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?

On paper DH earns twice my salary, but in reality he only ends up with about 600 quid more than me. My salary is shite but because of that I pay very little tax and no student loan. The extra responsibilities of his role don't seem worth it!

Im not shocked. I live in guernsey and whilst we are only taxed at 20% (though if earning over 80k you get personal allowances starting to be withdrawn), the benefits system is extremely generous. I get really wound up by it. One couple at my kids’ school are in Costa around 3 times PER DAY buying at least a coffee each at around 3.85 per coffee. They don’t work! I really watch my pennies and no longer buy coffees out. Then another woman I know is on benefits yet has just had an all inclusive 5* European holiday - meanwhile my relatives who work in low income jobs can’t afford even a uk holiday.

it bloody sucks. I do think why am I bothering

You took a very particular set of circumstances and used them to fit a narrative.

It is rather easy to deconstruct.

They have said that they won't. They are still judged by the 1970s. Even though people apparently want better public services but woe betide them if they increase income tax.

Were we judging the parties in the 1970s based on their records in Edwardian times?

There is so much wasted money though.

As for the differences between earning £30K and £90K, I'd still prefer to be earning £90K, thanks very much.

(edited, I earn in the middle)

I think putting student loans into the mix makes the calculations of take home v extra stress more acute.

Senior roles do not necessarily = more stress though. I have loads of autonomy and control of my own role as a director - I found being more junior or in the middle more stressful with people micromanaging me.

The issue is less the 'top-ups' but the way they are withdrawn. If there was universal child benefit and universal help with childcare the cost would be a pittance, and the incentive to work would remain.

But because of the need to appease Daily Mail readers, these are removed from those on middle incomes and so the incentive to work more hours is reduced.

I reduced my hours because the high marginal tax rate meant it wasn't worth it. These charts are to show why that is.

I disagree.

Someone with the same job as their parents will not be able to maintain the same quality of life as them.

The most stark issue the very high cost of housing.

"I reduced my hours because the high marginal tax rate meant it wasn't worth it. These charts are to show why that is."

So you didn't/wouldn't pay more into your pension?

Reducing your hours isn't going to be costly later in career terms?

They won't really, a lot of people's income is connected to their location, the need for their role in that location etc.

I didn't say you don't earn a high income, I said the standard of points made by supposed high earners, as they are easy to deconstruct, is poor.

"There is no incentive to stay"

Apart from being in the society which facilitated you to be a high earner you mean?

The door is there though....

I did both actually. Increased pension contributions and reduced working hours. Anything to avoid going over the cliff-edge.

But why should we have to? The long-term impact on the economy of people reducing hours around these thresholds has a huge impact on productivity, economic growth and tax receipts.

My work declined me pt hours it’s not always so simple.

"The long-term impact on the economy of people reducing hours around these thresholds has a huge impact on productivity, economic growth and tax receipts."

It doesn't really, due to the fact that its such a tiny number of people who are impacted by the childcare costs and the tax threshold.

Agree with this- figures are way out for me on 100k-ish, i get more take home than it shows. I agree generally that the difference doesn't seem much, but the gradual accumulation of wealth, lower mortgage rates etc. makes a huge difference on a bigger salary. I don't disagree with the sentiment, but there's something wrong about these figures.

Millions are impacted by the withdrawal of child benefit and that impact lasts until children are 18, not just the nursery years.

You’re right OP.

I was just below the 120k mark until a little while ago I ended up signed off with stress and post covid related health issues after working non stop through the pandemic and then several boughts of covid. I’ve never taken more than 5 sicks days a year (working through Covid was hell - there are drawbacks from wfh and in the role I was in) and the doctor who discharged me after I collapsed told me there is no way I can open my emails whilst off.

I’m almost bankrupt now having burnt through savings but the thought of going back into a stressful work environment and being physically exhausted and in pain frightens me.

I would rather take a part time low paying job, with no stress and no responsibility if it means I get to preserve what little health I have at the moment.

Thank you OP for putting this together and pointing this out. It’s insane. Hunt mentioned something needs to be done about the £100k cliff edge but he won’t get the chance to and will be worse under Labour I predict. I am in this group (2 children under 3) and many colleagues with young children have gone to part time and I am not in London. Our company really struggles to find full time staff. I’m surprised they are not subsidising the loss of childcwre help etc themselves! No foreign holidays or meals out for us for the foreseeable. Costa is full of people not working and drives me crazy would love a treat!

I think you've taken quite a specific scenario. ONS numbers show that overall the top 20% of households still have an income 4x higher than the bottom 20% of households after tax and benefits.

So someone on £25k gets £2804 per month in benefits?

And someone on £110k actually gets benefits?

That can't be right.

@Aladdinzane actually it’s about 55,000 people and expected to double during this term - once again, frozen thresholds mean more and more people are pulled into this group.

As with @Teatimeandbooks i know a lot of people in this situation and many are going part-time to avoid it. Or - in the case of business owners just not paying themselves over this amount until their kids are out of childcare

Many (usually female) doctors reduce their hours to balance the effects of higher earnings vs cheaper childcare. This affects larger numbers of society than the simple statistics of who is earning enough to be affected by this. It does create an imbalance that doesn’t work.

and why are we subsidising lower earners in huge corporations like tescos. Why aren’t they expected by the government to step up and pay a living wage. An actual living wage, not one topped up by benefits.

Yes completely agree with this.

Im a high earner but live in a modest terraced house in London with a huge mortgage. DH works and 2 kids are at local state school.

When my boss (my parents’ generation) was at the exact same career stage as me he lived in a mortgage free Georgian detached house in London with a second home in Paris, a stay at home wife and 2 kids in private school.

That’s the difference in 20 years.

This is a very, very specific scenario indeed which only applies to a small subset of people.

Paying for childcare is something that happens for only a few years at most and, secondly, London with its much higher Local Housing Allowance is very different to how things are outside of London.

Yes, London does account for about 14% of the population, but the other 86% of people in the UK receive much less on Universal Credit due to the lower Local Housing Allowance.

Try doing the same exercise with a single parent of school age children in say Lincoln or Gloucester or Hartlepool.

Yes, I have used the scenario for those with young children which makes it worse.

But look at the chart between 100k and 120k - look at how flat it is. Wouldn't you reduce to 80% of hours if your take home was essentially the same? What is the impact on the economy if millions do likewise?

I have some hope that Rachel Reeves is an economist and so understands the importance of incentives.

I had the same issue. I’m a high earner and after maxing out my pension I remained under the limit for a while. However when I had my DS I was awarded a 20k bonus which I had no choice but to accept. It meant I paid a marginal rate of 62% tax on it plus lost all access to tax fee childcare and 30 funded hours.

It meant that literally in the week my DS was born I received a 20k payment and kept none of it. There is no way that is a fair system particularly at a point where my costs had suddenly increase and my ability to work decreased.