‘I earn over £125k – and it’s not enough’

·11-min read
‘I earn over £125k – and it’s not enough’
‘I earn over £125k – and it’s not enough’

In last year’s Autumn Statement, Jeremy Hunt announced that the threshold for the top rate of income tax was to be cut from £150,000 to £125,140. Since April 6, some 232,000 workers have found themselves paying the 45p rate for the first time. This week, Huw Pill, the Bank of England’s chief economist, has warned that rising prices have made the whole country poorer and that attempts to bid up wages were merely prolonging the agony. We spoke to three high earners to find out how all of this has impacted them and their families.

When I saw the news that the point at which the 45p income tax rate kicks in is falling to £125,140, I had to laugh. By a whisker, it raises me into the lofty realms of the country’s wealthy elite – which is a very long way indeed from how I feel.

I may earn good money in my senior job in recruitment, but the moment it hits my account, that money immediately disappears. It certainly doesn’t go on extravagances. I get my hair cut and coloured every three months, but my clothes are high street and our weekly shop is from Asda. We take one bucket-and-spade family holiday a year, last year it was in Tenerife – lovely for the children, but hardly the Maldives.

What devours my money at a terrifying rate is bills: mortgage, childcare, school fees, travel, gas and electricity… the list goes on. Although we can just about pay them now, I’m scared we’re one mortgage hike from living totally beyond our means.

We moved out of London four years ago to buy our four-bedroom house in Surrey for £1.3 million, for which we borrowed £500,000. Our repayments are over £2,000 per month, which my husband and I split between us. He is a graphic designer who earns around £50,000, which means I pay the lion’s share of the rest of our outgoings.

I don’t resent him for earning less, as he’s contributed far more than his share of nursery pick-ups and days when he can’t work because one of the children is ill. But it means that our biggest bills, for our daughter and son, fall to me, and they are astronomical. Our five-year-old daughter is at a private school, which costs around £15,000 a year. All that buys is her education from 9.15am to 3.15pm during term-time – if we need her to stay later, which we often do, it’s almost £10 extra per hour, with an additional £12.50 for dinner: this usually costs us well over £100 per week. Then there are holiday clubs, extra-curricular activities and school trips.

It was me who wanted her to have a private education, like me, so I only have myself to blame for the cost. I often wonder whether we’re doing the right thing, because compared to most of her classmates’ parents, we’re positively poor. They’re hedge fund managers with incredibly glamorous wives who don’t work; when I meet them at school events, it’s clear we inhabit different worlds. I worry that in the long-run we might be taking a path which makes our children feel inferior.

What’s absolutely not my fault, though, is the ludicrous sum I pay for my son to go to nursery full-time: around £1,800 per month, which is more than my daughter’s school fees. From September, after he turns three, we’ll get 15 hours of nursery a week for free but only for 38 weeks of the year, as my salary means we don’t qualify for 30. I understand why those who earn less should receive more help, but I admit that when I pay so much in tax and get so little back it feels like a kick in the teeth.

The other bills stack up, too. I pay £800 per month into my pension; energy bills are now around £300 per month; council tax is £255. Travelling by train into London to go to the office two or three days a week costs hundreds more every month. With food prices that constantly go up, phone, broadband, subscriptions for Netflix and Disney+ – I feel overwhelmed by it all.

Recently, we’ve been looking for ways to economise because having nothing left at the end of the month makes me anxious and stressed. We gave up our cleaner last year to save £45 a week and now do the cleaning ourselves. I no longer have a gym membership. We’re now considering moving up north, where I’m originally from, in the hope that we could buy a less expensive house and enjoy a better lifestyle in return for all our hard work.

Is £125k enough to live comfortably? Well, in London it’s definitely not. I’m in banking, an industry famous for its generous salaries, and I’m considered to be in the top 2 per cent of earners in this country but quite frankly, it rarely feels like that. The figures speak for themselves. If you earn a salary of £125k, you take home £75k. A quick Google search will tell you that 55 per cent of four-bed homes in London – and I’m talking greater London here, down to Croydon – are £1m or above. So on a £1m house, stamp duty is £42k. If you have an 80 per cent mortgage, not only do you need a £200k deposit – and who’s got that hanging around? – but your monthly payments will be, on the current rates, £4.5k a month, just over £50k a year.

And then let’s move to childcare. In my case, I have two small children in nursery; the youngest, who is one, is there three days a week and the oldest, three, is there four days a week. It costs us £2.5k a month – so that’s £30k a year on childcare that’s not even full time.

The rest is simple maths: if, say, my take home pay is £75k and my mortgage is £50k and my childcare bill is £30k - that’s all my wages gone. Just wiped out. That’s before any other bills; council tax, energy, water, food, insurance, car expenses and any whisper of a holiday.

So, yes, we are a dual income household: we have to be. My wife is an IT consultant and earns £65,000, which helps plug the gaps. Successive governments have created this trap where you need dual incomes to buy a house – because they’re so ridiculously expensive – but then you both have to keep on working full pelt to service the mortgage while one of your incomes just gets hoovered up by childcare.

During the pandemic my wife was made redundant and she had to do contract work for a while. So when she got pregnant with our second child, she didn’t get maternity leave pay. She was at home with our newborn and my wage didn’t cover our costs. We had to eat into our savings just to get through the months before she could go back to work and we felt comfortable leaving the baby at nursery.

And I understand that many would say we’re lucky to have savings, to have that safety net. I understand that we choose to live in London: of course we could move out to somewhere cheaper, but both my wife and I would be looking at a long and expensive commute. I never said my wage wasn’t enough to live on – but it’s sometimes hard to live comfortably.

It’s not like we spend £10k on clothes; we’re not wasting thousands on discretionary items that we could well live without, because if that were the case then we would be to blame. I’m talking about core expenses here: the home we pay for so we have a secure place to live, the childcare we need so my wife can go to work – which is her right and important – and the bills we pay so we can have heating and light.

In my mind, there is no sane reality where someone who earns £200k and gets a £10k bonus gets taxed less on that bonus than someone who earns £100k. But that is the truth of the matter. For someone earning £100k, the marginal rate of tax is 62 per cent. How is that right?

The Government likes to squeeze the bracket of people who earn between £100k and £150k. Why? Well we’re ‘rich’ enough for there to be little public sympathy but we’re not rich enough to be globally mobile and pay for dedicated tax advice, like the Rishi Sunaks of this world.

In this country, we need to start distinguishing between earnings and wealth. Wealth – assets or inheritance – are not taxed at the level earnings are. And how can I accumulate wealth if I’m being taxed so much? Let’s be clear: if you went to state school and have no family wealth, but you worked hard to get a high-paying job, you may earn a lot but that does not necessarily equate to being wealthy.

I’d say I feel comfortable but I’m not really wealthy; I feel lucky that I haven’t had to really rethink my spending in light of the current financial climate. But I’ve only got myself to look after – I’m single and have no dependants; I don’t have any responsibilities such as childcare, for instance, but if I did, I would undoubtedly be anxious to earn substantially more than I do now. And regardless of the latest tax bracket increase, I wouldn’t want to drop back to under £100,000. I worked hard to get here and feel like my salary justifies the work I’ve put in. I think it’s always good to be climbing and I’m ambitious when it comes to my salary.

But at the moment, life is good. My take-home pay is around £6,000 per month. I currently rent with another person for £1,000 per month and that means I end up with a fair amount of disposable income to spend how I see fit. I did own a home, which I sold 18 months ago as I wanted to move to another area. Then, my monthly mortgage payments were £1,800 so in regards to spendable cash, I’m much better off now.

The only sacrifice I’ve had to make is renting off someone who, at first, I didn’t know. When I was looking at places to live alone, anything for one person in good condition was £2.5k to £3k per month. It just wasn’t possible to rent solo without really eating into my earnings so I made the decision to take the risk with a flatshare.

It goes without saying that if I was renting on my own, my financial situation would be totally different. I’m looking to buy my own place again, but even though my salary has gone up since I last sold, this time around I will definitely be squeezed in terms of what I can afford, with the rise in property prices and mortgage rates.

I spend a lot of money on luxuries like holidays and restaurants – I’d say I eat out three times a week. I don’t have a car, so there’s no cash being used for petrol, tax or insurance. And because I’m renting, my wages aren’t being sunk into an expensive house renovation or big ticket items like furniture. However, I’m not really saving as much as I should; I am actively choosing to spend my salary on my lifestyle.

And, yes, I know I’m not making good long-term decisions. For example, I have a gym membership, which is about £50 a month, and another club membership – just under £200 a month – which is a very obvious example of luxury that I could easily cut back. But I don’t feel guilty about my spending as a lot of my friends have salaries in a similar range, or they have partners with whom they’re splitting mortgages, so our spending is in sync. I don’t want to have to say no to opportunities.

 As told to Lucy Foster, Polly Dunbar and Abigail Buchanan

*All names have been changed