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?

The tax burdon is too high

So much of this comes down to and childcare cost - and how out of control these have become.

Housing… people need somewhere to live. We have outsourced housing those on lower incomes to the private sector. So - suddenly the state has to pay for (high!) private rents.

There was a lady, single mum to two kids, posting here the other day with £1944 in housing benefit. That’s the cost of renting somewhere - but for a worker to afford that… they probably have a £80-100k+ household income.

And then childcare… again, the cost is insanely high. People need to be supported to work. But when you then remove that benefit (which again might be £800-1.5k a month), you need to earn a massive amount to recoup that cost.

We need to support people on low incomes to have a chance - but, the reality is that with flat wage growth and high costs (and high taxes) the ‘price’ of earning that money is very high.

I need to earn £30k just to offset the childcare support I’m not eligible for if I have two kids. Thats a massive sum.

But when the kids come out of childcare age, the higher earner will have more disposable income and will eventually own their property. So, it is short-lived.

Yes, there was a poster who was on £64k of benefits. She had two disabled dc and was a single parent, which obviously I wouldn't wish on anyone, but I'll not earn that ever. It was an eye opener.

It's going to get a lot worse if Labour form the next Government.

Angela Rayner is rubbing her hands in glee.

Absolutely. And once you're earning a very good salary, the incentive to earn more just isn't there. My boss earns 40k more than me and only takes home 1k more. Not worth the stress and loss of other benefits (tax free childcare). The tax system effectively punished aspiration which is bad for the economy as a whole. Don't expect labour to change this - it will be even more of a race to the bottom.

I know people who are being paid under the table any excess over £90k

It would also only apply to a single parent - she says it's one income, but you wouldn't get that childcare subsidy if you have two adults in the home and only one works, unless the other adult is disabled.

And more of a pension.

I've no desire to lower my wage to get more in benefits!

Do you have childcare costs as outlined in the OPs example? (Just to clarity)

'While no one wants children in poverty, what is the incentive to work harder if take-home pay is the same?'

Yeah fuck off with this. Earning more does not = working harder.

So true 😔

One reason I went part time. Very little difference in take home pay.

This is an excellent post representing why we are all
so annoyed. The real problem is the tax and benefit systems and the governments that do nothing about fixing this. It’s painful to be in the middle paying thousands of pounds of tax every month and then to be excluded from using the childcare support benefits that my tax pays for. And yea I know I’m not allowed to say that because I should be quiet and grateful for my job and salary.

Would be interested to see how the lower salary on benefits is calculated. You state assumed childcare and housing costs, but obviously universal credit does not pay full rent costs. I don't know where you've based the calculations on the people residing, but in my council area I believe the maximum universal credit provide towards rent is £600 p/m (rent on a 3 bed semi would be double that). Childcare would be up to 80% paid I believe.

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

You're missing some major factors.
High childcare costs are only relevant for a small number of years.
Children are only children for 18 years.
An average career is far longer.
A lot more money into pension.
That's just quickly off the top of my head. There are probably many more factors.

That's the incentive.

Loads of people reduce their hours to claim more childcare support.

Every doctor I know with young children works part time for this reason.

Earn £1 over £100k and you lose maybe ~14k in post-tax income now (with two children). You are worse off working full time vs part time.

Thank you for starting this thread. I earn in the middle of the two salaries and today is payday. I've paid out £2480.16 for my mortgage today and £2200 for nursery fees. I'm going to have to rely on my overdraft for the rest of the month. Don't qualify for any benefits and I frequently have to take on extra work to make ends meet which is effecting my health. It's not fair.

Does it also niggle you that some people might have genuine reasons they can only work part time, or even not at all?

Yeah this is such a gross misrepresentation that all lower earners are taking home vast amounts of benefits. It's the assistance with childcare costs that are skewing these figures.

Thank you @PAYE
for communicating so clearly what numerous people including myself attempt to explain on the various "i earn 100k what am i doing wrong?" threads
Answer: nothing

"Benefits" are an issue and what you have highlighted here further underscores my belief we will eventually move to a universal income system.

While no one wants children in poverty, what is the incentive to work harder if take-home pay is the same?

Because OP is talking about a specific circumstance involving a £1,500 a month childcare bill. Once that is no longer needed, the graph would look very different and the higher salary will pay off with much more disposable income, plus a higher pension. Once our youngest is out of nursery we'll have an extra £1,000 a month. You won't get that if UC is paying part of the childcare.

The thing is we don't have any child care costs or rent, so earning more helps me.

I do agree that they idea behind the tax and benefit system is to even things out a bit, so it doesnt shock me that it does this. I think free childcare should be universal though.

I used the calculations for Camden where the Local Housing Allowance would actually be significantly in excess of the £1500 rent I assumed.

I agree that childcare costs are for a short time, but this is why the removal of child benefit at £60k, and childcare at £100k are so wrong. They remove the incentive to work. Ditto for the removal of the personal allowance.