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?

This post makes me think a lot more people are getting benefits than I thought

is it correct?

Most people aren't. This is right wing claptrap about a very specific set of circumstances which affects a tiny number of people.

Yes - could you give more details. I'm very surprised at these numbers.

I earn £87k and my DH earns £100k+. I don't believe we're as poor as two people on 25k... What benefits are they getting?

Our current system actively incentivises high earners to work less when they have young children, due to the removal of childcare support.

I get no support at all from the government to pay my childcare bill. It really annoys me to be honest - very happy to pay my taxes to ensure a functioning and productive state, but I would like to actually access benefits like childcare given it’s so crazily unaffordable (most friends with two are paying £40-50k a year post tax just in childcare).

My fees are actually going to help subsidise the free hours, which of course I can’t use.

Thank you for this fantastic post OP. I see so much negativity towards higher earners that I rarely comment. We live in the south east, in a really boring surburb in a small semi with a mortgage. We earn higher salaries and have been increasingly dispirited at how un-rich we feel. Old second hand car etc. I thought all those years of working stupid hours and commuting would have us very comfortable by now but not really.

Better off than some yes, but still having to keep a keen eye on spending.

Well we’re all about to get taxed a lot more. It will be interesting to see how much worse off we will be in a years time. I’m hoping I can still afford to pay for all my bills. A lot of people will be really happy with the election result but keep in mind there will be quite a lot of people who will be worried about what it will mean for their family's.

Can you show a chart with rents taken out?

I think if we had lower rents (compared to wages) then it wouldnt be such a big difference. Benefit claimants don't see any of that money.

Housing benefit is the problem, it's the state paying the mortgages of private landlords, or alternatively it's the state propping up wages from low paying jobs while companies make massive profits. It's not like people on benefits see the money. If you're happy for your taxes to pay other people's mortgages or contribute to company profits thats fine. The answer is for people to be able to pay their own rent.

How much do you earn? You can put up to 60k a year in your pension, so unless you're earning over £160k a year you can still get the 15/30 free hours. Just put the amount over 100k in your pension so you're on £99,999.00. Plus you don't lose that money - it goes into your pension and gets invested

It doesn't shock me, as I read a breakdown of a similar example years ago when dc were younger. Not as detailed in calculations but it did influence me in starting my own pt business as I had a disabled dd to care for. Our net household income didn't change much.

I've hardly ever noticed any tax increases.

Mortgage going up suddenly and energy bills by 200% had the biggest effect on income. And that was caused by incompetent Tories - less directly in terms of energy bills though they could have done a lot more about it for longer.

What is interesting from the chart is that you are net worse off on £70k than you are on £65k.

So it would make sense to either decline the pay rise or work shorter hours in order to get paid more.

It's nuts and shows why many high earners are simply reducing their hours

Not everyone has childcare never mind children and not everyone rents though

And the rich would keep more of their cash if wages were enough to live on

And you still end up with more for what is usually less stressful and difficult way of living and working

I've worked really hard and I earn £36000 a year in a position that took me 7 years to get to. I consider myself successful and privileged to be in it although, I admit, it should pay more.

If hard work = monetary success every woman in Africa would be a millionaire.

Oh the irony!
Most people on 30K wouldn't even consider private education.

Yep - us poor buggers in the middle pay for everyone else! But think it’s always been that way…

This is almost entirely childcare based, so your conclusions don't match the data. You would be better arguing that everyone should get childcare or that it's over-subsidised for poorer people, rather than implying that providing childcare for poorer people removes the incentive to work, which is clearly not true - childcare is subsidised so they can work.

I would assume that there is a minimum amount of money such a family needs to live on and that as a society we don't want people unable to survive financially. Your assumptions would make it impossible to live on less than £25k, so hopefully there is some help for people trying to get by in the childcare years.

Most people work in the childcare years because they are looking forward, they know this is the hardest time financially. I don't believe there is a huge cohort of people dropping out of £100k jobs and taking £25k jobs to get benefit money for a year or two. There might be high earners cutting to part time, but I don't think that is necessarily a bad thing, surely money buys you this freedom.

These are atypical years in the span of a career, I don't think the decisions made in this period, with small children and childcare costs, inform long term career decisions. If someone is capable of doing a high earning job, they can also understand the implications of not taking a promotion etc longer term.

But you only get benefits while working full time if you have children
If you have no children the dark blue line doesn't exist so you are better earning more

FABULOUS chart.

My only criticism/build would be to show another bar WITHOUT student loan. While a significant deduction, it will be paid off quite quickly by a top earner (or never taken due to generational wealth).

But it's paying for their housing. The point is that people on £30k get a lot of help with their housing and childcare costs.

Someone earning £90k could have the same housing and childcare costs, they could live next door to each other, both renting identical properties but get little/no help, which massively closes the apparent income gap.

Very informative post. The tax burden is ridiculous. It confirms that there isn’t much incentive to work hard. No wonder this country is in such a total mess.

Go to entitledto.com and enter in the calculations. Yes, this is higher due to the assumption of nursery costs and rent, but that is the reality for many young families.

I have rechecked and get slightly different (higher numbers) of £3k in universal credit for 2 kids below the age of 4 and £1.5k rent. Maybe the Entitledto website is wrong, but this is what it says.

This what are all of benefits you can receive at 30k

Yes, I think some people don’t realise.

Exactly. I expect to pay a fair bit of tax on 90k of income- but then I expect decent state schools and NHS in return for that.

We need to not argue among ourselves about who earns or pays what between £25k and £125k but turn our attention to plutocrats who don't pay their fair share and don't pay employees properly either.