Chat GPT
Can you please explain your point about low earners paying higher proportion of their income in tax than high earners? To make it simple, please take one FT NMW single earner (23.8k pa?) with no top up benefits and one 125k earner and show their taxes and which proportion of income it is?
Good question — and using two simple examples is exactly the right way to separate what’s actually true from what’s often said in debates.
I’ll keep this clean and mechanical first, then explain where the “low earners pay a higher proportion” argument comes from.
Assumptions (to keep it simple)
Tax year: 2025/26 (England/Wales/Northern Ireland rates)
Standard PAYE employee
No pension salary sacrifice
No student loan
No benefits or tax credits
Single earner
Only Income Tax + employee NI first (direct taxes)
Figures based on current HMRC thresholds
1️⃣ Full-time NMW earner – £23,800 salary
Income tax
Personal allowance: £12,570 (tax free)
Taxable income = £23,800 − £12,570 = £11,230
Income tax @ 20% = £2,246
National Insurance
NI at 8% between £12,570 and £50,270
NI = £11,230 × 8% = £898
Total direct tax
£3,144
Effective direct tax rate
£3,144 / £23,800 = 13.2%
Take-home pay
≈ £20,656
2️⃣ £125,000 earner
Important: personal allowance is almost fully removed above £100k.
Reduction = £1 lost per £2 over £100k
£25k over → allowance reduced by £12,500
Remaining allowance ≈ £70
Income tax
First £37,700 taxable income @ 20% = £7,540
Remaining £87,230 @ 40% = £34,892
Total income tax = £42,432
National Insurance
£37,700 @ 8% = £3,016
£74,730 @ 2% = £1,495
Total NI = £4,511
Total direct tax
£46,943
Effective direct tax rate
£46,943 / £125,000 = 37.6%
Take-home pay
≈ £78,057
3️⃣ Side-by-side comparison (direct taxes only)
IncomeIncome TaxNITotal TaxEffective Rate
£23.8k
£2,246
£898
£3,144
13.2%
£125k
£42,432
£4,511
£46,943
37.6%
Simple conclusion (direct taxes)
The higher earner pays:
Much more in £ terms
Much higher % of income
So direct taxation in the UK is clearly progressive.
4️⃣ So why do people say low earners pay a higher proportion?
Because they’re usually talking about the whole tax system, not just income tax/NI.
The key difference = indirect taxes
Low earners tend to:
Spend almost all their income
On goods/services that carry VAT and duties
High earners tend to:
Save more
Invest more
Spend a smaller proportion of income on VAT-rated consumption
Example (very simplified illustration)
⚠️ These are illustrative, not exact household models.
NMW earner
If they spend 95% of income and much of it attracts VAT:
VAT burden might be roughly ~£2k+
Council tax could be ~£1,800
That alone can add another 15–18% of gross income.
£125k earner
If they spend only ~50% of income:
VAT as % of income is lower (despite higher £ amount)
Council tax roughly similar in £ terms
Council tax might be ~1–2% of income instead of 7–8%.
5️⃣ The key point (this is usually what gets muddled)
TRUE:
Income tax + NI = strongly progressive
Higher earners pay a much bigger share
ALSO TRUE:
VAT and council tax are relatively regressive
They hit lower earners harder as a % of income
Both things can exist at the same time.
Think of it like layers:
Income tax system → progressive
Indirect taxes (VAT, duties, council tax) → regressive
Benefits/credits → strongly progressive (pulls the overall system back again)
That’s why economists sometimes argue about whether the overall system is progressive or not — it depends whether you include transfers and indirect taxes.
6️⃣ The blunt, plain-English version
If you strip everything away:
Low earners do not pay a higher proportion in PAYE taxes.
They can pay a high proportion of their income in consumption taxes because they must spend almost everything they earn.
High earners pay a much larger proportion in direct tax but can defer or avoid indirect tax by saving.
If you want, I can show you something that usually surprises people:
⭐ The “hidden middle” — roughly where the effective tax rate peaks in the UK (it’s not actually at £125k).
That’s often where the real debate starts.
TLDR
Chat GPT summary:
Low earners don’t pay a higher proportion of their income in tax overall. They pay a higher proportion in VAT and other indirect taxes because they spend most of what they earn. But VAT is only one part of the system. Higher earners — including many middle earners — pay a much larger share of their income through income tax and National Insurance, so the overall direct tax system remains progressive.