Support 100 years of independent journalism.

  1. Business
  2. Economics
18 March 2015updated 25 Jul 2021 4:30am

Does earning £80,000 make you rich?

By Anoosh Chakelian

A man on BBC Question Time has taken issue with Labour’s policy to raise income tax for earners above £80,000.

He felt the party was “lying” to him by saying it would only be raising taxes on the “top 5 per cent”, because he was neither in the top 5 per cent, nor the top 50 per cent, and yet he would be affected by Labour’s new tax.

Watch it here:

The only thing is, he is in the top 5 per cent. Once you earn £75,300 or more in the UK, you are in the top 5 per cent of earners, according to the latest figures.

The average pay for workers in Great Britain is £508 a week, according to the latest Office for National Statistics (ONS) figures – a salary of about £26,416.

This man has a higher salary than 95 per cent of earners. So why doesn’t he believe it?

Firstly, it’s little wonder there’s a lack of understanding about what people earn in this country. Most people paid to judge and comment on these things are disproportionately well-off (journalism is dominated by the middle-class and privately educated). Even if you’re not earning that salary yourself, you’re more likely to know someone else who is, or have parents who do or did, if you’re from a privileged background.

There’s also the argument that assets and inherited wealth tell a truer story of someone’s circumstances than simply their salary.

But it’s also psychological and social. In general, we tend to misplace ourselves on the distribution scale and in terms of inequality. This is because we are more likely to surround ourselves with people who earn a similar salary, whether through work, family, friends or social media. This suggests to us that we’re the “norm” and there are plenty of richer people out there who we just don’t encounter.

This explains why the man on Question Time was convinced lawyers and doctors earn more than he does. “Every doctor in this country earns more than that,” he said. “Every doctor, every accountant, every solicitor earns more than that – that’s not 5 per cent.”

Actually, the reality is very different. On average in the UK in 2018, doctors earned £41,494 and solicitors earned £53,100, according to ONS data.

Yet he insisted, “the top 5 per cent don’t even work, because they’re rich, right, so they don’t even pay income tax, they’re not employees”.

This point-of-view backs up evidence that our perception of inequality depends on our own ideological standpoint, and whether we benefit from the status quo.

“Those who benefit from inequality, and thus stand to lose if it is addressed, might be motivated to downplay its existence, or to emphasise its fair or meritocratic nature,” says the 2018 academic paper “Ideology and perceptions of inequality”.

“The question thus arises whether those with an ideological motivation to support inequality or the economic status quo might experience or report perceptions of inequality in line with this motivation.”

Given we live in a liberal democracy that talks up the values of meritocracy, we tend to absorb the idea that earnings and opportunity are achieved on merit rather than shaped by class, prejudice, privilege, health, access to services, etc.

While most people would report an £80,000 salary as high, that doesn’t translate into public support for higher taxation of the 5 per cent. Britain’s ingrained belief in meritocracy and social mobility means we can imagine ourselves wanting to keep our imagined £80,000 salary away from the taxman, too, one day.

YouGov polling from 2014 suggests voters back redistribution of wealth in theory, but as soon as you translate that into taxes on the rich, you lose their support. Indeed, 44 per cent to 38 per cent opposed the suggestion of a top rate of tax of 80 per cent in the year before the 2015 general election, and there is consistently a majority in support of inheritance tax being reduced.

After Jeremy Corbyn mooted an earnings cap a while back, YouGov found a 13-point lead for those who think a maximum salary is a bad idea.

You can talk about inequality all you like and people will nod and agree and feel hard-done-by and cash-strapped, but making popular policy off the back of that sentiment is tough.

It is easier to sell tax rises to fund public services – YouGov finds majority support for raising income tax or national insurance to help the NHS – than tax rises on the better off simply for being better off. Perhaps because everyone hopes one day to be better-off and not “punished” for it.

Just ask Ed Miliband. The former Labour leader’s manifesto and philosophy focused on fixing inequality. Polling suggested his mansion tax proposal was fairly popular, but it turned out the electorate – generally unlikely to own a mansion – didn’t like the idea of it in the end. This rejection was what led to constant cries of “aspiration” from wannabe Labour leaders in 2015.

Labour is correct that most voters see £80,000 as a top salary, and that taxes need to be raised somewhere to fund its spending commitments. But framing it as an attack on the “top 5 per cent” and “billionaires” is a risky strategy that may not pay off.