A view from London
What constitutes a normal level of earnings and at what level of income someone might be considered to be rich?
Ian Stewart
What constitutes a normal level of earnings and at what level of income someone might be considered to be rich? In the last year the government has talked of not raising taxes on “working people” and asking “those with the broadest shoulders” to pay more. This week we look at how much such people might actually earn.
In a population approaching 70m just under half, 34m people, are in work, about three-quarters working full time and a quarter part time. 9m people are of working age but are not in work because they are sick or disabled, studying, have caring responsibilities or have retired early.
The median employee, so the person in the middle of the income distribution, earns £32,890 before taxes. The mean is much higher, at £40,269, reflecting the effect of a skewed income distribution with a relatively small number of high earners.
Looking only at those in full-time work, the bottom 10% of workers were paid £23,990 or less, equivalent to a 40-hour work week on the minimum wage. The top 10% of full-time wage earners had earnings of at least £76,903.
We couldn’t find equivalent earnings figures for the top of the income distribution. However, government figures show that the top 1% of income taxpayers in 2022-23 had pre-tax income — earnings as well as income from investment and pensions — of over £201,000, a figure that now is likely to be well over £230,000.
Government redistributes on a vast scale. Before the state gets involved, the total income of the richest 20% of households is 12 times that of the bottom 20% of households. Taking account of taxes, benefits, pensions and public services, such as health and education, the gap between the top and bottom 20% narrows from a factor of 12 times to 3.
Around a third of adults pay no income tax. Among those that do, the top half account for 90% of all income tax revenues. Within this the highest earners make an outsize contribution with the top 5% paying 47% of income tax revenues and the top 1% contributing 26%.
Ultimately, of course, there is no answer to the question of who is a working person or someone with ‘broad shoulders’. It’s in the eye of the beholder. Take your pick: median earnings of £33,000, average earnings of £40,000, a threshold for the 40p rate of income tax of just over £50,000, entry into the hallowed top 10% of earners at £77,000 and into the top 1% in terms of all income at £230,000. It’s more complicated still once taxes and benefits kick in and when you consider different people’s household circumstances and where they live.
In recent weeks the chancellor has signalled that she is considering tax rises in the October budget. We’ll find out which taxes, and who will pay them, on 26 November.
Let’s make this work.
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Ian Stewart
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