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?

Honestly this whole thread is ridiculous.

Me and DH combined earn £200k. My parents always earnt around £25k each.

There is honestly no comparison. We have so much more money. We can still get free childcare hours as well as you can put money over 100k in your pension and still get the benefits.

I actually think this thread is in really poor taste. Me and other high earners should be taxed MORE tbh

Pretty normal for London and the South east.

~£2,480 is around £420k over 25 years at 5%. You couldn’t buy a house here for that - maybe a one bed flat.

Loads of people on that have mortgages and get no help whatsoever.

OP your figures are absolute nonsense.

Indeed.

This is true. The benefits and tax system is levelling, and seems very incredibly unfair to workers, UNLESS you are a working home owner. It's a trade off and all about building for the future. The parents on benefits now how have to start from scratch once their dc leave education, whereas now my dc are moving towards further education I've paid off my mortgage, have built a good career so have higher earning abilities. I'll retire mortgage free, as soon after 55 as I like, with a personal pension of £50k pa and enough money saved for my dc to help buy their first homes. Someone living off the state won't have that.

Not jealous. Frustrated that the UK seem to be the only country unable to create a reasonable tax system and a supportive benefit system to keep all of the population supported. I’d happily pay my 45% tax if it meant I also had the benefits but I don’t. Someone else struggling does not change my issues with our tax system and government.

Exactly.

There is simply no comparison. Designed to be divisive and based on nonsense.

I don't have an attitude, thanks.
I was asking if you thought it was ok to subsidise folk on those incomes.

I think this thread is assuming a lot of things when it doesn't apply to all people.

When I earned £30,000k, I got no help with benefits and had to pay a lot in rent for a house share because I don't have kids and I'm a single person.

If I suddenly earned £90,000 as a single single person without kids, I would be better off than someone on benefits.

You don't have to. But you have the option to keep that money and also get the free childcare hours. It's a choice - and a privileged position to be in.

You're choosing not to claim that benefit as you'd rather pay for full childcare and not invest the money in your pension. Not the same thing as not being able to get the free hours

How is it bloated ?

It's one reason I have not been ambitious! Even though I am on a lower income (£32K), and have an M.A and undoubtedly with a bit of digging and luck could find a job earning a lot more and I am quite bored the financial incentive just isn't there. I doubt I'd be much better off as a single person with a mortgage.

How much childcare support do you think working parents are getting?
You do know that "low income" doesn't mean benefits right?
It's a very specific set of circumstances which cause this, this isn't a national everyone in 30k is getting more money than someone on 100k 😂

Yes, I've suspected the figures would look something like this, interesting to see it actually charted out though. A big element of it must be the housing component of UC? Would you be able to generate the same chart but exclude housing benefit element please?

I suspect there would be a bigger variation across the income bands without that, which shows that home owners are being penalised compared to renters. Not that I'm suggesting people with mortgages should get them paid by state benefits, but that renters are being given an unfair advantage over people buying their own home. This has two significant effects - it creates a renters trap where it make it exceptionally difficult for them ever to climb onto the home ownership ladder because they're be massively worse off due to losing the housing element of UC. Secondly, subsidising private rents in this way causing artificially high rents and just lining the pockets of landlords with public money.

Exactly this. Who are all these people on £150k who haven’t got the sense to operate Google or use a free initial consultation with a financial adviser. I don’t believe they exist.

But you're not shocked at the difference between take home pay between £30k and £90k, are you?

You've engineered an extremely specific set of circumstances, that a very small number of people fall into for a relatively limited period of time, and you're using that to stir up ill-feeling against anyone claiming benefits.

The actual difference in take home pay is £2,093/month for someone earning £30k and £5,023/month for someone earning £90k.

You’re forgetting 2% national insurance. So you’ll end up receiving 29p for every pound of pre-tax bonus.

Good to know that the Tories caused Putin to invade Ukraine…

Please go and do the calculations yourself. I gave the links up thread.

The reason I made this is that I cut my hours to avoid going over one of the cliff-edge thresholds. From reading mumsnet, I can see many others doing the same. I also get frustrated at the inability of many to recognise that due to the crazy structure of the tax/benefits system, the take home pay for families with kids can be basically flat.

I think a huge part of the problem is the removal of child benefit/childcare costs for higher earners. The reason for doing so is political by the Conservatives but is economic madness as in the long-term it leads to lower hours worked and lower taxes.

I also blame selling off council houses and not having council-run nurseries.

For this to apply you need to be a single-parent household with two children under 4 who rents their home. Do you think that's likely to be a big proportion of the overall working population?

Yes, earning more doesn’t equal working harder in different sectors (a junior doctor works just as hard, if not harder, than a software developer on six figures).

But for one person comparing pay within the same job, getting a promotion or increasing your hours does mean working harder, of course it does.

Well, you could. But we're having Labour government on Friday. They promised to revert this allowance back to £40k.

This also been mentioned many times that they will introduce flat tax relief on pension contribution instead of your marginal one - this was in Guardian and FT a few weeks back.
So if you're on £160k the immediate loss for you will be £16.5k assuming this new flat is 33%.

The next measure discussed is abolishing or capping pension tax free lump sum - this will be huge.

Combined with IHT on pensions and /or cap on ISA - it really does not make any sense to work in any middle/higher earning job with all its stress and demand.

And before you say it only affects a tiny number of people - there is over 1m of highest rate taxpayers in the UK, means people on £125k.

I keep on saying - be careful who you vote for.

Exactly this OP - drives me insane.

privyetik Volodya!!

It’s not a choice - as you would be forced to put the extra into a pension.Which then also means you cannot access your own money for 30 years. And if you are eg a doctor - you can’t even do that.

There shouldn’t have to be a trade off that if you earn £100-160k you have to put £60k in a pension to access free hours. I mean… why? It’s not been planned, it’s just an aberration that no one has thought through and until now has impact a small enough number of people it hasn’t been deemed important enough to resolve.

Childcare should be a universal benefit - as it is in most countries.

This is going to become a far greater issue in a higher inflation environment as more parents hit the threshold - the number is expected to double by 2028.