Among the many points of contention that arose during the election was Labour’s declaration that people earning more than £70k would be expected to contribute more in taxes should Jeremy Corbyn become Prime Minister. Fair enough, you might say – £70k is more than double the average wage.
However, it’s not gross income that determines how wealthy you feel – it’s net income, i.e., after tax and benefits have been deducted and added respectively.
Consider two similar families; both have two children and both rent a three-bedroom house in Hackney, North London. In each case, one of the adults works while their partner stays at home. The only difference is that one family has a gross income of £14k (close to minimum wage) while the other has £70k. The lower-earning family qualify for tax credits, housing benefit and child benefit; the higher earning family qualify for no benefits whatsoever. So, how much better off do you suppose this family is than their neighbour?
It turns out that, in this example, the family on minimum wage has fully 75 percent of the net income of the £70k family, as shown in the chart below:
Even if housing benefit is disregarded, the family on minimum wage still has 50 percent of the net income of the £70k family, despite earning only a fifth as much.
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