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’m sorry but that is just completely inaccurate nonsense.

I have given the bloody sources and numbers!!!!! The government now helps with childcare costs. Great! Except they take the help away from higher earners. Not great as it gives higher earners the incentive to reduce their working hours to keep the same/similar income.

Yes, everyone's situation is different but 2 kids and one income with childcare costs and rent is hardly rare. And I have covered all incomes from 25k to 130k. Again not rare.

The point is that there is very high taxation on working families. This is politically popular - see posters here who seem to hate young people. However, it is economically ruinous for the country as it destroys incentives to work.

The tax burden in the UK is a massive disincentive for high earners, especially when reading the nastiness directed on here at those using private schooling and private medical. Such a significant amount of the UK population take more from the state that they put in. That’s the crux of the matter.

My sister was just discussing moving back to the UK from the US. I’d much rather move there to be honest!!

At 100k it makes no difference if you’re a single parent or not, the rules are the same. If you have children in nursery you are faced with an effective marginal tax rate of near or in some cases over 100%.

Only if the entirety of the nursery cost is taken from one income.

Funny that, I though most married people shared costs.

Mental gymnastics again.

Again you miss the point. It is not all about affordability. Even if there is a second income the rules make it not worth you earning more if you’re on 100k. That’s just ridiculous.

Is this based on London's benefit levels? Because where I am there is no way that UC or any other benefits reaches anywhere close to those figures.....

Not missing the point at all.

If you divide the difference between two incomes it suddenly becomes a lot less of an impact.

:)

Simple really

Out of the tiny percentage of people earning over £100k how many are realistically going to be single parents with two pre-school children renting in London.

It is

All the calculations, both the high earners and the benefits, are based on a very particular set of circumstances that are are in reality going to be hard to replicate often.

Because, in reality they know they are talking nonsense so have to make mental gymnastics to prove their points.

Exactly.

In fact I reckon the number would struggle to be triple digits.

Yes you’ve given the source - well done.

but have you considered that people with (much needed) savings don’t qualify for universal credit?

or checked whether free childcare hours generally materialise into the reduction in bills from nurseries you cite? it only reduces my nursery bill by 30% for my two.

As a pp suggested - the group you’ve selected is a small proportion of folks (I don’t relate at all, and I’m a single parent of 2)

i have lived experience of these huge benefits not materialising, do you?

your graph is a great seller of your message unfortunately.

the conclusion I’m drawing is that sadly many people on high incomes don’t have great insight into either numbers or wider society

Luckily I have enough to get by
many don’t.

i hope you feel good about your post and it’s effects

The child benefit is also terribly designed. 2 parent family with both earning 49k each gets to keep the full child benefit. 2 parent family where only 1 parent works and earns 61k loses the benefit.

You would be correct if HMRC system could cope with personal allowance deduction and tax codes. But the reality is they are often over taxing earners over £100k by a significant amount and then requiring self assessment. I promise you that it’s possible to take home £5k and have to pay £3500 in nursery fees. Another broken government system.
And why should I have to put it in a pension?
Childcare should be heavily subsidised or free for ALL parents.

Also, the ~ £2000 must be for babies or pre- school age surely. Breakfast club and after school club does not come to that much around here.
The nursery fees scenario is crippling, but only lasts around two years, to be eased up by the free childcare relief and then off they go to school. They spend a lot of years at school.

"Childcare should be heavily subsidised or free for ALL parents."

Ok, you'll have to pay more tax then.

More tax all the way up to 100k.

More tax after it.

Should we make policy based on things that impact a TINY number of people in a very slightly negative way, for a short time?

I earned 1900 a month in my job. I got topped up £1200 by UC.

So essentially UC paid my rent.

I was not complaining
Maybe everyone have a look and you might find you are also entitled to a boost!

In the end, rich or poor you have to know how to work the system !!!

I'd rather people just worked under a fair system.

They do, you just manipulated statistics to make mental leaps.

Are you being deliberately obtuse?

The point is the rules mean it becomes no longer worth the parent on 99.9k to bother to earn any further salary. They will turn down extra work because they will be worse off if they don’t. That is the precise issue the doctors face where they are turning down extra shifts. No tax system should create such a situation. It helps nobody.

No. I just reported facts that you don't like.

Do you also want the state pension means-tested, as you seem so in favour of means-testing and arbitrary thresholds?

Yes we should be fair to everybody. And I am
ok with more tax if there is fair benefit for everyone.

Fwiw DH earns "ok", we are about to take out an enormous mortgage on a tiny london house and pay a lot of tax. I obviously don't love it and dont feel rich at all, but im still hugely lucky to not have financial worries. I wouldnt want to have more disposable income whilst children go without heating.

The housing crisis means that things wont change unless loads of social housing us built, although many people dont want it near them!

No you took the benefits available to a single mother with two children in nursery in one of the most expensive areas for rent in the country.

This is a very specific circumstance which isn't replicated in many places. You then claimed " Progressive taxation and the benefits system means that there is surprisingly little difference in take-home pay between 'low' and 'high' salaries." Which is only true in these very specific circumstances.

Which you failed to state till later on, wonder why?

You aren't good at this.