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?

And if they've got a private pension they'll be much better off. The pension contributions from £25k are significantly lower than the contributions from £90k.

I mean it’s pretty common knowledge that higher earners are taxed the most part time work supplemented by government top ups is how a lot of people live comfortably

Last year I got a pay rise from £97k to £105k. I get an extra £8 in my pay packet each month and I lose my free hours childcare so I'm now worse off as a result.

Work won't let me drop a day so I'm looking for a new job!

No tiny violin here, but it is absolutely a disincentive to earn more.

Why don’t you just up the pension payment?

It's true and it's so so depressing. People should be enabled and empowered to earn more and live lavishly, no wonder nobody has much work ethic anymore when you can earn a fortune on paper, work your arse off and end up roughly in the same boat and someone who couldn't give a shit.

Remember that you don’t get many of those benefits if you have more than £16k in savings.
I was on tax credits and have a savings buffer which I need to have with my work being so unpredictable and partner being on a low wage. When I found a job for £31,000 I immediately had to pay back £2000 in tax credits for going over my estimated income. The system does not allow for ad hoc/salary variants. I am not complaining about this, just that with child care costs and ongoing needs of my SEN child, FT work did not work out financially much better for me.

Disgusting. Dunno if you'd ever consider it but this sort of thing needs to be in the news. People don't realise how bad it is.

Pretty sure I've seen it in the news.

The problem is 'tax the rich bastards' makes for better click bait and social media comments.

The audience for an in-depth story for this isn't there. Not least because of all the comments about 'well I'd love to earn that much'.

I agree and yet the rich really aren't rich - usually they just have way more responsibility on their shoulders because they've worked hard. It's not like rich equates to make disposable money and happier. I hate how hand out friendly this country has become.

Yeah sure, corporate bigwigs have more responsibility and have worked harder than nurses etc. Pull the other won. I hate the way water company bosses are raking in multi-million pound salaries and share hand-outs for polluting our lakes, rivers and seas - and copping out of all responsibility. Once you get to a certain level of wealth and power- life does get much easier.

"The rich really aren't rich" Pfft.

As I wrote elsewhere on here, the very rich have seen their wealth soar since 2010 as the financial markets (stocks and shares, government bonds) and housing which is where most of their money is invested in have all benefited v well from quantitative easing, govt borrowing etc. Meanwhile wages have stagnated during same period.

Also the v wealthy with many assets are not currently paying their fair share as they pay lower tax rates on their wealth (assets) than the income tax rates on wages.

Agree with all your points.

Agree OP wealth (i.e. savings, assets) is lightly taxed currently as they as you say pay lower tax rates on their wealth than the income tax rates on wages. Meanwhile in the UK wages across the board have stagnated during the same period due to slow economic growth since the 2008 crash due to largely economically idiotic austerity under Cameron then Brexit, Covid and C of L crisis playing a part.

Also, as I wrote in my comment above, nonetheless the very rich have seen their wealth soar since 2010 as the financial markets (stocks and shares, government bonds) and housing which is where most of their money is invested in have all benefited v well from quantitative easing, govt borrowing etc.

I was recently shocked to learn that going half-time (family reasons) earns me the same salary as my retirement pension!

This discussion should be on the front page of all the papers.
It must be so demotivating. Where is the incentive to work harder? it just isn't there anymore. Surely this is poor economics?!

That is just your (rather unkind and gloating) opinion and will likely be challenged.
Many lawyers working in this area advise the VAT policy could breach two articles in the European Convention on Human Rights which protect the right to education.
I hope this does not go ahead as these parents have already paid taxes which go toward state school fees for others, and no I don’t have children in a UK fee paying school just dislike the glee and vitriol around the subject.

It isn’t just those Countries you cite - Asia is incentivising doctors, dentists, anyone in trained healthcare roles, teachers, digital specialists, pilots, bankers etc etc. Pay often includes sums toward private school, housing, healthcare. Loads left due to Covid and now a new cohort are being tempted.

I don't think you're decision to work less when you could work full time should be funded by the state. It's lovely that you want to spend time with your child but that is a choice you make and I feel you should take the financial hit for it. Someone else is working so you don't have to.

This is so interesting. I think it is the £100k point that is the killer, when you start to loose your personal allowance and the marginal rare of tax you pay is 60%. If you then factor in pension contributions there is really very little insensitive to do additional work. Factor in that none of the tax bands have increased for years a lot more people are now being hit by these rates and the ability to earn enough to keep up with the cost of living rises is virtually impossible. Yes if you earn £100k you are very 'fortunate' and might be in the top 4% of the population when it comes to earnings but as this analysis shows that doesn't reflect the difference in what people get in their pockets. If you squeeze people too hard the incentive to work full time diminishes leaving less tax to pass on in benefits

People on lower incomes often also work hard and do care about their job! Your use of that language is disgusting.

This is so interesting. I think it is the £100k point that is the killer, when you start to loose your personal allowance and the marginal rare of tax you pay is 60%. If you then factor in pension contributions there is really very little insensitive to do additional work

I disagree, why would you “factor in” pension contributions in this way? They’re just a form of saving it’s still very much your money. I earn 168k a year. It would be like me saying that once I factor in pension and maxing out two ISAs I might as well earn 70k and have more free time. That’s true month by month but then I wouldn’t have my pension and investments! Those are an incentive.

I agree there are issues around marginal rates and personally I would make child benefit and childcare allowances universal and properly funded. I do think this narrative that there’s no point in earning lots of money is nonsense though and I question the motivations of trying to make this a thing. Anyone ambitious about their career reading this - please go for it!

Pension contributions never seem to get treated the way you would expect. Emotionally they don't feel like the employee's money - the payment date is so far in advance so as not to matter. It becomes increasingly important as you start thinking of retirement and approaching pension age.
When we negotiate salary with a new employee it's so surprising how few times pension contributions get mentioned.

That’s totally true. I expect I see it as real money because I’m in my mid 40s and starting to see retirement as not just theoretical.

Im astonished by how little people care when I’m recruiting though. The scheme at my work is total shit (legal minimum) and I negotiated a big salary uplift on the basis of topping up to something reasonable. Young people I recruit don’t ever really notice/ mention it.

The problem is mortgages and cash flow.

About 5 years ago you could get a small detached house around here for £425k. Now that same house could be pushing £600k. So younger people are looking for the big headline salary in order to secure a mortgage for a family house. If you have no equity you need a household income of over £100k to get that.

If the money is going into your pension it's not accessable and doesn't count towards your mortgage application. So it's unhelpful. If you can buy the house the theory is that's going towards your pension anyway because it's an investment.

That's one reason people aren't considering pensions because it's not 'real money's it's only theoretical money that can't be accessed.

Private education is your choice though. You are not compelled to pay vat on education, or in fact pay anything at all, so I don't think it's fair to include this.