Anyone else lost a bit of ambition now they’ve been taxed to the brink?

[Peasontoastt]

I used to be extremely ambitious and was really eager to reach some sort of financial security. As a consequence, I’m in what’s considered a highly paid career, I work hard and it took me many years to train.

Just as I paid off my student loan (which took many years), I then had a baby and returned to work to be stuck with the childcare dilemma. I struggled through that phase and have come out the other side but being taxed so much, no child benefit, still paying for nursery even though dd has ‘free’ hours now. It’s likely that savings are going to be bashed next, so what’s the point in even putting anything aside when there’s likely going to be a 4K cap on ISAs.

I used to feel so ambitious and of course I know money isn’t everything, not by a long shot. But having worked my way up the ladder and with huge responsibilities only to feel penalised financially for doing so…what is the point? Yes I have more financial security than someone claiming benefits but equally, I am not being flippant when I say a few years of resting and being at home and being frugal is starting to seem so much more attractive. Has anyone else started feeling this way? I feel taken the piss out of by every financial angle!

Rough (Google) maths claims that £100k is nearly £5800 a month. Obviously that may not account for student loans, pensions, etc.

But still. If your net pay is circa £5800 a month and you can’t afford childcare, that’s surely a money management issue.

I personally wouldn’t waste my tears crying into a river for that particular issue.

Well you should because research has shown that it is things like this which restrict the UKs tax take. This person cuts their hours and it affects their long term career prospects which effects the amount of tax the uk can take off them in the long run. Far better for the country’s finances that we fund their child care.

Oh but the envious would whine if we did this so we don’t and the whole country suffers as a result. Sigh!

@SleeplessInWhereverit is £5700, then student loan deductions, pension. Childcare is about £2250 per child. Then rail fares have gone up, so probably £500 to get to work on the train. It doesn’t leave really anything after two children in childcare and a commute

I’m not envious, I fall into the 40% bracket for now so don’t share that specific issue - I also don’t have any children in childcare. Never been jealous of higher earners - I earn what I earn and it makes our ends meet.

But surely we all cut our cloth accordingly, regardless of income, and live to whatever those means are.

My assumption would be that you would also therefore consider the impact of children on your budget, because if you’re able to earn over £100k you’re definitely capable of doing that.

“We” tell lower earners not to have kids they can’t afford all the time.

Yes I think this. The amount of people cutting hours if they can, or salary sacrificing what they can, means a lot of tax take is lost. And it makes sense for them on an individual level.

The bigger concern is the young ambitious people looking at this and leaving

The biggest concern is young people not being able to get jobs at all because AI is replacing them.

https://www.independent.co.uk/news/uk/home-news/a-level-exams-ai-jobs-b2763616.html

@SleeplessInWhereveri think you’re conflating the issue a bit. Yes people over £100k can figure out whether they can afford childcare. But that huge marginal rate tax means people take other actions - salary sacrifice, cut hours, leave. And it’s this that’s having an impact on overall tax take and productivity. It’s a disincentive

Perhaps, however as someone who has no issue with the multiple thousands of tax I pay, I wouldn’t personally take that action. I wouldn’t take action to lower the tax that is deducted from my pay, or lower that pay in anyway.

Personally, I’d have considered the financial impact of childcare, made the relevant family planning decisions, and then… paid for childcare.

One of DS's friends did a year in Dubai and got to save a whole year on tax.

Indeed. If you have 2 kids in nursery, it is estimated that your after nursery and tax income is less for every penny over £100k that you earn until you reach £140k when you start seeing extra take home pay again. It’s a crazy system and needs to change. Benefits should be universal and tax bands should be changed to pay for this. Any other way of doing it hampers growth and dampens the country’s tax take.

Well £99k nets £5,664 pm. £150k nets £7,607. So for an extra £51k of graft, you get £2k per month extra. However, the average UK (London will be a lot more) full time nursery cost is £1,322.14pm based on 50 pw. After 100k you lose childcare entirely. For simplicities sake I've ignored the tax free childcare element that would help the 'lower' earner even more. So:

£150K salary after 2 children at nursery = £7,607 - (£1,322 x2)
= £4,963

£99k salary after 2 children at nursery = £5,664 - ( £2,644 x30hours free of / 50)
= £4,077

So why bother to do the work that will earn you £50k more to only benefit from £886 per month?

Yes, I know about salary sacrifice and pension contributions, but this post is mean to illustrate how our tax and childcare system screw over medium - high earners.

As I've said before, if I had limited fucks to give, I'd give them to disabled people and those struggling to put food on the table. But surely even the most rabid communist, and those capable of holding more than one thought in their head can see that this isn't a good situation to drive excellence and ambition?

@SleeplessInWhereverwould you really not turn down a promotion if you get to keep exactly none of the pay rise? Or think I work 60 hours a week, why not take a day off with the children and drop my tax rate from 62% to 40%? There’s a point where a lot of people think, why bother. And we want to capture the tax revenues from them.

If a tax rate or cliff edge changes behaviour on wider level, then we need to see if we can smooth that out. And we have them throughout our system, including the child benefit cliff edge etc.

I agree, but it's not just loss of tax, it causes increased NHS waiting lists and difficulties in getting GP/dentist appointments because they typically (experienced/older ones) earn around £100k, so they're going to cut back on hours worked making fewer appointments available.

The £100k tax trap needs scrapping - it could be one good thing that Reeves SHOULD do in the forthcoming Autumn budget as it WILL increase tax revenue AND help towards NHS waiting lists and problems getting GP/dentist appointments.

And of course, in the broader economy, people working more is exactly what the country needs to drive economic growth. We need to be removing all barriers to people not working or working fewer hours than they could.

I would be hard pushed, personally, to consider an extra £886 as “only.”

I did, like many I’d guess, get caught on the threshold at £50k for a while. I hovered on the threshold just or over it for a few months and saw the impact that had on my take home pay. Part of my role is commission based - I earned more to fix that “problem” and acknowledged that it was a real first world problem.

No part of me considered pushing myself back under it, and I wouldn't have dreamed of feeling badly done to or somehow worse off, because sat on the middle earner threshold or not, I was still comfortably better off than others.

The 17% cut in graduate jobs could also be due to the ridiculous NIC hike and the slow down of the economy!

There was also a hike in graduate jobs a couple of years after covid to make up for the reduced numbers of "starter" jobs available during 2020 and 2021 where the big employers such at top 4 accountants took on far fewer graduates because of the uncertain economic conditions and then found themselves understaffed, so took on extra staff, over "normal" historic levels to "catch up". in 2022/3/4

People would complain "why are cutting taxes for rich people. We want more and more of their money. They earn it. We take it."

I would just get another job. No big deal. Its what low earners have to do. We are used to zero hour contracts and short work contracts.
I e been doing this since 1993 when I left school. I know how to live life fully while being on a low income and budgeting.
I wouldn't swap all those holidays for a pile of money in the bank for anyone.

Going from £49k to £51k is nothing like going from £99k to £101k. The "marginal" costs (increased tax, zeroised child care) is VERY different and far worse at the £100k cliff edge.

This is actually the mindset I think people should take

The 17% cut in graduate jobs could also be due to the ridiculous NIC hike and the slow down of the economy!

The article I posted is specifically about the effect of AI. And that’s an issue which is going to be increasingly relevant.

The stats don’t reflect an economy that’s slowing down.

https://economicsobservatory.com/what-are-the-short-term-prospects-for-uk-economic-growth

That may be true, haven’t personally made it there yet. But when I do, my assumption is that I’ll be aware that I still earn £100k and that is not an unfortunate place to be.

I don’t even look at my deductions. I know they’re 4 figures, but ultimately that’s not the money landing in my bank so provided my tax code is right, I don’t really care that number says. I don’t see tax as a loss of earnings, it’s not mine.

But going from £99k to £101k if you qualify for free child care will mean a BIG LOSS of income, not a slight increase in taxes etc. You'd actually be worse off.

Even without free childcare, you're still suffering a marginal tax/nic rate of 62%, plus maybe student loan 7%, plus maybe pension contributions 7% which means that 76% of your extra wages gets taken away, leaving you with just 24% of that pay rise or extra shift etc.

Whether or not that bothers you is irrelevant as it DOES bother the majority of people who take steps to avoid it happening.

IMO they shouldn’t.

I think being happier that you have an extra £880 (from the example someone gave earlier) would make far more sense.

It’s not like any of us here are living at the breadline.

You're willing to donate more to HM Treasury if you want

Ok, so I'll update the calculation to 99k v £110k.

£99k salary after 2 children at nursery = £5,664 - ( £2,644 x30hours free of / 50)
= £4,077

£110k salary after 2 children at nursery = £6,029 - (£1,322 x2)
= £3,385

Maybe this is a better illustration of how stupid the system is. £11k more work for £700 pm LESS take home.