To Q why many high earners still live paycheque to paycheque?

[FrugalFannie]

I wanted to spark a discussion after seeing a post about living paycheque to paycheque. An interesting article I read in the ES (Nov, 2023) claimed that “Some 26% of people surveyed across the UK with an annual income of £100,000 + said they had no money left at the end of the month” https://www.standard.co.uk/business/money/26-of-people-earning-ps100-000plus-living-monthtomonth-amid-costs-squeeze-b1121031.html

Recent years have indeed been tough financially, but if you earn a relatively good or high wage, it seems surprising to still be living paycheque to paycheque. I personally don’t live this way; I’m a single woman with no children and consider myself smart with money.

I’d love to hear from those who aren’t living paycheque to paycheque about how they manage their finances. What strategies do you use? Is it a matter of being extremely frugal in this economy? Clearly, this issue affects people across various income levels, and I recognise that everyone’s situation is unique. I’m genuinely curious to learn about different financial approaches that work for you!

Is that his marginal rate or overall rate @Sibilantseamstress ? Is his income all PAYE or does he have other sources of income?

Overall rate, PAYE.

No, it isn't. It is very easy to design a system where tax allowances/ thresholds are allocated on a household basis with an opt in system allowing couples living together to transfer tax allowances between them in order to reduce their overall tax bill if they wish to and both agree to do so.

It is a completely false argument to claim that single people, and particularly single parents, must be penalised in order to avoid women in couples paying high tax rates where finances are not shared with a cohabiting partner. I find it pretty appalling actually that you're happy for other women to be deliberately penalised by the tax system due to a false belief that rectifying this would disadvantage other women because quite obviously it would not need to do so at all.

It is very unpleasant to argue for the continuation of systematic prejudice against and disadvantage to women and children living in less fortunate circumstances than you because you (falsely) believe the current discriminatory system benefits you personally (I presume, otherwise your comment is even more unfathomable).

Do explain how someone paying no/ such a minimal amount of income tax and NI that it is an insignificant as a percentage of income that it is irrelevant is managing to pay over 50% of their income in tax when the VAT rate is a maximum of 20% and many essential costs aren't subject to VAT anyway? Even with fuel duty, insurance premium tax etc as well it is completely disingenuous to claim that the percentage paid by low and middle earners if comparable.

This is why UK public services are in the dire state they are in currently. The tax base has been narrowed too far. Higher earners in the UK pay some of the highest tax rates in the entire world. Especially when you compare properly using net incomes after all tax abd other compulsory deductions and adding back benefits, i.e. this is impacted by student loan payments being effectively another 9% tax (or more for those with MAs/ MSCs/ PHDs), the withdrawal of child benefit and the personal allowance and childcare funding. Those withdrawals need to be scrapped because they are creating peverse incentives and preventing economic growth. Then you add on all the Universal Credit etc other people get and as a PP pointed out, someone earning £100k - often after many years of study and gruelling hours and stress - is not really any better off than those on average salaries! Especially as many of the professions in question also require living in areas with high housing and childcare costs (and these people have to pay for their own childcare, not get 85% of it funded by UC). That can be thousands of pounds per month, just for that.

The difference between the UK and continental European countries that have the services people in the UK seem to covet is that low and middle earners pay far higher taxes. It's simple mathematics: there's no other way to fund the services people desire adequately due to the numbers of people in each "group".

People in the UK bury their heads in the sand yelling "tax the rich" and defining "rich" as anybody who earns a bit more than they do. "Rich" properly refers to wealth, not income. Wealth is very hard to tax. The "incomes" of such people aren't generally earner through PAYE. Therefore it is the people in between - very hard-working and highly-qualified professionals mostly - who have been hammered for the last 15+ years and carried everyone else because they are an easy target. Many in skills shortage areas that we desperately need for growth.

It is simply not worth working full time now for many in this category because they are penalised so heavily; even the Guardian reported the economic studies on this. They are either cutting hours/ retiring early or moving abroad where they won't be disproportionately taxed compared to everyone else and will be paid salaries more accurately reflecting their skills and qualifications.

People in the UK need to decide between having a European model for tax and services, or a more US-type model. It is not sustainable to have European levels of services and welfare and US levels of tax. The "someone else should pay for it" mantra is running out of road now and the consequences of not addressing it and raising taxes substantially on middle income earners commensurate with other western European countries will be far worse in the long run if the situation is allowed to continue as it is. Much as you might like to, I'm afraid it's mathematically impossible to raise the money required now from the same people who've been carrying every else for nearly two decades. Some already have real marginal tax rates approaching or even exceeding 100%! Nobody is going to go to work to earn less money.

High earners do not receive a 'pay cheque'. They are salaried, paid by BACS.
And why so inconceivable that they spend their income each month, as do the rest of we mere mortals. Everyone spends to their means apart from the spendthrifts or the parsimonious, that is human nature
Does anyone apply logic anymore?

Sunrise, absolutely. Since 2010 most people int he UK have had tax reductions - NI etc except those on about £70K + who have the highest tax burden for 70 years. There is no slack left to give unless we start confiscating homes from old people. That is why Hammond at one point planned to tax white van man more because there are loads of white van men out there. Even things like the personal tax allowance of over £12k and the minimum wage have gone up - which is great for people (although the higher earners do not even get a personal tax allowance these days) but means less tax coming in.

I don't however want more tax for anyone. I would prefer a much smaller state.

I’m an immigrant. I always wanted my DC to stay here despite dual passports. I always intended to live out my life here, I came here in my 20s and built a life. My British husband and I want to it stay put. We’ve lived in the same neighbourhood for 25 years.

I am now considering keeping any inheritance that I receive off shore. My husband is considering working a few years overseas to build up an offshore nest egg. We have to face that our children may want to go to my old country to build a life where prospects are better for them.

We aren’t the sort of people who want to go through the bother of all this. We aren’t “operators.” We’ve spent decades watching peers leverage rental properties, do stints in Dubai, invest in films etc. We were happy to plod along. We always thought it was important that everyone had healthcare, that no one was hungry. So we accepted the situation.

Labour hasn’t done much yet, but what they have done is alarming. We feel like frogs in slowly boiling water. We might need to jump before it’s too late.

I wonder how many dosy people like us will get a jolt here and decide it’s time to be a bit my dynamic.

Exactly @Artfuldodger24 baiting us - decide and conquer.
Saw the same post in another online group, googled the profile name and they're a trainee journalist.

Hope you get a good story out of this op 🙄

You have explained it perfectly. Thanks!

you're most definitely not alone

On paper I earn a decent salary. By the time PAYE/NI/pension is deducted, I take home 57% of my gross pay. All through PAYE.

As a single working parent with DC including SEN, my childcare bill is my biggest monthly expense as only wraparound to allow me to work.

The tax system needs an overhaul.

You're definitely not alone.

I am English, live in London and love this city with all my heart, but I am planning to emigrate later this year.

Why? Stagnant wages, high taxes relative to quality of public services, and falling standard of living.

Our joint income is around £110k - we’re far from destitute (obviously) but we have an expensive life as our two boys both have autism, our 6yo is in nappies still (which cost us around £100 a month) and the need various things replacing a lot.

Food is £1k a month because of the sodding limited diet they eat, we have to have an expensive after school nanny (worth twice the cost - she’s utterly phenomenal with the boys who are both in special school), £250 a month commuting costs for DH, £80 a month petrol.

The small amount of savings we had have just been decimated by a £2k car repair, faulty boiler, and the roof needing to be replaced.

Every time we feel like we get somewhere something goes to shit.

I’ve just uppped to from 24 to 30hrs a week which has added an extra £500 a month so hopefully that will help.

Nothing about our life is about appearances. We are just doing our thing - our car is over 10 years old, UK cottage holidays etc.

We could absolutely cut some costs but life is hard and a bit shit and we need to get enjoyment where we can.

I'm sorry to hear of your situation Merryoldgoat. It is really hard. My situation is similar except there's one of me. Therefore, I have to do all the earning and caring for two disabled children and have more childcare to pay because there's only one of me so I cannot tag team with someone to reduce costs, but am also taxed more on the same income to compound the disadvantage: that's why every other developed country taxes people on a household basis and/ or provides additional tax allowances if you have children.

For example, £110k split between two earners each on £55k (for example) is net pay each of £3,538 after tax (assuming no student loans), so £7,076. If a lone parent earns £110k their net pay is £6,030. They are doing two people's roles AND taxed more on the same money. The two adult household with the same household income can still claim 30 hours free childcare and use tax free childcare and get a tax free personal allowance each and child benefit as well. The lone parent gets none of these, so in reality is around £2,500 worse off per month with the same household income and two children in childcare, based on the same household income!

Like you say, caring for disabled children is hard enough as it is Why are people who are trying to do the role of two parents in such a situation penalised even further deliberately when actually their costs will be even higher because you can't be in two places at once. It's unjustifiable. As for being "rich" 😆 what an absolute joke! With a £3k per month childcare cost to pay, over £2k for a mortgage for a modest home, we are poorer than the vast majority once essentials are paid.

People needs to realise that a gross salary on paper is meaningless without considering essential outgoings. I certainly don't have "broad shoulders". I have shoulders with crushed collarbones that have been stripped to the bone by piranhas. I do not have anything spare to give to HMRC, they already have us on the verge of losing everything with their excessive demands on my household comparative to household income. It would be nice if just for once they targeted a different group of people, but I won't hold my breath.

@SunriseMonsters I would not survive alone. I cannot fathom how you do. My husband and I are like passing ships - we get on and have a good relationship but sometimes feel like we’re just housemates looking after kids.

By the end of the week I feel totally wrung out.

It's horrific for anybody to cope with. I am literally just surviving. My health is gradually collapsing and I worry how long I can sustain it because there's noone else to take over if I'm gone.

I guess for people in situations like yours and mine, doing our utmost and dealing with challenges many others will never have to face whilst also paying large tax bills to support other families who actually have a much easier life, these kinds of threads are really quite insulting.

Well said!

Yes. And actually, in many areas 30 hrs of free childcare is worth £1500+ per child so the couple earning £50k in your scenario are actually significantly better off in most cases!

I find it so weird that people can't grasp this when it's so simple to calculate. How can people vote in a meaningful way if they don't even understand the basics of economics and our own tax system?

I think a lot of people forget student loans in particular.

I also think people don't grasp the impact of the tax free allowance.

But I feel a bit different about childcare, in that I don't get any free chikdcare as I don't have children the right age so it's not something I factor in when thinking about earnings.

I also think than the 5% pension hasn't disappeared. It's still yours.

I don't even do the pension thing and will work until I die.... the supposedly higher earners have been taxed until the pips squeak under the Tories and plenty of the middle class ones, doctors etc are about to face what is really £10k a year extra tax in January - VAT on school fees - yes a luxury but sometimes the only way to have disabled children's needs seen to or only way to have before and after school care that works in a way that means you can keep your job or because you don't live near good school.

In my own case, I have had extra taxing as in outer London with ULEZ as have a car that is not compliant (I live about 3 large sets in outer London so virtually countryside). I accept the state can tax how it likes but it i yet another tax. I just paid my compulsory professional insurance which is thousands of pounds and the state takes over £1k for insurance premium tax. Almost every turn there is a tax - not quite a 1600s window tax as yet but it is all over, tax tax tax.

We just need a new debate about if we want a contributory system like much of the EU _ you pay in, work hard and get the benefits or a basic provision for the very poor only but instead as someone said above we have both - worst of all worlds. If you work 35 years full time (I have done over 40 without a single break) and you get your state pension at in my case 67 which is about the single person tax allowance and will be taxed at your highest marginal rate if you still work as I will be doing; yet if you never do a day's work in your life you get MORE than that - you get pension credit or UC, housing benefit - the works.

Labour (and the Tories under Iain Duncan Smith) both want to make work pay but it is very very hard to achieve if you also want to be kind to the poor and out of work.

I think a lot of people forget student loans in particular.

I also think people don't grasp the impact of the tax free allowance.

But I feel a bit different about childcare, in that I don't get any free chikdcare as I don't have children the right age so it's not something I factor in when thinking about earnings.

I also think than the 5% pension hasn't disappeared. It's still yours.

I didn't even include student loans or pension payments in the calculation of the post you quoted, just deductions for income tax and NI.

With childcare it's not just an issue for young children. It's an issue for older ones, too: if you earn over £100k you cannot use "tax free childcare" for a 20% discount on after school clubs, holiday clubs, nannies, childminders. Whereas a couple each earning £99k can get this 20% discount. Even though the lone parent will likely have far higher childcare costs because they cannot alternate caring for the children with the other parent while one parent works.

A couple each earning £70k receive child benefit. A lone parent earning £100k does not.

The couple can earn £24k tax free, the lone parent is taxed on all of their income. The couple can earn £100k before they even start paying 40% income tax whereas the lone parent is taxed at this higher rate on everything over £50k.

The system is ridiculous and makes it so that a lone parent with two children in childcare has to earn over £150k to have the same net income after tax and childcare that a couple receives if they both earn the average salary of £35k. I.e. they must earn twice as much, as well as having half as much time to earn/ care. There is a reason why other countries don't structure their tax systems in this manner to compound disadvantage deliberately.

I dont agree with the system.

I was just trying to point out people aren't necessarily stupid or unaware of economics just if you never did a degree and don't have children of childcare age you don't think of those as a tax issue.

Tax free childcare and the 30hrs free childcare system are administered and operated by HMRC so clearly the Government considers these a tax issue!

Student loan deductions are also managed by HMRC and for PAYE earners are compulsory deductions along with NI and income tax.

@SunriseMonsters is that right about child benefit? I’ve opted out of it because I earn an average wage but my partner earns around 65k, which I thought meant there was no point claiming it

@SunriseMonsters the government website seems to suggest a couple both earning 70k would not get much child benefit - not the full amount anyway - due to the high income child benefit charge https://www.gov.uk/child-benefit/what-youll-get

I’ve opted out as with the small amount we’d get it doesn’t seem worth the palaver of filling in a tax form each year and paying the charge