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?

Ok no social security for families.

But then those children shouldn't have to pay for your pension, your NHS care after retirement, your care and social services after retirement.

Why should my DCs pay for you when you are in need when you havent contributed to their existence?

Having DCs is a social good. People without DCs benefit from those who have them. Parents get no benefit from people who don't have DCs.

I take it that you haven’t read the full article then.

Totally agree with this.

Repeatedly hear that if you earn over £100K and are in the dreaded tax-trap then it should be fine because you're SO rich, and therefore you can easily pay an accountant or financial advisor to sort it out for you so that you're not paying so much tax..... except, when your income is purely PAYE, there really aren't that many magic tax relieving options available. I can increase pension contributions, provided I don't go over the threshold or I can reduce my hours. Neither are actually attractive options for the immediate future - I have a young family and bills, so I don't think its too unreasonable for me to want to see some of my pay above the £100K mark now, as opposed to locking it away for retirement. These are my most expensive years of my life (childcare years) so that extra would help me now... not in 30-odd years time when I (hopefully) have no mortgage left to pay, and kids that are grown up!

It would be very foolish to base life decisions on this kind of snapshot. Childcare costs are transitory. Benefits don't come with pension entitlement. Buying a home is a long term investment in your future.

The person on 90k is going to have a very different life from the person on 30k when they're both coming up to retirement age, even if they don't feel very rich for a few years now.

Exactly.

The fact that they can put all of their increase in pay into a pension for a few years, meaning they will be much better off in future, and still get benefits totally outweighs any hardship.

And the mental gymnastics to get to the "marginal rate of tax" is still very funny.

No one has actually answered whether they took off the benefits they received when they calculated their tax rate, or added it to their income so they got a better idea of what package they were on. Why? Because they didn't. The just want to talk big numbers so it looks worse than it is.

Oh and the "net contributor" BS needs to go too, people quoting those statistics have no idea about the data they are using, or how it's calculated.

So should the state pension and pensioner benefits be means-tested?

Whataboutism rubbish.

Next.

BTW I do believe in FREE or very low cost childcare for all.

Problem is to pay for it the so called " high earners" here would have to pay more tax ( as would everyone slightly, with the biggest burden at the top).

They'd complain about that too.

Super interesting. Well done for your work. Must have taken a lot of time.

This is such valuable information that you wish it was presented more simply (like this) somewhere.

It would be useful to also see household income (based on 2 earners). And also a rent free one. And also a childcare free one (as that’s a short period in someone’s life).

They took a specific case which suited their points and went from there.

It's called confirmation bias.

Again missing the point. Despite pages of criticism you agree with the main premise that withdrawing child benefit and childcare support is a terrible policy?

Working families on PAYE earners are paying loads of tax. What is lightly taxed is wealth and unearned income. Also some of the issues of high payments to social housing landlords are a direct consequence of bad government policy (see right to buy discounts above).

There are ways to raise money which do not have disincentive effects.

Super interesting. Well done for your work. Must have taken a lot of time.

This is such valuable information that you wish it was presented more simply (like this) somewhere.

It would be useful to also see household income (based on 2 earners). And also a rent free one. And also a childcare free one (as that’s a short period in someone’s life).

Overall I understand what you’re saying and the data here is stark. The demonisation of the rich is not helpful. But we are also forgetting that those on higher incomes or with assets are not playing the same game as those on lower incomes.

DP and I often joke that we are either the richest people we know or the poorest and we can’t work it out. Our take home is incredibly low compared to peers. (We can’t apply for UC as directors and it’s too messy as the rules are basically ‘at discretion of the case worker’ leaving us open to a repayment at any point). But we have a company. We chose how much we pay ourselves at ant point and we have companies we can draw cash from at any point under directors loans or dividends and can easily borrow money against assets at great rates which leave investments untouched. It’s this flexibility which those more well off have. We can pay and spend as we chose. This is in stark contrast to a single mum on 4.5k who’s on a prepayment meter and if they don’t pay their gas that very day they’re sitting in the cold or going without dinner. It’s apples and oranges and not really about take home.

Sorry that posted early and twice!

OK. Please specify which location I should choose then?

A good thread @PAYE. It is why I have the opinion that high and keep taxing the higher earners is not the answer.

This is the major problem with the current government, they have lost their conservatism hence high taxes and no growth. I fear it will only become worse if Labour win the election.

Raise the tax thresholds, allow people to keep more of their earned money, allow people who do work to find that working pays more than benefits. It is proven than lower tax rates and higher thresholds increases tax tide and there is less tax avoidence, as people believe the rates are fairer.

To push it further I would have a flat tax rate for all.

Yes. And therein lies the paradox!

When starting out, those higher income people have a cash flow issue rather than a wealth issue.

It would be better all round to tax to fund childcare, because this reduces that cash flow issue BUT it also means that later on they will pay more in how much they effectively contribute to childcare overall. That also reduces the risk of financial abuse too. It would spread the cost better.

The inherent problem all round is having costs stacked up in the years when you have the greatest mortgage / rent commitments and the least all round disposable income combined with childcare costs.

This is one of the reasons people are having children later. Having children later carries extra health risks - and costs to the NHS - than having them a few years earlier.

There are lots of logical reasons why shifting to a system where everyone gets universal child care, is financially a good idea and benefits everyone.

And yes, I do think childless people should carry the cost of the next generation, because otherwise we get labour shortages. We all need younger generations for when we retire.

Pretty much all economic analysis shows that higher earners pay a disproportionate amount of tax. It is the lower and mid-range earners that underpay in the UK vs other countries with decent public services.

One of the things thats really striking is how house prices have really impacted.

Friends who are ten years older than us are retiring at the moment. This isn't something thats remotely viable for us at a similar age.

The income they had to buy the house they had was significantly lower. You could do it on one reasonable salary and it still made it viable for them to have a stay at home parent and not have child care.

Now someone buying that same house in the same area, has to either have two very good professional salaries and use childcare or one very high earner. And then work for ten years longer, keeping in mind that most have had children at least 3 or 4 years later than those who are ten years older.

This also means that our friends who are ten years older, aren't contributing to the taxation system for ten years so thats a huge loss to HMRC which is effectively leaving a gap in finances that younger people now have to plug somehow. Not only that, but they are also paying for the pension schemes of their older colleagues / former employees that they won't see like for like on because there was a recognition that these pension schemes were not financially viable to continue at previous rates. So their pensions will also be significantly lower.

This generational divide is really stark and can be pin pointed - if you bought a house before 2008 and the financial crisis you are much better off. This point has been identified by analysist as roughly falling between ages 42 and 46 (Me and DH are 42 and 46 with him being younger so we see this divide particularly accutely with our peer groups from school/university in terms of affluence and long term prospects).

Theres also a tax issue with pensions - if you are a high earner, if you effectively 'fill' your non taxed pension pot, then the incentitive to keep working falls off a cliff and this is also driving early retirements. This is the exact scenario I know a couple of people in who have retired. This is again something thats been problematic within the NHS leading to consultants leaving the workforce. If there hadn't been this tax issue they may have seen a benefit to continuing a few more years (again have a google on this. I know financial advisors are telling people this stuff in financial planning advice and I know this is something BIL is aware of). The current government have identified an issue with early retirement in people's 50s but really haven't done anything to try and change the situation. Tbh, its going to take some big balls to do it because it will upset a small group.

So the cost increases between generations is huge. But because so many people setting tax dont fully understand the practicalities of this difference and the impact on society as a whole its just easy to over simplify this as rich v poor. It means the system isn't fit for purpose anymore with the realities of working life. No one has really fully acknowledged the long term impact of the financial crisis and what it means for the future.

I think the narrative really needs to be reframed as a problem regarding over financially burdened working families v asset rich / cash flow rich.

Going forward there's talk about increasing national debt, which is fine and has its place in terms of investiment and much needed infrastructure BUT debt has to be repay and what debt is, is passing costs now onto a future generation. Given the dyamics of when you are most financially stretched, having a family and the costs of housing we need to be REALLY careful about government borrowing and how our taxation system works and what it pays for.

I think my point is, we probably need a restructure in terms of how childcare is paid for so that overburdening at critical points in a working life is reduced.

I don't think its an income issue - I think its a taxation issue associated with the means of income (so PAYE employed, self employed, differences in pension).

So yeah, its a LOT more complex than rich v poor which I do think needs recognising and addressing.

Personally, I think theres a LOT to be said for flat rate taxation to reduce the accountancy approved legal taxation dodging.

And on that note, I notice today that the Greek government is trying to bring in a 6 day working week because of a reduction in productivity caused by a shrinking population and shortages in skilled workers. Greek has one of the lowest retirement ages in the EU and economic issues there have led to the most skilled/financially better off, leaving the country. Naturally the Unions there are pitching a fit about this proposal (I think this is right, but I also think theres still a problem that the Greek government are going to have to fix)

Whilst I don't think the next government will even consider this (quite rightly). I do think theres a real danger that a failure to revisit and notice the problems above, and an attitude of kicking the can down the road will lead to this.

I can well see if we do get further polarisation in British politics, I can see this being on the cards in another 5 to 10 years time. Or reductions in workers rights across the board.

Someone tried to prove this earlier but actually failed as it was googlemash and they posted something that they didn't understand.

However, average income households do pay about 2,000 less per year than they did in 2010 in tax and NI, but I'm pretty sure most would forgo 166 quid a month for much cheaper child care.

Also, the top earners pay a far lower marginal rate of tax than they used to too, this would have to go up

@RedToothBrush

Generational inequality only gets worse as you go down the generations.

People in their early to mid 40s are significantly worse off than people 10 years older.

People in their early to mid 30s significantly worse off than those in their 40s.

Of course.

You just talk unsubstantiated rubbish.

@RedToothBrush I could not agree more.

There is a huge divide between asset-rich older people and young working families.

The system is now broken for those in the SE without family money.

-House prices are extremely high in terms of monthly payments, and with high interest rates, it takes a long time to build equity. This kills the 'housing ladder'.
-High rent and childcare costs make it impossible to build a deposit.

-Taxation is skewed to the young (student loan repayments, NI, freezing thresholds) so that post-tax disposable income is low.
-Wealth is very lightly taxed so that the rich keep getting richer.

No wonder the birth rate is falling.

Nope those numbers come from the IFS data. Middle earners pay about 2k less in tax and NI than they did in 2010.

I'm sure most would pay that 5.6% average tax increase (for a 35k income) in order to get cheaper childcare and better services.

Of course higher earners would have to see a similar tax increase at the same time.

But as said, they'd complain to death about it.

Hi Blossom!