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?

But you can’t deny that there are cliff-edges for some people?

And how can you say it’s fair that a single parent on £81,000 will not get child benefit whereas a couple earning £50,000 each (so household income of £100k) will - and they will pay less tax in total than the single earner.

But you have included things like childcare via UC, child support via UC/CB - these stop at 19 max - so when you are me - single parent with a mortgage - and they are 22,20 and 15 - you still earn £36k but get £20 child benefit - have the same bills, uni kids to support and COL rising - it's not a lifetime income - if you are in 3 times that you are still on 3 times that with no loss!

I mean when my husband left and my youngest was 4 months old I could have given up work, given up the house - moved to social housing and claimed and not paid any tax, but the system allowed me to continue to work, pay childcare and feed us! I mean cry it's unfair if you like but if you have two working parents with a decent income would you really swap?

There are "cliff edges" yes.

But none of them are a severe as pointed out here except in very rare circumstances ( and then not really ever).

"And how can you say it’s fair that a single parent on £81,000 will not get child benefit whereas a couple earning £50,000 each (so household income of £100k) will - and they will pay less tax in total than the single earner."

I never claimed that, but then all the statistics here are based on single incomes aren't they, there is never a second, because it's convenient.

It wouldn't make any difference, in fact it would save public money long term. I guess you could argue that if someone in receipt of UC has a surplus at the end of each month to be able to accumulate savings, then benefits are too generous? But statistically those people are also supposed to be living in poverty.

But the capital limits mean that a person in receipt of UC has two choices - either blow the lot as quickly as they can on living right here, right now. Or if they're being prudent they can save some money, but only up to the point where they hit the capital limits, and then their benefits are withdrawn. That makes it pretty well impossible for anyone on benefits to ever save up enough to get on the housing ladder, hence they'll be renting for the rest of their lives (even in retirement), and the tax payer will keep funding it. If these people were able to get on the housing ladder, the state would stop paying their housing costs. In the long run it'd be cheaper. The current system is (perhaps unintentionally), keeping people trapped on benefits, with no real prospect of ever getting out of that hole. The only exception is for those lucky enough to get into social housing

But state benefits are propping up the whole economy - keeping house prices and rents inflated, keeping up consumer spending levels, and driving inflation - both goods and wages. The only way out of it is for a bubble to burst. But obviously politicians don't want that to happen. And no politician ever would dare to suggest reducing state benefits. Conservatives have done it by the back door over the last 15 years by keeping thresholds down, but a side effect of that is dis incentivising people on benefits from working.

Having been on around 30k a decade ago and now on c.100k, those figures look and feels like nonsense.

My quality of life and disposable income on c.100k is vastly, vastly better than when on c.30k - even with inflation taken into account and the rising cost of living.

On 30k I had absolutely nothing left at the end of the month. Everything felt like a slog. It was shit. And that's the reality of so many families in the country right now. For many still, 30k would be a huge figure.

Nowadays my salary allows me to save a fair whack each month and have money to spend on luxuries like nails and waxing. That's despite my mortgage going through the roof. The fact I have to pay a significantly higher proportion of my salary on taxation feels fair to me because I can afford it.

Perhaps if I wanted to live in a large house or drive a newish Mercedes or a Range Rover I'd feel hard done by. But I don't have expensive tastes so I don't.

What is a problem nowadays the sort of salary you need to have a decent quality of life and how wildly different that is from average salaries. That's courtesy of wage stagnation and massive inflation.

We'd all better off if wages went up: more money in your pocket, more money to the Exchequer.

But to say there's no real difference between a 30k salary and a 90k salary is nonsense for most people. I'm sure there'll be some on 30k who end up with a similar take home as a 90k person courtesy of various benefits. But for most it feels disingenuous to suggest it.

As for hard work, my salary now is basically for being a 'shit umbrella'. The hardest I ever worked was when I was a graduate student (Morrisons and a cleaning job on top of a very, very intense course) and in the very early years of my career when 15hr days in a total shitshow arena were common. Nothing I do now feels as hard as any of that.

For the umpteenth time you are missing the point.

If you are on 99.9k and your partner pays every penny of the childcare it still means it is not worth you earning anymore money as you’ll be worse off.

How severe do you want them? I was awarded a 20k bonus and retained none of it due to it pushing me into the 62% tax bracket and losing tax free childcare and 30 funded hours.

When should people start to pay for their childcare?

I get it, not when you had to.

AIBU to be shocked at the difference?

working benefits were a decent idea, the issue is that companies have taken advantage and not increased wages over the last 20/25 years, therefore the large operations have benefited from low wage costs and the government picking up the tab. Whilst wages have doubled, house prices in comparison have increased by 4.5x

£320 median weekly wage 1997
£681median weekly wage 2023

£64k nov 1997 average house price
£288 Jan. 2021 average house price

tax isn't the issue, low wages are the issue. If wages rise, then tax revenue increases, economy is boosted as people have more money to spend. Wage increases are far better than tax cuts.

I could ask you the same question, when do you think people should pay for childcare? You have a lot to say but I don’t think you know the answers either do you?

Unless you struggle with basic math, the state is bloated because there are more working age people not working at all, or not earning enough to pay for their own upkeep than those earning enough to do so. That is how net contribution works.

More than 50% of national income is now spent by the state. That’s is a disaster. National debt is over the 100% of national income. The country borrow every month to pay for welfare.

The civil service has never been larger.

It’s not that hard to see that the state is bloated.

The reason for house price inflation was low mortgage interest rates - lower interest rates meant people could borrow more for a particular monthly repayment. That then fuels house price increases.

I actually can't help but agree based on my lives experience.

DH got made redundant, fulfilled a lifelong dream (start up business) 3 DC, 24k income between us, paid no tax, got 12k a year in tax credits (tax free), no childcare costs

Also many many financial perks. Capped water rates, no Uni top ups when eldest went, we got free bus travel, lunch and breakfast for child at FE college plus cash for books/ resources, subsidised school trips for youngest. Didn't get free school meals or dentist btw.

DH then found a decent job, 55k. Incredibly we are ABSOLUTELY NO BETTER OFF! I could break it all down but I can't be bothered so please just take my word for it! It's not a feeling or a guesstimate, it's absolute fact

I can't complain, in either situation we were happy, healthy, had what we needed. I was just surprised

I haven't misunderstood your point at all.

You are pushing an agenda based on a ridiculous graph made up of data points showing a single parent and 2 children, in London, claiming benefits. This gives weighted feedback and you are happy to revel in the misinformation.

Many people return from maternity leave to earn pennies on the pound, but do so to protect their career, to gain promotion and to keep independence. I say from maternity as it is more then usually the woman who is making this choice.

If life is too much to bear then quit the career and become a SAHM......but oh you have a mortgage and that isn't in your little graph, so you can't actually afford it because you don't get benefits for owning a home.

People work for more reasons than the tax they pay. Having children fucks it up for a few years. Then it levels out...if you have a career and not just a job.

If so many of the higher earners are missing out on so much you need to see a financial advisor sooner rather than later.

Working benefits were a terrible idea. What would you expect to happen if you said that you will make up pay for anyone earning under a certain amount.

There is only one outcome. Employers will have no incentive to pay market rate because they know that the taxpayer will pick up the tab. Then those same employers have no pressure of high wages incentivizing them to invest in automation.

Low productivity takes hold.

The country needs more people to do the same work with more labour.

Politicians open borders to low skilled low wage foreign labour.

Wages are suppressed further.

The cycle continues.

The country ends up with sky high taxation, more than half the working people being net takers, national debt at over 100% of GDP, borrowing every month to pay welfare, an economy on life support and everyone squealing about public services as though money grows on trees.

Sound familiar?

At about 100k.

Seems that 98% of parents fit into the figures as they currently are.

Interesting post OP. Nice and clear.

*Why not? someone who spent year in education, most likely paying off student loan, possibly having responsibility over human life (doctors) or livelihoods (employing business people), why shouldn't they get more than someone with no education, much skills or responsibilities?

Appreciate that depends on area you live in 100k might sound astronomically huge for you, but in SE it's not a lot and we have over 500,000 people in the UK over £125k right now. This is out of about 33m of economically active*

@nearlylovemyusername

You didn't read my post. I didn't say that they shouldn't get more, I said that the difference between low and high earners shouldn't be as large as it is.

Whether or not 100k is a lot of money is irrelevant. The fact is that someone on 125k is earning 5 times the salary of someone on 25k and that difference is too large.

I'm not saying that the higher end salary should be reduced, on the contrary, I think that the lower end salaries need to increase.

Sounds like a lot of rot.

Productivity rose in the Blair era and stagnated in the Cameron era when benefits were cut.

https://tradingeconomics.com/united-kingdom/productivity#:~:text=Productivity%20in%20the%20United%20Kingdom%20averaged%2076.61%20points%20from%201971,the%20first%20quarter%20of%201971.

This is not most people’s experience though. You don’t get housing benefits on universal credits or childcare support on 50k. You are expected to pay for things. So I’m not sure what is this source, but this is not my experience.

But parents do pay for childcare before that - it’s just the tax free element that’s lost at £100k, isn’t it?

I don’t see why that can’t be universal, but there should at least be some kind of taper.

Actually I don’t understand why it isn’t fully tax-relieved for someone in PAYE employment - it’s an essential cost of working (I think the same about commuting costs)

Not missing the point at all.

It's entirely relevant because all the statistics used here are based on one income.

Keep with the mental gymnastics and creating scenarios to fit them.

It is rot. Which set in when nu Labour came to power in 1997. The foundations were laid then, the Tories have just continued the mission.

And benefits have never been higher than they are now.

@MikeRafone

"tax isn't the issue, low wages are the issue. If wages rise, then tax revenue increases, economy is boosted as people have more money to spend. Wage increases are far better than tax cuts."

And inflation rises - unless of course productivity also rises.

The data proves you wrong, productivity rose in this country following Labour coming in. They grew by far less after the tories cut in work benefits.

Ahh, facts. They are fun.