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?

It's not a competition at all. It's not about people working harder than others.

However there is a big problem and point about people in this pay bracket having specialist skills sets that we, as a country need. It is expensive and time consuming to train replacements and takes a long time to get the necessary experience.

Taxation which encourages this crucial group to leave the workplace easy is a massive problem - for the country.

We, of course, have labour shortages in areas of low pay - these problems are acknowledged and recognised.

We should be acknowledging issues with labour shortages for highly skilled areas, and considering whether taxation is contributing to the issue and talking about how we fix it as part of a national debate.

We have got into a mess of really short sighted thinking that 'highest rate tax payers are evil and the enemy' which is really harmful and destructive because we can't see anything else.

We need to be competitive as a nation. We need to be attractive to skilled workers. And working conditions and pay have to be worthwhile from the very bottom right up to the top.

This them v us mentality is so awful. Given this particular issue covers highly skilled doctors as a particularly significant group, it's also an act of shooting yourself in the foot because of prejudice. Yes prejudice. Emotional knee jerk responses rather than dispassionate logical and analytical responses help no one.

I think you missed the sarcastic undertone. Of course it's not a competition. We need people to work for our economy to function. Cliff edge tax do not work to support a thriving economy. Working should always be beneficial for a given individual. Without workers, we can't support those who can't. Benefit top ups should not fund lifestyle choice imo.

Easily possible. 62% marginal tax rate for 100k-125k, 71% if you have student loans outstanding. If you have nursery age children you also lose funded childcare hours and tax free childcare savings option.

I was once awarded a £20k bonus and ended up worse off than had I not received it.

@Charlie2121 someone yesterday was saying they earn £168k.

Less tax, loss of personal allowance, tax-free childcare and free hours for two children - you’d be paying a >75% tax rate on earnings £100-168k.

And - no way of avoiding via pension contributions as you are over the max.

Not being eligible for a benefit isn’t a tax though.

Unless it's the "bedroom tax" which was, in fact, not being eligible for full benefit cover of a 3 bed house when you're only using one....

No, that’s also not a tax.

Sorry, sarcasm lost in translation there I think. That was my point. But everyone referred to it as a "bedroom tax" even though it very clearly was not a tax.

Three points:

• One of the main aims of universal credit is to lift children out of poverty and that's why they are so focus on people with young children.

• It's takes many years to build wealth - mainly through pensions and getting on the housing ladder. The first few years of kids are only a small part of this and a period where most people are scraping by. You're still much better off in the long run being a high earner.

• Many couples are probably better off with one person not working for a few years. This is a valid option and we shouldn't be so down on sahm parents.

But one of the issues with the system is that many on benefits use it to fund their lifestyles. At least over here in guernsey they do. It then doesn’t provide support, it provides a lifestyle. And over here in guernsey as I’ve said upthread, I know one couple on benefits who are buying around 3 costas each a day (yes you read that right) and another going on a 5* all inclusive European holiday, whereas my family members who do work, but in low paid jobs, can’t even afford a few days in the uk.

benefits should be provided by way of temporary support for illness or loss of employment, or for genuine long term sickness, not to basically provide for the workshy and feckless.

I think that may be one i'm thinking of from quite recently.

She was asking if she should feel guilty for claiming it all as a friend was shocked by how much it was.

She was working part time and having something like 3750 a month in various benefits. 1500 of it full housing benefit for her rent as she lived in an expensive area. 2 kids with additional needs I think.

Lots of people saying no don't feel guilty it's what you're entitled to but more than a few saying that was equivalent to a take home salary of full time on 70k I think.

Whilst that might be true, single mothers earning low amounts are NOT a tiny amount of people, and being able to earn £25k but bring in £4,500 per month is utterly galling. You can almost ignore the high earner comparison, and just focus on the shit-show that means someone on pretty much a minimum wage or part time job salary can bring in more than twice their earnings.

@beyourownchampion

Put his bonus straight into his pension, pay no tax on it. A bonus is nice, but the tax hit isn't... it's not money your really expect and therefore need so put it towards your futures.

I think you need to talk to someone about the company car, doesn't sound right to me. It reduces your tax free allowance, but nowhere near the amount you are talking about. Tax on pickups was (still is?) low for some strange reason, costing around £200/month - dirt cheap for a car, tyres, maintenance and insurance.

@MidnightPatrol

The UK annual pension allowance is £60k - a £120k/year earner could put £60k into a pension a year and be taxed on £60k gross.

How on earth is he losing 75% of his bonus in tax?

Easily, unless you pay it straight into your pension (i.e. lock it away for decades)

Marginal tax rate at 100k+, along with removal of childcare funding at that level, plus 9% ISH student loan etc

Even worse if you're based in Scotland with the extra eye watering levels of income tax on top.

I once spotted that the marginal rate of tax at the next grade above me would be over 84% by the time you consider student loan (undergrad and post grad) repayments on top. And my manager has no idea why I'd rather just work 4 days a week instead of continuing to gun for promotions - what is being paid just isn't reflective of the extra responsibility and stress. It sounds awful but why would I take on more stress in an already stressful role where I barely see family and friends only to lose most of the extra income?

If his bonus puts total earnings in the £100-125k range it would be taxed at a 62% marginal rate. Maybe the poster is including student loan or pension contributions or loss of funded childcare hours in the calculation.

@Greenbike it's over 84% marginal tax rate at that level for me if you count student loan & living in Scotland on PAYE... 62% tax looks like a bargain in comparison 😵

Presumably because you don’t pay childcare as per the assumptions

I’m a single mum - I used to earn just over 100k and rent in London. It absolutely used to depress me that I was working incredibly long hours just for a standard of living that I could get on benefits. I work in a job with better work life balance now and luckily have lower childcare costs.

As a single parent who used to earn more than 100k working crazy hours, it’s very depressing not ending up any better off than if I worked a few hours in a school.

You are spot on. Its crazy. All the social housing was sold off so we could waste money buying assets for private landlords (some of whom are ultra wealthy, so essentially giving taxpayers money to the Uber rich - the exact opposite of what we here to be doing to close the ever increasing wealth gap) all the while saying we can't help people who are struggling to pay their mortgage because we'd be buying them an asset! Makes zero sense!!

But you wouldn't. The figures shown are not accurate. And even then, only apply to nursery years. Also, to play devil's advocate, during the years that children are little, surely it is worth it to society to allow single parents to spend more time with their children rather than working crazy hours?

I’m a lone parent (well I was with my first). I spent a decade working full time, earned a decent salary but it meant I had to pay for absolutly everything - childcare, health etc. Yes I had salary sacrifice and decent benefits at work, but I was responsible for every single cost and I was paying tax and my loan.

I was made redundant just before covid. My new job furloughed me for the lockdown period on and off. On the other side of covid I could only find myself a part time job it’s UC topping up everything and I am in the same financial position that I was in with a full time salary. I only earned £35k but it seems that there wasn’t any point in making more money (I did try to get promotions etc but didn’t). The thing with being on UC, even if you do work, healthcare and prescriptions are free. I no longer needed the amount of childcare I needed when I was working. My rent was covered by UC.

I think it is insane that we are not given the incentive to work hard and to be able to enjoy our money when we earn a little more. I found the more I earned the bigger the expenses.

Great post.

The selling off of social housing by Thatcher has made the Gov so much poorer and it's now paying for private profit not run efficiently at cost. Greed and social efficiency don't mix. Profit built into essential service provision is a lousy way to run a country.