By any measure, Lucy makes a good living. The 46-year-old works as a compliance director at a major bank and earns a six-figure salary.
Even though her income puts her in the top five highest paid earners in the UK, she doesn't feel rich.
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“My lifestyle is not what people would think if they put it next to the number I take home,” says Lucy, a single mother of a daughter.
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“I won’t go on vacation this year. I haven't been abroad for the last five years. I sell used clothes on Vinted. When we go out, we take sandwiches. I wouldn't think of going to Waitrose for food.»
Lucy, who asked to change her name due to the sensitivity of discussing her personal finances, says her salary is £130,000. The range is 145,000. But, she says, her lifestyle «doesn't correlate.»
«The reality is the money isn't worth what it was.»
Lucy's finances aren't tight due to debt, gambling or frivolous spending. What made her feel left out was the British tax and benefits system.
Because she earns more than £100,000, she is only entitled to 15 hours of free childcare rather than 30, loses out on tax benefits and spends £18,000 a year to send her daughter to nursery.
On top of all this are the costs of commuting from the suburbs to her London office and a mortgage that has increased by £500 a month. Meanwhile, the bank where she works froze everyone's wages, despite soaring inflation.
“I get almost 50% tax on everything. I calculated that I need to earn £45,000 a year to get to work. It's quite shocking because I look at it and think, 'How the hell do other people deal with this?'» Lucy says.
«It's exhausting, to be honest, keeping track of every penny and work very hard. It's just endless bad news.»
Lucy's plight is nothing unusual: the rising tax burden on top earners in recent years has made it harder and harder to feel rich in Britain.
“The Conservatives and the Coalition have significantly increased taxes at the top,” says Stuart Adam from the Institute for Fiscal Studies (IFS). “Since 2010, incomes for the top earners have grown slower than average, and tax policy has been to concentrate taxes more on those at the top.”
IFS figures show that someone earning £200,000 pays at least £10,000. taxes are higher than in 2009.
Lower-paid citizens are still taxed less than in 2010, even after the hidden tax increases introduced after the pandemic.
In the decades before financial crisis, taxes paid by rich people rose significantly, but this was driven by rising incomes rather than punitive tax changes.
Since 2010, growth has reflected higher taxes while incomes have stagnated. According to the IFS, incomes of the richest tenth of taxpayers have risen by just 1.5% since the financial crisis.
Despite wage stagnation at the top, the salary thresholds at which highly paid workers are taxed have been reduced in real terms, and non-taxable allowances have been reduced or eliminated.
«The result of all this is more and more taxes levied on high income people when we don't actually see that,» says Adam.
People like Lucy now pay about half of all income tax, up from 43% in 2010 year.
Meanwhile, all workers with the lowest 50% salary contribute 9.5% — slightly less than 11.3%.
Spending has risen sharply, as has the tax burden, with mortgage payments, private school fees and childcare costs all rising significantly.
The Office for National Statistics said households on the highest incomes were currently experiencing the highest rates of inflation due to rising mortgage costs.
Their cost of living in March was 5% higher than a year earlier, compared with 3.9% for those on the lowest incomes.
Although they have a large financial cushion to cope with this growth, many still feel squeezed. says Ollie Cheng.
Cheng is an associate director at Saunderson House and advises high earners on their finances. His clients are typically self-made businessmen or have lucrative jobs in the city.
“A lot of people who would be considered high earners are under pressure from different directions,” he says. “Tuition fees are one thing, mortgage rates are another. The tax burden sometimes feels significant, if you blow over £100,000 — you could lose benefits such as free childcare. This way, you can give up something terrible for a little extra income.”
People are also adopting more expensive habits as they earn more income. The rising costs of many of them are proving devastating.
“It's a lifestyle change,” says Cheng. «You earn a little more, send the kids to private school or get used to spending a little more at your Ocado store.
«You have to earn quite a tidy sum these days, especially after a couple of years of inflation, to really feel comfortable «.
Although the UK's top tax rates are much lower than neighboring countries such as Germany and France, frozen tax rates mean many more people now pay the 40% rate .
16% of all taxpayers now pay a higher rate. According to HSBC, this figure has risen from 10% at the turn of the millennium.
At the beginning of this period, people paying a higher tax rate typically earned 70% more than the average worker. Today it's just 45%.
This narrowing gap highlights the insidious consequences of frozen thresholds: As inflation pushes up wages, more and more people are forced to pay higher tax rates even though they earn slightly above average.
The thresholds for both starting to pay income tax and paying the higher rate have been frozen from 2021. The additional tax rate threshold is fixed from 2022.
Chancellor Jeremy Hunt confirmed last week that the threshold freeze will remain in place. This will happen until at least 2028, when they currently expire.
“While tax rates look good and low, the reality is very different,” HSBC analysts said in a pre-election note last week.< /p>
For some of Britain's highest earners, it has become too much.
Simon Goldring, an independent tax consultant, packed up and moved to Dubai last year. The savings are huge, he says.
“When I lived in the UK, I paid a significant six-figure sum [in taxes] every year.”
In Dubai, his business pays corporation tax at the rate 9 percent, not 25 percent, and he doesn't pay personal income tax. There is also no threat of inheritance tax.
“I moved myself and brought a few [Britons] here. There are people who work very hard and actually give up half their income, perhaps not for the services they deserve,” he says.
What does it mean to be rich? Find out where you are. Read more
Many of Goldring's clients during the pandemic realized that they could do their work from anywhere, and, faced with a decrease in living standards, decided to do just that.
«I don't see it getting any better,» he said. Goldring added: «I've had three enquiries in the last few weeks from high net worth and ultra-high net worth people who are fed up with paying too much tax, whether it's on income tax or on the dividends they receive.»
Adam says: «The higher the tax rates, the more you create a disincentive effect and the more you make the UK less attractive.»
Cheng says many of the people he works with complain about high taxes but feel trapped because their children are at school here or they don't want to leave ageing parents.
A policy change is unlikely any time soon, warns Adam. Public finances are stretched thin and the next government will almost inevitably have to raise taxes.
People like Lucy, who feel they've worked hard and done everything right, are frustrated that the burden is only getting bigger. She said efforts to remove VAT exemptions for private school fees would only make matters worse.
«You are stuck in this trap.»
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