t you dare complain.

And Starmer wants to squeeze the middle/nigher earners even more. Can’t even try and get your kids to private school now or inherit to have a bit of relief. it’ll only flatten your graph out even more 😡