The £70K question

Yesterday was full of hot takes on whether earning £70K makes you rich. The man with exciting eyebrows, Shadow Chancellor John McDonnell, was responsible for this, saying Labour would tax the rich more, with “the rich” being defined as those earning more than £70K.

I’ll say now I don’t earn £70K, so I’m not defending myself here. Plenty of my friends earn more than £70K, in some instances it’s multiples of that, and some of those can plead poverty in public without any sense of irony.

£70K is without a doubt a lot of money.

It’s four and a half times the salary I started on as a trainee accountant twenty years ago.

As a gross salary, it’s over two and a half times the national average of £27k (in terms of take home pay though, it’s only just over twice as much due to tax thresholds and allowances).

However in plenty of family situations, with a single wage earner and a stay at home parent, it’s only marginally better than both parents working for the national average. Two basic rate tax payers earning the average UK wage each between them will take home 91% of the amount one individual earning £70K will. And that’s before anything like working family tax credits or other benefits that are available to basic rate tax payers.

The unasked question is how many families chose to make the sacrifice in terms of one parent’s career to ensure the other parent maximises their earnings? 

There are of course other issues, such as the cost of childcare- for us to have all three in child care before and after school was, until recently high enough that a £50K salary would have been roughly the break even point to cover child care. This was a combination of where we live and the cost of child care for three children. Once they were all in full time education the cost would have dropped to a little over £8,500 from taxed income for breakfast and after school club during term time and many thousands more to cover the 14 weeks of school holidays. That’s a lot.

At this point many shout

“Well it was your choice to have children, you have to live with the consequences.”

This isn’t a very clever thing to say for so many reasons. Our population growth, in common with a lot of the developed world, is quite low in terms of births. Since the government seem hell bent on stopping anyone coming into the country to work, this is and will be problematic because according to the ONS, over 50% of the governments income comes from income tax and national insurance. We have an ageing population, currently 15% of our population is over 65, and this is set to grow over the coming years. We need young people to work and pay taxes to fund our society.

There is also a very common misconception that by “paying your stamp” money has been set aside for your state pension. It’s a lovely idea that somewhere all the pounds shillings and pence that your gran contributed in NI are sitting in a pile to be given out in pension but it’s sadly not true. Paying your NI gives you the right to a pension in the future but your NI payments themselves go into the central government taxation pot to be spent on hosting Donald Trump’s state visit, paying the state pension for the currently retired or whatever else the current government decide to spend it’s money on.

Those kids you criticise other people for having, it’s their tax and national insurance that will pay your state pension in ten or fifteen years time if you’re lucky. Don’t shoot yourself in the foot.

In a family context, it’s overly simplistic to take an individual parent or guardians salary in isolation. One of my colleagues earns £40K, so does his wife. They’re more minted than most £70K+ earners I know as they both have a full tax free personal allowance and both have full use of the basic rate 20% band of income tax. Coupled with one child, they’re rolling in it- richer than the vast majority of people I know. Yes, I’m over-egging it but do you see my point, individual salary is not an arbiter of wealth in a family situation and the majority of us live in a family at some point (especially when we hit the age when we’re earning more).

What the baby boomers don’t appreciate is they grew up and worked in a time where property was cheap and abundant, and jobs were well paid relative to the cost of living because the cost of living was cheap. If you worked hard you would succeed, as much through the peculiar circumstances of the time as through your work in itself. Now days if you work hard, you still stand a fairly reasonable chance of living in poverty.

Rounding it all up if I may, and well done if you’ve made it this far, it’s another of my 1,000 word rambles, £70K is undoubtedly a lot of money. Whether earning £70K classifies you as rich is an entirely different answer though and cannot and should not be taken out of context; either circumstantial or societal.