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 bugs me that not working pays, especially when everyone seems to have an unchallengeable disability these days.

On the flip side I became a single parent 4 years ago and was terrified how I’d cope financially. I do work (30 hours). With UC, CB, and SCP I’m actually better off. Hate it though and in the process of forming a plan to be financially independent

Some points.........

Firstly the share of GDP going to earnings has been declining since the mid 70's while the share of that income going to the highest earners has increased. That means that most of us are earning a lot less - estimates between £1500 & 3000 pa that we would have been of the sort of distribution that we had in the 70's had been maintained.

Then there is the massive increase in house prices & rents. As Danny Dorling points out building costs have increased roughly in line with inflation since the end of WW2 while house prices have risen by 3-400% in real terms. And dont start on rents.

I would suggest that if rents and house prices were more in line with building costs and the percentage of GDP going to wages and how it was distributed had remained at the same sort of values we had in the 70's then we would have more money to spend AND be spending less money on 'in work' benefits

BUT that would mean less money for profits and unearned income for landowners so it wont happen

So you took a very specific set of circumstances, in one of the highest cost places to live in the country in order to set your sample?

This makes your findings very questionable.

Although the MN "high earners" always do when they are making considerations about this.

Two things to consider:

1. if you own your own home these benefits are much lower as they won’t cover your mortgage. So you need a higher take home before benefits to own your home.

2. not everyone has kids or £1500 a month childcare, mine is £5 an hour term time only (teacher) so is £660 a month (before tax free childcare or 15 free hours bring it down to £330 this year and £160 next year).

You could go part time for a bit and increase your pension contributions. Both would make you much more tax efficient and potentially be good work life balance. This is what I do and it's brilliant (I'm a high earner, but not by mn standards).

It really seems to be missing of these types of threads that higher earners do have quite a few options to manage this problem. Plus they will likely retire with a great pension pot and mortgage free house.

What I think is really making people feel it, is that the conservatives have not put up the tax bands (or tax free allowance) for years and have been effectively stealth taxing as people's salaries go up.

And this is why DH went part time when we had DC1. He pays into a system he largely gets no benefit from. Due to incremental pay rises for both of us over the next few years, we won’t qualify for the extended free hours for under 3s for DC2. He cannot put more into his pension as he will then start negatively impacting his take home pay.

I don’t resent people who get these benefits and help from the state, I appreciate we are in a much better situation long term than a lot of people we are lucky to have what we have.

But it’s a real slog feeling like you work tirelessly and are no better off.

I earn 100k and put 50% of my income into the pension. We then live as if I earn 50k.

I think the expected middle class lifestyle hasn’t really come to fruition for many people under 40 in Britain.

That's because many people have confused 'middle class' with 'middle income'. Being 'middle class' doesn't afford you any kind of lifestyle. Being a 'middle income' earner will only bring you a modest lifestyle in the UK, as it will in many other countries.

This is exactly what I thought too.

As @Aladdinzane said, the OP takes a very specific set of circumstances to suit a narrative.

I do think there are conversations worth having over how we approach taxation, child benefit, and what happens if there’s a household with a very high earner and a low earner.

However, the OP is very loaded. Anyone who takes the time to put together a graph to support an argument for a very specific set of circumstances and then seeks to generalise it falsely clearly has an agenda.

If you buy your property those figures are completely different. If you don’t need childcare those figures are completely different.

There are issues but this graph is in no way representative of the wide range of financial circumstances that we all have.

Wow, I’m shocked at those figures! I earn 25k full time but get no benefits as DH earns 125k.

I take home about £1650 a month. DH I think roughly £4.5k a month as £1k goes to his ex.

I'm not sure what we're classifying here but I'd consider 'middle income' being able to afford necessities, plus some extras. .
Not only are necessities themselves out of reach due to spiralling rents and bills. But middle earners are being targeted as a cash cow for others.

There are very obvious things like stopping but to let, socialising housing, making corporations pay a living wage etc that can be done

Yep. It’s his sums up my life completely. Years training for a better career and now crippled with tax And student loans I practically earn the same and my unqualified friends

I just did a quick check on a salary of £60k. In this specific situation, a single parent paying rent and having two pre-school children that you are paying childcare for.

Exactly how much they would receive depends on what part of the country they live in and the Local Housing Allowance for that area. London is very expensive, but in a cheaper area, such as where I live, the Local Housing Allowance for a 2 bed home is £698 per month (the average rent for a 2 bed home here is around £1,000 per month). They would receive more in London, for example the Local Housing Allowance in Walthamstow is £1,396 per month, exactly double the amount where I live.

In this situation, for a person not living in London but somewhere cheaper, that person would receive £282.22 per week or £1,222.95 per month in Universal Credit.

If this person lived in Walthamstow then they would get £443.31 per week or £1,921.01 per month.

Outside of London, the majority of that comes from having two children and the childcare costs for both children. Once the children go to school then that person would no longer receive any Universal Credit.

For the person in Walthamstow, they would still receive £149.08 per week or £646 per month mostly accounted for by payments towards the rent.

Take home pay for £125k is £6,400+ a month.

Most people aren't geographically mobile for work as they assume, there will be far fewer people leaving the country than claim they will.

Most people won't actually reduce their hours during the childcare years due to the fact that, whilst challenging, the childcare years are relatively short and cutting hours may be damaging to career prospects later ( not matter how indispensable you tell yourself you are)

Also, as far as I'm aware, the data shows that 98%of parents are eligible for the free childcare hours. Mainly because very few people in the childcare years have had a long enough career to make it into the to 5% of earners.

Oh and lets be honest, you all seem to make out like it's one income you are on, are there a massively disproportionate set of women who are making over 100k a year who are single parents? That makes it easy to make out like all the childcare comes from one income.

I do love the maths that people do to make it seem like they are worse off than someone on benefits when accruing assets like pensions and housing too. It really is rather easy to see through.

And you're all high earners, you really should be able to think through a post which isn't so easy to deconstruct. You all also have soooo much time to post on MN too. ;)

Yes, some combination of increased IHT, capital gains, progressive wealth tax and property/investment tax would need to be put in place. But it has its challenges as then the incentive for wealthy people and companies to be in the UK is removed. It’s a complicated problem, makes my head hurt a bit!

What a load of bullshit.

It assumes a single mum of two kids under four and yet living in an expensive area and paying private rent there, a person who has managed to keep their job (should applaud really) and has not feared the massive rent + nursery fees. A person with a uni degree.

I'm trying to imagine the life decisions that lead to her situation. I'm pretty sure she doesn't exist but in a way I admire her.

Do women on 90k want to be her?
I'm sure you could! Straight out of uni get knocked up, put your babies into full time nursery and work every 12h night shift at Tesco (will give 30k on paper in London). Don't forget to never save and only live in expensive rentals. Show em' unfairness in practice rather on the charts!

What would the end game be - a rich relative dying and saving from the struggle? Seems to be a common tactic of those in London on 90k even though by that point they already have a house in Tunbridge Wells and a holiday let in Wales. Still, doesn't hurt to pay off the mortgages and extend the kitchen for 200k.

So much to mull over here!
And so much bullshit.

I had never been in such a dire situation with money as when I was living with DC in a private rental on UC in the SE of the country. The "rent allowance" was £550 whilst my private rent for a small but safe flat was £890. Without a job (during Covid) the totality of my benefits was £1350 + £80 child benefit.
It wouldn't make me any better off if my child was in a funded £1500 a month nursery at the same time.

I have a job now, I own a house, I have savings and I'm much, much better off than I was on benefits. But I'll try to avoid 80k - sounds awful! Lol.

This was very interesting and really accurate; someone’s salary may sound high but honestly it can make little difference. I earn around £55k and take home is around £2800. Tax, national insurance, student loans, union membership - they all chip away at that take home pay. Sometimes I feel poorer now than I did working in a supermarket when I was a student. Honestly have no idea how anyone affords to be single these days.

@Katy4321 you are correct about stealth tax increases.

And all of these threads we see of higher earners complaining about their incomes are IMO because of these threshold freezes.

We see £50k as a really high earner, it’s £3k a month after tax and any extra they earn might be taxed at ~50% inc student loan.

When a nursery place costs £1.5k+ a month, and rent might cost the same… well, that’s the whole income gone.

People on those incomes should expect to be living a very comfortable lifestyle, but they are also finding themselves struggling to meet their costs while being stung with high tax rates.

I can totally believe it.
I am one of those that works slightly part time (30hrs) because I would end up with less overall net income if I work full time due to child benefit and pension/tax.

Full time puts me at no CB, 8.5% pension contribution and some salary and my BTL income taxed at 40%.

Part time means I keep the CB, pension is 6.8% and salary and BTL income taxed at 20%.

It literally doesn’t pay me to work full time or get a promotion until the tax thresholds move.

Without all the top ups and calculations for this very specific set of circumstances, take home pay a month for £25k is £2064 a month and for £90k is £5,200 a month. So yeah, it's not 3 or 4 x as much but it's still a lot more.

And a low paid job does not necessarily mean it's easy or low stress either.

The reason I put together this scenario is because of the repeated posts on Mumsnet from families with young children in the SE who wonder why they feel so poor, and who get told not to complain as because of their 'huge' salary they are so well-off.

I also put it together because I understood that take-home pay was a lot flatter than people think because of benefits and tax cliff-edges. I didn't expect it to be quite as flat as it came out. The location is simply based on my old address and 1.5k in rent and 1.5k-2k a month in nursery fees is on the low side for London.

I am NOT a Tory shill as this is what the situation looks like after 14 years of them in power.

This is interesting to read and shows the lack of financial incentive to earn more. This is a serious issue, my DS has already decided not to seek further promotion as he feels the stress and responsibility isn’t worth it

Surely the point of the childcare-related top-ups is to recognise that parents (mainly women) who work part time so that they can look after their kids as well are also doing important work that has general value to society?

I'm a high earner myself so do understand the frustration here, but without these top-ups many women would leave the workplace altogether and that wouldn't be a great outcome.