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 don’t think you understand how productivity cycles work. Copying and pasting links without understanding the principles is not flex you think it is.

You whole calculation is massively inaccurate and based on renting, not mortgages

For the sake of 2%, which everyone keeps telling me is a very low number of people then why not 100%? It would be a tiny amount by comparison to the full spend on services.

The problem that the UK has is inequality.

After the war inequality was decreasing - until the 1980s, when the salaries of higher earners started to increase much more quickly than those of lower earners.

This is the root cause of a lot of the trouble that we see now - because lower earners can't afford to live on their salaries. This is why a large proportion of the population have become dependent on benefits.

I think you’re on a wind up.

My point relates to effective marginal tax rates not affordability.

If someone is faced with an effective 100% marginal tax rate they will refuse to work more. If it is childcare rules that in part create that situation then they need to be addressed.

Would you work more hours for zero pay?

Making statements that are proved untrue by the data, which shows productivity rising over the time period you claimed it went down, is a lot less of a flex.

Got evidence to back your point?

You only get the 100% marginal rate in very particular circumstances with small pay raises.

For example you lose the free childcare which increases your bill if you go from 99k to 100k but how often are those the circumstances?

You do also have options that can bring you under 100k to lower it.

Making up marginal rates by adding on benefits lost is also mental gymnastics.

You don't tell people when you are on 99k that your marginal rate is actually 30.4% do you? Do you add on your pension relief when discussing this? Even lower.

https://www.ft.com/content/62bc5935-0207-42c3-81ae-296d9c7b484f

never seems to be an issue with those earning the most to have a large % pay increase - or are you suggesting that was why inflation has been out of control since September 2022

working benefits were really started in 1997 with labour copying the Australian model. Torys previous to this did have housing benefit equivalent to some extent but it was poor in comparison to what TB about gov. brought in to bring children out of poverty - and it did work.

The backlash of that though is that companies have become dependent on working benefit especially if they employ a large amount of part time female workers who are much more likely to be on working benefits.

Id really suggest its the employer that has become dependant and not just the employee

Why only with small pay rises?

The £100k tax rate is actually more like 20,000% due to the cliff-edge nature of it.

‘How often’ is every person with an income over that amount and a child in childcare. So not particularly unusual or particular circumstances.

And the ‘cost’ of losing it might be ~£14k if you have two preschoolers - meaning you need to earn £135k pre-tax at that level to not be losing money vs earning £99k.

@MidnightMeltdown "The problem that the UK has is inequality."

What about inequality of effort? Or inequality of contribution?

The teacher who sits up half the night marking books, only to be shouted at by ungrateful parents.

The GP who has to see one patient every five minutes and each one is complex or grumpy or complaining at her because they had to wait three weeks for an appointment. And who then complains because GP won't give them anti-biotics for a cold.

The sales assistant in the supermarket on her feet all day dodging other people's badly behaved kids and fielding complaints because the customer can't get what they want.

The call handler who deals with abuse on a daily basis because people think she's barely human but want someone to sort out their car insurance or their gas bill or their TV subscription or their benefits claim.

The HGV driver or the delivery driver or the bus driver - all people we absolutely rely on to get us what we want , when we want it.

The volunteer at a charity or a hospital or a school being despised because they are supposedly "rich"

These people all contribute. We NEED them. The trouble with so many in society is that they contribute nothing at all. And are not encouraged to do so. And don't see why they should have to. (And as long as they get paid for living as they do, this will not change)

99,000 gives you £67,223.40 per year.

110,000 gives you 77,303.40 per year.

The 15 free hours reduces your nursery bill by approx. 300 pounds PCM so is worth 3,600 a year.

The 30 free hours lowers it by approx. 7,200 a year.

You've lost 2 x 15 hours for two kids, you are still better off, than you were at 99k ,not by much, but better off. Even better off if you actually divide your childcare between two people

You are only worse off if you lost 1 x 15 hours, plus one 30 hours.

But then the 30-hours is between 3 and 4, so your child will be starting school shortly. So for a very short time, when the next one reaches it, you will still be better off than you were on 99k.

@MikeRafone

That is true, but the problem really started brewing long before that. Wages were rising across the board in the 1980s, so people didn't notice how much more quickly the wages of higher earners were rising, relative to lower earners.

The cost of living crisis has highlighted a problem that has been in the making for decades - because lower earners can no longer afford to live on their salaries.

Even the Torys are no longer right wing, because they can't be. You can't have an economic system where huge numbers of workers can't afford to live.

A) £110k is £72,333 after tax, not £76,303. £99k is £67,942 after tax.

This means you have an extra £4,392 a year.

Less 15 hours at 300pcm for two children, this is a loss of £7,200 (your numbers). On £4,392.

So you are now -£2,808 - worse off than earning £99k.

but! You missed tax-free childcare. That’s another £2k per child.

So you are now at -£6,808 if you earn £110k vs earning £99k.

A loss of £6,808 - or to put another way, earning that extra £11k you have to give back £16,808.

Yes I agree - most of the people you list are lower earners who should be earning much more. As I said, it's unacceptable that people working full time in lower paid jobs cannot afford to live.

Yes there are some people who choose not to work, but that's a different kettle of fish.

If we hadn't created a situation where lower earners are forced to rely on state handouts, then we wouldn't have created this huge benefits culture in the first place. The trouble is that for lower earners, work doesn't pay.

They are. Same poster on every thread. Different name.

Thought the pandemic did away with this nonsense. Does anyone really work harder than a worker in precarious entry level job? Yes, others may accumulate knowledge that commands a higher market rate, but let's not pretend this is about who works hardest.

Sorry yes, numbers were off.

But you are only worse off for a very short time.

Plenty of people take promotions where it makes them worse off to start with. Anyone moving for a job is likely to be like this.

As said, its a short time, for the small number of people involved.

After the childcare years they are better off.

"or to put another way, earning that extra £11k you have to give back £16,808."

You aren't "giving it back" you have lost benefits.

Did you work out the 99 k salary with the benefits on top?

Did you calculate the marginal tax rate in the same way?

NHS full time Consultant, single mother to nursery age child. Some family help, but needing to cover nights / weekend / Christmas etc and I leave for work at 0645.
I can't choose to take my salary in pension. If I add to a SIPP then I affect my NHS pension.
Funnily enough I earn £99 900.

In case you haven't noticed, today is a junior doctors strike. I have worked previous strikes to ensure cover for high risk areas. I had to pay for childcare whilst doing this and am unable to take time in lieu because there is no room on our rota so it cost me money to work.

Today I chose not to work extra shifts, directly leading to the cancellation of hospital clinics as those people who would have done them were needed for emergency cover.

You could also just load your pension for a few years, benefit from the career progression and go from there.

There are cliff edges at every stage.

The 40% rate means you see less of what you earn for more responsibility and has meant a reduction in CB for many in it for a long time.

There has to be a cut off somewhere, although I still think the mental gymnastics to get to the "tax rate" are ridiculous,.

@Aladdinzane No, it isn’t typical for promotions to make people financially worse off. People wouldn’t take them, would they.

It would be deemed insane to have tax rates which meant earning more, led to a lower income. Yet - this is what has been created via this mechanism.

See the poster above, a doctor, who literally cannot work an extra shift because they will lose several thousand pounds of childcare support.

If you have even two children, this situation will go on for years - it’s actually now worse than it was because of the new free hours from 9 months. And of course the tax-free childcare is available all throughout primary school.

Going to work to get zero financial benefit is a ludicrous piece of policy.

I'm puzzled why it's acceptable to have a lower take home pay if you earn more. It makes no sense to me, even for a few years and for a few people.

I remember crunching the numbers when I was a single parent. I would have been far better off financially on benefits than working. It was really sad to think I could have been pretty much a SAHM and 'earned' the same each month.

But you have to think long term. Children grow up quickly and I would obviously loose the child element and had 10years out of the work force. Pension contribution were also a thought of mine.

Why does there have to be a cut-off? You say yourself that the numbers earning in excess of the thresholds are small, so why have them? The disincentive effects are very strong, and not worth it for the money raised.

Under Blair, there were no such cut-offs. Child benefit was universal, and tax was 40% above around 45k, so the incentive to work was high.

I'm single, on a low wage, kids now over 18, have a mortgage and get no top ups at all. Only thing I get is Council Tax 25% discount.