How wealthy am I?By Money Mage · · Wealth, Principles
An angry £80,000 earner on BBC Question Time during the 2019 UK General Election campaign sparked up a bit of a row about income tax and median earnings.
There was an outcry at whether £80,000 was or wasn’t in the top 5% of earners. Does earning £80,000 or more put you in the top 5% of UK earners?
Median earnings in the UK are £29,500. So this gentleman earning over £80K is quite a long way off thinking he is not in the top 50%. In fact, he’s in the top 5% of UK earners.
Median earnings in the UK are £29,500
I mean if you’re earning £80,000, you can probably afford to pay your fair share of tax.
For the public services you and your loved ones use every day. Right?
It’s human nature to ask how wealthy am I? and then to compare your wealth to others. But it’s a fools games: this character’s lack of self-awareness highlights an unconscious bias we all suffer from.
Does earning £80,000 put you in the top 5%?
The Mirror named the audience member Rob Barber. A company director, who runs PBT Racing with his father. He has multiple podium finishes in the TT Zero Isle of Man TT Motorbike races.
He came out with quite the spiel. It was almost certainly politically motivated, but it demonstrated quite a common Egocentric bias. The full transcript is at the bottom of this post.
But yes Rob, earning £80,000 a year puts you well and truly in the top 5%.
UK Earnings and Wealth Distribution
Let’s just put this in some kind of perspective. What is the average UK salary? The average UK family earns £29,500 per year and has a net worth of about £105,000
But the 90% percentile is around £60,000 per year income and £670,000 net worth
That means if you earn £80,000 per year, you are well and truly in the top 5% of UK households. The above chart shows the income-earning distribution for 2016/17 which is the latest percentile data available.
Taking politically motivated bias out of the picture, why can’t this character see that? Bloody Doctors. Saving people’s lives.
How wealthy Am I? - Why Perspective Matters
This Egocentric Bias is typical of us who are privileged. I don’t seem to be earning that much, how could I possibly be in the top 5%?
There are 50-odd Billionaires in the UK, they have way more than me. I can’t be that wealthy!
Our brains are evolved to rely on our perceptions. Of what we have experienced. Of what we know. Of what our ancestors knew, wired into our DNA.
Familiar things are familiar for a reason. They are things we have perceived time and time again. Sometimes through the generations.
This wiring makes it naturally difficult to look at a situation from a different perspective. Or to understand things that we don’t usually perceive.
Very large scales are a great example of this.
Our brains are honed and evolved to easily perceive the spaces we are used to.
If I ask you to guess the size of the room you are in, you’ll probably get it, down to a few metres. The size of the paths we often walk or roads we drive: You’ll get it down to a few tens or hundreds of metres. Even the size of a city, I bet you can guess to the nearest few kilometres.
Now guess the distance between where you are sitting and the centre of the Andromeda Galaxy?
Our evolutionary and perception biases make it difficult to perceive very large scales.
Large scales and large numbers.
Billionaires should pay their fair share of tax, right? But what exactly is a Billionaire, and what is that fair share?
Michael Bloomberg is worth $54bn or £42bn in GBP. He and his family outright own Bloomberg L.P, one of the wealthiest and most successful companies on Earth. Finance making money from finance. I’ve had the pleasure of working in Bloomberg offices around the world. Bloomberg looks after their people and their offices are stunning. More importantly, Bloomberg staff are extremely loyal.
Mike Bloomberg must be doing something right to be worth £42bn.
Compare that to the average UK household, which is worth just £105,000.
The average UK family has just 0.00025% the wealth of Bloomberg. Even that number is a little bit tricky to comprehend. You end up just going ‘zero zero zero zero’.
Think of it another way: it’d take you 78,000 years at the median UK income to get to £42bn if you spent nothing and invested at 3%. But what does 78,000 years feel like? 963 average lifetimes. I can barely comprehend the next few days let alone a thousand lifetimes.
Try another way I suppose: Bloomberg is worth 400,000 average UK families. But what on earth does 400,000 average UK families look like? Cardiff?
It looks like this:
See that tiny 1 pixel when the square is at it’s smallest? That’s you that is. Average Joe.
Even £1m, which is more than enough for most to retire on frugally, is a tiny 3.3 pixel square.
Michael Bloomberg has so much wealth that it’s still hard to comprehend just how much wealth he and his family have.
Even when we use analogies.
Billionaires Should Pay Their Fair Share. Like Everyone.
Do you agree you can grow your net worth about 3% a year?
Our household grew by over 23% last year, so I say 3% is a pretty conservative figure.
3% growth per year on £42bn is £1.26bn.
£1.26bn is still an incomprehensibly big number. £1.26bn was about 23% of the UK’s Budget Contributions to the EU every year.
A 20% tax on £1.26bn of income would yield £252m for public services.
It’s fair that Billionaires pay something that we can comprehend in tax per year? 20% of their income from any source? That’s what us plebs have to pay.
And £252m per year is a drop in the ocean for Bloomberg.
Check your wealth and your privilege.
Everyone should check their privilege once in a while.
Not just to avoid ending up looking like a tit on Question Time, mouthing off about how unfair life is whilst sat on your top-5% perch.
But so you can do the right thing. The principled thing.
It’s on everyone to do just that. Everyone: from low income to people in the Personal Finance community right the way to Michael Bloomberg. Pay your fair share: around 20 to 25% of your annual income.
In Scotland, we have a more progressive taxation than England. This means Scotland can invest more in public services. NHS Tayside where I live has the lowest A&E waiting times in the whole of the UK. Maybe Rob Barber should consider paying 1% more tax get the NHS out of Tory-austerity-imposed crisis?
The Money Mage household income is also in the top 5%. Our net worth is over 4 times that of the average UK family. We know our privilege. It’s our principles, hard work, saving and investing, and a huge sprinkle of white, suburban upbringing that got us here.
However, wealth doesn’t come from what is in your bank. It comes from how much you are enjoying your time alive. How healthy you are, who you surround yourself with, what you do with your time, what you contribute to society. Ultimately how happy you & the people you care for are.
Look up & smile next time you are out and about. That’s a wee bit of wealth in itself.
Subscribe now, follow me on Twitter @moneymagery, stick by your principles, be careful of high-risk investments like subprime P2P and you’ll be mortgage-free in no time.
Full QT Transcript
For those not in the know, BBC Question Time is a late-night ‘serious’ politics panel program, where UK politicians and journalists face pre-selected questions from a ‘representative audience.’
Here is the QT Transcript of the conversation.
Rob Barber: I’d like to call out Labour as liars. I am one of them people [sic] who he will tax more, and I am nowhere near in the top 5%. So I’m calling you a liar right now. That 5% is a lie. I am nowhere near that. And you are going to income tax me as an employee. You are not going after the billionaires you are going after the employees Where it’s easy money because it’s PAYE I have no choice.
Richard Burgon: I’m afraid on that you are mistaken We are not going to raise income tax for anybody apart from the top 5% of earners
Rob Barber: I am not in the top 5% of earners
Richard Burgon: So we are not going to increase your income tax
Rob Barber: But you are, because I’ve read your policy. It’s above £80,000, and I am nowhere near in the top 5% let me tell you. I’m not even in the top 50%!
Richard Burgon: And that’s why we are not going to increase your income tax, and I..
Fiona Bruce: Sorry let’s just be clear. So you are suggesting you are going to raise income tax on those earning over £80K You are saying that will affect you as you earn over that sum?
Rob Barber: Yes
Richard Burgon: So you earn over £80K?
Rob Barber: Yes And I’m not in the top 5%
Audience: Mumbles But you are Mumbles You are!
Fiona Bruce: I think that is the top 5% isn’t it?
Rob Barber: I’m not! I’m not! Every Doctor in this country earns more than that! Every doctor, every accountant, every solicitor earns more than that! That’s not 5%!
Richard Burgon: It’s not true that every solicitor earns more than £80K. When I was a solicitor I earnt just over £40K a year. The fact is….
Fiona Bruce: So let’s just be clear. Let’s settle this once and for all, or certainly let’s hear from you. If you earn over £80K are you in the top 5%? Categorically?
Richard Burgon: Yes
Fiona Bruce is the presenter. Richard Burgon is Labour MP for Leeds East and in the Shadow Cabinet. Rob Barber is the character in question.
Sources and Attribution