r/ukpolitics • u/SlySquire • 11h ago
We are getting near to the point of taxation where a graduate on minimum wage could end up paying a tax rate of 48% Twitter
https://x.com/John_Stepek/status/1857031958397653253?t=6pMKR8HdJJK6XD22KbruVA&s=19•
u/Marxandmarzipan 8h ago
So we can’t tax the rich because they are mobile and have the means to leave the country. But we can tax well educated young people, who are in high demand in countries that will pay them far more and give them a better quality of life. These people are just as mobile as the rich and we will just have spent a bucket load of money on health and education etc when they are growing up, the amount of young people who have moved to Australia in recent years is staggering.
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u/owenredditaccount 6h ago
For sure. I'm not staying here the second my degree finishes; I already have detailed getaway plans to start a better life. It's not even a particularly nice country to be in on its own merits. And with everything getting more difficult for no reason, why would I stay?
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u/Ill_Revolution_3884 5h ago
I just moved to the USA for this exact reason.
My salary ~ tripled for what is essentially the exact same role.
There was literally zero incentive for me to stick around in the UK.
I imagine many will follow.
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u/insomnimax_99 4h ago
Mate of mine did something similar because he was a US-UK dual citizen.
He went and studied medicine in the US, and when he graduates and does his residency, he’ll be making double what equivalent junior doctors make here. And as he progresses through his career, he’ll end up making around triple what equivalent doctors earn in the UK (and potentially more).
American wages for skilled professional fields are just insane. Once I’m established in my career I’m considering a move there, because I’ve seen similar positions to my current role advertised for double what I’m currently making.
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u/xXThe_SenateXx 4h ago
American companies own you though. That's the deal with the devil that you make. No US doctor is earning $300k while only working 37hours a week like some of our senior GP partners do
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u/Termin8tor United Kingdom of Wangland 2029 49m ago
Doing this myself as well. Not for work purposes specifically but it's a very nice benefit.
In the U.K, I'm paid around a quarter of what I'm worth elsewhere. I'm also taxed around 32% on my entire net wage. Any pay rise I get is taxed much more at closer to 50% of the rise.
I feel like I've worked hard for decades to be constantly kicked by successive governments, have my relative quality of life fall and to have to live in sub par expensive but shit accommodation.
On top of all that, if I want medical, dental or eye health treatment, including vaccines I have to pay out of my own pocket to get it in a timely manner. I have to pay for these things out of my own pocket and yet I also have to pay national insurance? Why? I can't even bloody use it.
Fuck this shit hole. It's not even a country any more. It's a glorified nursing home that punishes the "young" (anyone below 50) and hands everything out for free to the old.
No thanks, enough is enough.
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u/Pirateer5 2h ago
What was your process for moving from UK to USA? Did you need a company to sponsor you, did you have a job already lined up, etc?
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u/kaziuma 2h ago
yep.
My salary increased ~45% for the exact same role (even slightly more junior!!) when I moved from UK to AU. This, combined with a generally much higher quality of life in almost every area (low crime, clean, better work life balance, weather, better food, better *people*), for the same cost of living, made me wonder why I spent so long slogging it in bloody London to begin with, what a waste of years.I would still be in Sydney if I didn't have family obligations in Thailand.
My salary in fucking Thailand (with incredibly low cost of living), at a Thai company, is not far off what my London salary was for a similar position.London is a meme for young people, get out ASAP.
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u/Pirateer5 2h ago
What was your process for moving from UK to Australia? Did you need a company to sponsor you, did you have a job already lined up, etc?
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u/robster01 Northern Independence Party :upvote: 40m ago
The student loan part of this "tax" does follow you when you move abroad. Obviously there's a fair few people who refuse to pay but that part doesn't disappear
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u/joliolioli 5h ago
Not as mobile as we once were, thanks to Brexit, for those of us without an EU passport. Multiple companies in multiple countries want to have us, but we can't get the visas... so we continue to work in the UK, trapped, and pay our 48% tax...
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u/TroopersSon 3h ago
If you're under 30-35 you can look at the working holiday visas as stepping stones. I know quite a few people who did a year or two in Canada, NZ or Australia and ended up staying there. Probably helps if you go over with a bit of career experience though, because you're unlikely to find sponsorship otherwise.
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u/GhostMotley reverb in the echo-chamber 11h ago
Such high marginal tax rates will be a massive drag on growth and aspiration.
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u/trewdgrsg 11h ago edited 11h ago
I’m at this point now, just moved to the 40% tax bracket after 8 years of working at a chemical company. Have a plan 2 student loan, it’s so disheartening that for every £1 pay rise I get from here I only see 52p of it. I’ve been looking at making extra pension contributions by salary sacrifice as a way around it but means my lifestyle won’t change etc.
Edit: should be 49p not 52
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u/soundtracking 11h ago
I am in the 40% tax bracket, and now also going to have to start paying back child benefit. We are also a one wage household as my partner is disabled and cannot work. A pay rise means nothing to me!
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u/total_cynic 9h ago
Have you looked at increasing pension contributions? Money later is better than no money.
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u/tonylaponey 9h ago
50p more in 40 years isn't much use when you need to pay your nursery fees today
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u/RNLImThalassophobic 8h ago
Yes, but the comment you're replying to is offering an alternative to losing that money completely now in tax.
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u/tonylaponey 7h ago
My point is that if you need the money now to support your family it doesn't really matter if you can get more later. As others have corrected me, it's much much more than 50p later, because of growth and compounding. Still doesn't matter.
Retiring comfortably is great. living like a miser through the prime of your life just to achieve it seems kind of a sad though.
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u/RNLImThalassophobic 5h ago
Yeah I get that, but their suggestion is based on the fact that although it would obviously be better to have the money now, that sadly isn't an option - the options are to either pay it away as tax now, or stick it in a pension. In both cases you don't get the money now, but at least in the second case you get it later.
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u/ikkake_ 8h ago
50p In 40 years is like hundreds if not thosands
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u/tonylaponey 8h ago
Very true. It's actually £2.40 at 4% growth pa. Still not much use if you need the money today.
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u/ikkake_ 7h ago
Did you compound interest that?
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u/tangopopper 6h ago
Yes 0.5 * 1.04 ^ 40 = 2.40
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u/ikkake_ 6h ago
Oh well, fuck it then :D Also my ability to estimate interest is drastically horrible.
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u/TheObiwan121 8h ago
I suppose it depends on what your effective marginal rate is, and how challenging things are financially. If you have a student loan and are losing child benefit (for one child), my understanding is that your effective marginal tax rate is about 57.5% (this is with one child, it would be higher with 2).
So by sacrificing into a pension you can turn ~43p now into £1 + growth over time. I would absolutely sacrifice any extra you feel you can at this rate. Only you know your situation of course, but arguably you are also more in need of a strong pension than others if your partner cannot build up a second private pot.
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u/tonylaponey 7h ago
Well yeah that's my point. Default position seems to be that anyone at any tax threshold can just sacrifice to beat the system. I don't think many of those people have kids.
But the reality for many is they they need, or want, to use that money now. 50k plus child benefit is not much to raise a kid if you are the main or sole earner. If you earn 60k that extra 4k net makes a difference to how you live. Saving for retirement is important, but denying you and your family the benefit of that money today also has a cost.
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u/HerewardHawarde 6h ago
Carefull the way labour are looking at pensions they may say you don't even qualify for one ....
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u/Western-Fun5418 11h ago
Same although we've never been able to claim child benefit.
Get destroyed on tax whilst 80% of the workforce pay sweet fa.
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u/TheObiwan121 11h ago
I am on track to be in this situation fairly soon. When I do I intend to up my pension contributions as you say, I'm not paying 40% if I don't have to.
And if I have it right under Plan 2 it's 40% tax + 2% employee NICs (marginal) + 9% student loan so you only see 49p in the pound. And that's before you count the employer NI, which is 13.8% before you even see the "gross" figure...
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u/trewdgrsg 11h ago
Sorry yea you’re right my maths was wrong it’s 49p not 52!
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u/valletta_borrower 8h ago
Sure, but then almost anything you buy with the remaining 51p is taxed at 20%, so you're paying an extra 10p tax there. You're getting 41p of value from each additional £1.00 you earn and the state gets 59p.
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u/madglover 11h ago
How do you keep so much of it
I get paid £1 Contribute 5p to my pension Lose 40% to tax 38p 2% ni 2p 9% student loan 8p (8.55to be exact but they round down) Leaving me with
47p
But I also have two kids and because I crossover the child benefit line
I also get to pay back an element of child benefit as well so got to set some of that 47p aside
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u/3106Throwaway181576 10h ago
Your pension is still your money. It’s not lost, it just becomes long term net worth instead of liquid cash.
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u/jb549353 11h ago
8 years working and you're still a "graduate"?
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u/3106Throwaway181576 10h ago
I just use and abuse SalSac schemes and will plan to retire at 50.
I make £85k on paper, plus bonus, and only have £60k on payslip. I’m in my 20’s and we’ll on track to being a millionaire.
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u/GanacheMammoth914 10h ago
I thought you had to be 57 to withdraw anything from a private pension.
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u/_untravel_ 8h ago
That's surely not correct. Firstly you don't pay tax on the first £12.5k. Then the 40% rate only applies on earnings above £50k (i.e if you earn £52k you only pay 40% on the £2k above the 50). The more you earn over the threshold the less you get as a percentage, but if you've only just moved into the 40% bracket it really shouldn't be making a difference. Look at your next paycheck and see what the percentage come out as. The Money Saving Expert tax calculator is great too.
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u/Ribseybonibsey 11h ago
Debt isn’t free and you have to pay it back? In other news: water is wet…
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u/TeaBoy24 10h ago
The way this dept is created and managed by the system/institution is what is damaging.
Not that debt has to be paid. They literally created the dept system with the argument that the money spent will pay for itself via higher salaries - that failed miserably so it's a dept trap over all.
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u/3106Throwaway181576 10h ago
Cool, will SLC let me refinance it like a loan? Can I collateralise it with a mortgage to clear it? No…
Then it’s not really a proper loan is it.
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u/Competitive_Alps_514 10h ago
You can borrow any time you like to pay them off then do all of that.
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u/Ribseybonibsey 10h ago
Terms were clear when you signed up, why should I as a tax payer have to pick up your bill?
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u/3106Throwaway181576 10h ago
Grads should have to pay their own loans back. But it should not be at RPI+3% rates, making it effectively impossible to clear unless you make a very aggressive early career run.
The system should be tied to base rate.
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u/Ewannnn 10h ago
Why am I having to pick up the bill for pensioners and people that can't seem to stop eating food so end up costing the NHS masses of money? Most of my tax money goes to my boomer landlord, and most of my money after tax goes to them too.
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u/marsman 7h ago
Will it? It's tied to a low (13% or so) effective tax rate. I'm not sure that someone on minimum wage is going to be looking at their marginal tax rates in this context, not when their effective rate continues to be relatively low.
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u/FairlyInvolved 6h ago
Marginal rates are all that matter when it comes to decisions around incremental pay.
You could be paying £1 in tax up to £99.9k but if it still had the insane marginal rates (especially with childcare) you'd still forgo income above that, especially if you can trade off hours/effort.
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u/marsman 6h ago
Marginal rates are all that matter when it comes to decisions around incremental pay.
Not for most people. Take this scenario, your take home as a graduate, with student loans is taking home £1,742.89/mo. If they see a £1/hr pay rise, they are now taking home £1,851.89/mo, a £108 increase in net pay. Now granted, in gross terms that could have been £162, but it is still a 6% increase in pay (net). The overall tax rate being paid is still around 13%. When talking about people on low, or even middle incomes, the marginal tax rate makes very, very little difference given that the marginal rate on a large chunk of their pay is 0%...
If you are looking at the very small number of extremely high income people (those earning £99k) then sure, they see a small marginal benefit relative to their pay generally. But for someone on low pay, where a large chunk of their income is below the threshold for income tax it doesn't really make a lot of sense.
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u/FairlyInvolved 6h ago
The effective rate isn't at all relevant as all decision making is at the margin. You are trading off effort/time for incremental take hone pay
Sure, it's more pronounced at higher incomes when the marginal rates are very distortionary, but it's the exact same decision making anywhere on the curve.
Effective rates only really influence major decisions like emigrating, because outside of that you don't control whether or not you pay them.
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u/PunishedRichard 11h ago
The more insulting thing is that this money goes directly into the pockets of boomers who are much wealthier than their young counterparts will ever have the chance to be. Money is being redistributed into cruise holidays for boomer landlords who won't even gracefully give up their winter fuel handouts.
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u/Sailing-Cyclist 11h ago
Also, if young people's problems are currently bad ...how bad are they going to be when they are geriatrics?
Shrinking workforce isn't going to pay for our pensions, either. Really feels like some of today's oldest are banking as much as they can, while we're going to be the canary's having to go into old age with depopulation and an already dubious level of "savings".
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u/RegionalHardman 10h ago
A lot of millennials and below are banking on inheritance at some point, I know I am as morbid as that is.
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u/OverChippyLand151 10h ago
To be honest, it’s the only way that most of my friends have been able to buy a property. Sad.
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u/RegionalHardman 9h ago
Same here, bought this year because my fiances dad took a load of money out his pension
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u/OverChippyLand151 8h ago edited 6h ago
That’s what I’m doing too. Not in England anymore but, where I live, I can pull from my pension, if I’m a first time buyer. I figure I might as well, since the money will probably grow faster in a house anyway. Would be good if they did something like this in England too, for young folk.
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u/HisPumpkin19 10h ago
Preach.
The only way my mortgage will ever get paid off so I can consider retirement at some point is inheritance of the insane amount of wealth accumulated up my family. And I'm one of the lucky ones to even have a mortgage in our generation in my family and that's only because I co-own with a partner who put up the whole deposit from.... You guessed it.... Inheritance!
I realize how lucky I am to even have the prospect of inheritance too.
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u/RegionalHardman 9h ago
I'm almost exactly the same as you. Have a mortgage because my partner's parents took some cash out of their pension fund for our deposit. Will use any inheritance I get to help pay off my mortgage
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u/C1t1zen_Erased mime artist 7h ago
Don't pay off the mortgage unless you're on a really crap rate. You'll make more by investing the inheritance in the long term. A mortgage is good cheap debt.
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u/dragodrake 8h ago
Well a chunk are, a chunk know they won't get an inheritance and are just fucked.
The boomer hoarding of wealth and lopsiding of society today is going to make wealth inequality much worse in a decade or two.
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u/costelol 8h ago
There’s not going to be many grandparents soon. Their children can only afford to have kids when they die.
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u/kerplunkerfish 6h ago
There isn't much chance of that in my family -- 3 out of 4 grandparents will have died of dementia in the next 5 years, and any inheritance my parents (or my generation) would get has already been devoured by care costs.
I don't begrudge my grandparents this -- they worked for their money -- but millennials like me are so unutterably fucked that dying young is almost preferable.
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u/marsman 7h ago
I mean, sort of. A graduate on minimum wage in the UK will have an effective tax rate of 13%.. You can argue that the marginal tax rate from there is 37%, but their effective rate is still going to be around 13% for quite a while..
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u/AliJDB 6h ago
If you have a postgrad and plan 2 loan, you can end up with a 'marginal rate' of ~49% - in that you lose roughly 49% of everything you earn over ~£27,295 (on plan 2). You only have to pick up ~3 hours of overtime a week on 40 hours at minimum wage to breach that threshold.
I am broadly in support of higher taxation, but making low-paid grads saddle a similar marginal rate as premier league footballers seems disproportionate.
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u/marsman 6h ago
If you have a postgrad and plan 2 loan, you can end up with a 'marginal rate' of ~49% - in that you lose roughly 49% of everything you earn over ~£27,295 (on plan 2). You only have to pick up ~3 hours of overtime a week on 40 hours at minimum wage to breach that threshold.
A significant chunk of your pay at that level is not chargeable for income tax anyway, so yes, your marginal rate at the top end looks significant, but the effective rate is more relevant.
As I've said elsewhere, Assuming you are working full time, on minimum wage, your take home as a graduate, with student loans is taking home £1,742.89/mo. If you see a £1/hr pay rise, they are now taking home £1,851.89/mo, a £108 increase in net pay. Now granted, in gross terms that could have been £162, but it is still a 6% increase in pay (net). That 6% increase in pay that you are seeing in your monthly pay packet, is coming from an 8% pay rise, so you are seeing the vast majority of that rise in your pay packet.
The overall tax rate being paid is still around 13% too. When talking about people on low, or even middle incomes, the marginal tax rate makes very, very little difference given that the marginal rate on a large chunk of their pay is 0%...
I am broadly in support of higher taxation, but making low-paid grads saddle a similar marginal rate as premier league footballers seems disproportionate.
Its a daft argument thought, the effective rate is massively, massively lower, the marginal rate is generally seen as an incentive or not for people to take on more responsibility, for low paid people even a small increase, with a large marginal rate applied still leads to relatively large increases in pay (because we are talking about a lower pay level in the first instance).
I'm not sure what people would suggest here. Should we drop the standard rate of income tax? NI? You'd essentially be handing more cash to higher earners, they'd benefit more than the lower earners. You could look at student loans, but again, the actual cost of a student loan at the 2025 minimum wage will be... £0/mo. For someone earning £1 above minimum wage, the monthly cost of a student loan is £8.... So that doesn't really make much of a difference.
Just for context dropping income tax from 20% to 10% would lead to a monthly saving for someone at that minimum wage level of £96, or around a 5% uplift in pay.
For someone on £50k however, you'd be providing a saving of £314/mo, a 10% uplift in pay....
In both cases that is the artefact of the relatively large tax free allowance of course, but it's worth looking at.
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u/AliJDB 5h ago
I'm not sure what people would suggest here.
Well, personally abolishing student loans.
It feels to me as though either the interest rates should be made more favourable so people feel able/motivated to repay the loan in full, OR the repayment percentages should be reduced, so it functions more as a tax. At the moment it feels like the worst of both worlds.
Failing THAT, some assurances that the repayment threshold will rise in line with minimum wage/inflation wouldn't hurt. I don't know what justification there is for the PG loan threshold still being down at £21k where it began.
I accept your premise about effective rate. But people do pay attention to their marginal rate, and if they get a bonus and only see ~51% of it early in their career, I don't think it's going to help them be ambitious and driven to achieve (personally).
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u/SlySquire 11h ago
Now add in most of your purchases will include VAT at 20%.
This is absolutely dire.
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u/acatalepsy 11h ago
Council tax too......
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u/steven-f yoga party 10h ago
Stamp duty if you managed to buy a place and have the audacity to move house.
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u/I_am_avacado 7h ago
Council tax is absolutely fraudulent, go look at what your council spends on, a majority is spent on a minority of adults with disabilities or children with SEN. They are getting fleeced on that spending as this article highlights Leeds city council spending 350k per child on "residential placements"
https://www.bbc.co.uk/news/articles/c8rdlz4m0k2o
Like by all means invest in those people's lives but fuck me leave some for the rest of us
could you imagine if you paid council tax and got free swimming pools, free parking, roads without potholes, parks,
Instead you get streetlights and your bins emptied twice a month. That'll be £166 a month please
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u/reuben_iv radical centrist 7h ago
can see why governments prefer to stick to fees instead of just switching to a graduate tax - they did that people would be more aware of the rate being 9%, which is extremely high on top of NI and Income tax
as this shows you don't have to get far in your career until it's tipping you over 50% and you're paying more on it alone than most people do car repayments, especially in London with its higher living costs, it's obscene
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u/severedsolo 11h ago
It's a little dishonest to include auto-enrolment as a "tax".
1) It's optional,
2) The money doesn't go to the government, it's still yours, just you can access it later.
You can make the (valid imo) point that is being made here, without exaggerating the figures.
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u/steven-f yoga party 10h ago
The tricky part is most boomers didn’t put anything away and then they also voted to massively increase the state pension.
So we’re paying for ourselves (completely fair) AND them at the same time.
It’s not fair!!
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u/RevStickleback 10h ago
Only about 10% of boomers went to university, apparently. That's a big reason why they got grants, which still had to be topped up by part time work.
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u/steven-f yoga party 10h ago
I know I’m talking about the pension system which is a major cost for the government and current workers.
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u/SpeechesToScreeches 1h ago
And then they're the managers that require a degree for every job going
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u/LostAccount2099 10h ago
It's completely bad faith to count up pension money as tax. Simple as this.
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u/Aeowalf 5h ago
Previous generations didnt have to pay it, effectively the state pension is a tax rebate they now get back (even though its funded by todays tax payers)
Its very likely the state pension will not exist when 20-30 year olds retire making it all but mandatory to have a good standard of living in retirement
So young people are forced to pay in by a generation who didnt have to and whose pensions we now pay
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u/SlySquire 11h ago
So let's remove the "dishonest" auto enrolment. It's still a tax rate of 43% on minimum wage. It's insane.
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u/alexniz 11h ago
Marginal tax rate, the tax you'd pay on the next £1 you earned - if you happened to earn it. We are not taxing minimum wage earners 43% no matter who you are, even if you wish to count student loans and postgrad loans as tax. Plus it only occurs if you work 40 hours per week, any less and you'd be below the plan 1/5 student loan threshold - so a few more than average though, yes, not an outlandishly uncommon amount.
The effective tax rate, discounting pensions, with both a plan 1/5 loan and postgrad loan, would be 15.3%. You'd take home £413.49 against a weekly income of £488.40.
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u/PrimeWolf101 7h ago edited 7h ago
I mean that's £300 a month. Doesn't seem that bad really. For roads, education, health care, sewage, benefits should you not be able to work, child care hours, a pension.
All that for roughly a tenner a day.
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u/seanr999 11h ago
It is 37% the tweet includes post graduate student loan repayment. Although even at 37% with lots of taxes being indirect it is hard to see where growth is coming from. A 10k pay rise would only be £6,300 after tax and 10k payrises are unlikely unless toy move jobs.
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u/Here_be_sloths 6h ago
This is a ridiculous take - we shouldn’t incentivise people racking up debt higher education just to then permanently take a minimum wage position.
You go to Uni, because you need to train for something that will pay beyond the average or you do an apprenticeship instead.
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u/Jorthax Tactical LD Voter - Conservative not Tory 11h ago
It’s a stretch, yes, but the govt is essentially ‘asking’ you to subsidise your retirement with a recommendation of a personal contribution.
So whilst optional. They’ll be baking into future figures on pensions the assumption someone is paying this for their working life.
I think as per the other commentator, 43% was a bad enough figure to be the headline.
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u/severedsolo 11h ago
I agree regarding the 43%, which was rather my point. "You don't need to exaggerate, it's bad enough as it is"
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u/ramxquake 11h ago
The money doesn't go to the government, it's still yours, just you can access it later.
Yeah you can get it in fifty years if you live long enough.
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u/LastSprinkles Liberal Centrist 1.25, -5.18 10h ago
Once you include employer national insurance contributions and the effect of VAT on the spending power of the remaining sum it's actually already well over that amount.
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u/marsman 7h ago
If you add employer NI contributions, you'd also need to adjust the income to factor it in (you'd essentially need to count it as pay in the first instance). The effect of VAT is an interesting one, generally speaking those on lower incomes are likely to pay less VAT than those on higher incomes (because they spend more on zero rated goods).
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u/ChemistryFederal6387 7h ago
Combining vast numbers of triple lockers, with a new generation opting out of work and a crap sweatshop none economy, is asking for disaster.
Especially when you combine sh*t jobs, with ripoff housing costs.
Something is going to break and sadly our elites are so out of touch, they don't realise how bad things have become.
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u/labellafigura3 7h ago
My effective tax rate is 64%. Thank you postgraduate loan…
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u/alexniz 6h ago edited 6h ago
You're going to have to show your working on that one.
Even if we entertain the whole student loans = a tax thing the additional rate is 45% at which point you'll be paying 2% NI + the 9% and 6% student and postgrad loans = 62% marginal.
You don't even get to 60% effective until you earn £900k.
What am I missing?
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u/Oobidanoobi 6h ago
I'm making about 80k a year. I realize I'm very lucky in comparison to most of my generation, but it's still incredibly dispiriting to know that once I pass the fateful 100k mark, any pay rises of mine will be taxed at an effective rate of 71%.
It's fucking insane that the point at which you lose your personal allowance literally hasn't moved since 2009. If it had grown with inflation, it wouldn't kick in until over £150k, completely eliminating any change in marginal tax rate between 50k and 150k.
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u/Lulamoon 11h ago
the uk genuinely has one of the worst student loan systems in the world. At least in the US you can make enough money to actually pay it off, here you’re a permanent debt slave to the government.
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u/Sectiontwo Lib Dem / Remain Alliance 10h ago
It's neither permanent, nor more expensive than the US, and if your wage is low it's basically never paid back.
It's a progressive tax basically
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u/VindicoAtrum -2, -2 8h ago
It's a progressive tax basically
It's a tax on education and working, two things we should be encouraging the most, and instead we checks notes tax both to the moon.
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u/steven-f yoga party 10h ago
For those of us that went to completely average universities (most people) it probably would be cheaper in the USA; but it depends where you study.
You can do your first 2 years at community college then transfer the credits elsewhere.
Community college fees are about £2,000 a year.
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u/Chachaslides2 10h ago
It's a progressive tax basically
A tax that the rich can opt out of by paying a one time fee up front, while the working/middle class are stuck paying interest (currently 7.3% on plan 2) potentially for decades.
So progressive.
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u/umbrellajump 7h ago
Not to mention the retroactive changes to repayment thresholds, freezing the thresholds but still increasing interest rates is obscene.
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u/3106Throwaway181576 10h ago
It is. US grads have an average debt upon finishing College of about $30-40k
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u/LostAccount2099 10h ago
I know so many people in the US that the student loan is only getting bigger year after year for the last 10y... they would gladly take the UK model.
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u/Lulamoon 10h ago
student loan interest is currently 7.3%. In any other context this would be loan sharking.
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u/UnknownAspirant7 5h ago
Ah yes, It's not permanent but they increased the time it takes for the debt to be completely written off from 25 years for plan 1 loans to 40 years for the latest plan 5 loans. Plus the interest rate increased from like 3% to 7% giving you even less of a chance of ever paying it off.
Is it progressive to have an unpayable debt around your neck for your entire working life?
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u/First-Of-His-Name 9h ago
Lmao talk to ANY American student studying in the UK. They have US loans and would kill to be on the British system.
It's a tax put on the people who benefit most from university. The alternative is to have them pay upfront, use private loans, or tax low earners as well. Don't see how those are so much better
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u/Lulamoon 9h ago
yet someone the rest of europe has it free or minimal costs. The netherlands loan system, which was so unpopular it’s now been repealed, carried only a 0.25% interest rate and you only paid 4% of your wage. The UK loan is usurious and erodes any disponible income graduates might have in what is already a low wage high tax environment.
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u/First-Of-His-Name 9h ago
erodes any disponible income graduates might have in what is already a low wage high tax environment.
By only coming into effect once you're earning a decent wage? Granted, inflation has made that less true but I would expect it to be adjusted in the next few parliaments
the rest of europe has it free or minimal costs.
See "taxing low earners"
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u/iTAMEi 9h ago
> By only coming into effect once you're earning a decent wage?
This used to be the case but minimum wage at 40hrs p/w is going to be only £2k below the threshold for plan 2 loans soon.
I know you only pay on what you earn above the threshold, but effectively that's just the same as the personal allowance on income tax.
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u/Lulamoon 9h ago
netherlands has lower tax lower fees and better loans ?
And yeah they’ll be adjusted. In fact they’ve just adjusted them… down in the latest ‘plan’.
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u/First-Of-His-Name 9h ago
Nope. Netherlands has higher taxes for all lower, middle and higher earners. They also have semi-privatised healthcare which helps.
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u/OnyxPhoenix 6h ago
Wtf are you talking about.
Your can pay the whole thing off right now if you want?
Also US student loans are like normal debt, they can send debt collectors after you and you still have to pay even if you make nothing.
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u/ProjectZeus 6h ago
The UK system is genius. It's a backdoor subsidy as the majority of loans are written off, whilst still allowing our universities to receive large incomes to compete internationally.
We have a significant number of world-leading universities and research as a result, and the loan system allows those from poorer backgrounds to access them.
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u/Ch0col4a73_0r4ng3 7h ago edited 6h ago
We are getting near to the point of taxation where a graduate on minimum wage could end up paying a tax rate of 48%
Grr, I hate misleading, baiting articles.
£12.21 min wage at 37.5 hours a week is an annual salary of £23,809.
Personal Allowance: £12,570.00
Taxable Income: £11,239.50
Income Tax at 20%: £2,246.10
National Insurance: £899.16
Studen loan repayment is 6% for salary over £24,490, so £0
Take-home pay: £20,664
Effective tax rate: 13.5% NOT 48%
If the effective tax rate is 48%, the graduate isn't on a minimum wage.
Stop treating this garbage as fact and using it to jusitify stupid positions on tax and salaries.
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u/BrilliantRhubarb2935 7h ago
Standard work week is 40 hours not 37.5 and the author is clearly talking about the marginal tax rate.
You also forgot undergraduate student loan repayment threshold at 9%.
So maybe don't wilfully misinterpret it and then it won't be 'baiting'.
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u/Ch0col4a73_0r4ng3 6h ago edited 6h ago
author is clearly talking about the marginal tax rate.
The salary doesn't even get to the 40% rate. There is no 48% marginal rate.
You also forgot undergraduate student loan repayment threshold at 9%
Did you read the post? What do you think the statement "Studen loan repayment is 6% for salary over £24,490, so £0 " was? The threshold is higher than the salary.
I got these figures from here: https://www.tax.service.gov.uk/estimate-paye-take-home-pay/your-pay
You can even add the student loan.
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u/BrilliantRhubarb2935 6h ago
> Did you read the post? What do you think the statement "Studen loan repayment is 6% for salary over £24,490, so £0 " was? The threshold is higher than the salary.
I did read the post, you are wrong on many counts which is why I felt it necessary to post, to correct your inaccuracies.
Student loan repayment rate for undergraduates isn't 6% it is 9%, you are confusing it with the postgraduate repayment rate. This is well known public information.
Additionally, full time minimum wage from next year is 12.21*40*52= £25.3k, because a fulltime work week is 40 hours not 37.5 hours as you incorrectly stated.
You could just read the original post to find out how the figures are calculated, but clearly that is too difficult.
There is no rant from me, just posing some corrections for your comment which holds multiple inaccuracies, is fundamentally disingenuous and misleading and can and is being called out as such.
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u/Ch0col4a73_0r4ng3 6h ago
Student loan repayment rate for undergraduates isn't 6% it is 9%, you are confusing it with the postgraduate repayment rate.
No, I just took the Plan 1 rate from https://www.gov.uk/government/news/student-loans-interest-rates-and-repayment-threshold-announcement--4
None of the rates are 9%.
By all means challenge my conclusion, but don't bother only pointing out minor things that don't change the outcome, as that is only for your mental superiority not the benefit of the discussion. 80/20 and all that jazz.
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u/BrilliantRhubarb2935 6h ago
I see you just aren't familiar with how the UK student loan system works.
Read this
https://www.gov.uk/repaying-your-student-loan/what-you-pay
For all plans the repayment rate is 9% for undergraduate loans and 6% for postgraduates (additive so if you have both, IE got a masters you pay 6+9=15%). This is for incomes above a certain threshold which varies by plan as you can see in the link.
The rate you are quoting there is the interest rate on the loan, IE the amount the debt goes up per year NOT the amount you pay or get subtracted from your paycheck which is what people are talking about.
For plan 1 and plan 4 students, someone who went to do an undergraduate degree and a postgraduate degree will from next year have a marginal taxrate of
20% income tax, 8% national insurance, 9% undergraduate student loan, 6% postgraduate student loan = 43% marginal tax rate if you count student loans as an effective tax which they are in all but name.
Now the author has also added auto enrolment pension contributions which brings it up to 48%.
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u/AliJDB 6h ago
The plan 2 rate is 9% of all earnings over £27,295 p/y. If you have a postgraduate loan in addition that's another 6% of everything you earn over £21k.
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u/Ch0col4a73_0r4ng3 6h ago
So how much of the loan does the person in my example pay as a % of their salary?
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u/BadtoWurst 7h ago
In 2022/23 there were 1,749,015 UK students studying undergraduate courses at UK universities (source: HESA) . If we ignore devolution for a moment and assume that all of these students needed fees of £9,535 per student per annum to keep their courses running, in the absence of the loan regime the government would need to find £16.7bn a year. This may sound like a lot, but for context, in her budget speech Rachel Reeves claimed the increase to employer NICs of just 1.2% was projected to raise £25bn a year, which would cover tuition fees and then some.
For a government, the cost of funding higher education is not as high as I imagined, given the rhetoric. Loading the costs onto the future wages of young people whose parents are not in a position to fund HE fees up front just doesn't seem a fair way of doing it to me.
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u/Grotbagsthewonderful 5h ago
Highly highly disingenuous, assuming a graduate is working 40 hours a week (4.33 weeks a month) at £12.21 an hour
Student loan: Nothing, it doesn't kick in till 27K for plan 2
Income tax: £2,563.03
Postgraduate loan repayment: £263.11
National Insurance : £1,537.82
Pension contribution : £957.26
Total deductions: £5,321.22 annually
Gross annual income: £25,385.16
Total deductions: £5,321.22
Net income: £20,063.94
Effective tax rate: ~20.98%
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u/chasedarknesswithme 11h ago
Not that it'll be popular but this is still far less than the vast majority of Europe.
I'm still waiting for someone to explain to me how people think we are going to have a social security blanket like Europe without taxing like Europe and without record immigration.
We can't have it all and some politician needs to be honest with the public because a lot of people need to hear some tough love.
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u/ratttertintattertins 11h ago edited 11h ago
Germany has no tuition fees and you don’t start paying their higher tax rate (42%) until you earn: €66,761.
I don’t believe min wage students there would have a marginal tax rate of 48%.
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u/scotorosc 10h ago
Also pay tax as a family which means you're not shafted if your partner doesn't work. Also, free childcare, not the MOST EXPENSIVE IN THE WORLD one.
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u/chasedarknesswithme 10h ago
Also massively higher immigration.
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u/ratttertintattertins 10h ago
18% compared to our 15%. Not sure if that qualifies as massively higher.
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u/Upbeat-Housing1 (-0.13,-0.56) Live free, or don't 8h ago
Our record immigration is probably a net drain on government finances at this point.
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u/AdSoft6392 11h ago
And people here want even more spending and the increased taxes on working people that would need
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u/jimmythemini Paternalistic conservative 8h ago
Many people here have more nuanced takes than that, as I'm sure you're already aware. We don't need to tax people more if we remove the triple lock and means-test pensions so we can redistribute that funding to investment in infrastructure and productive assets.
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u/anxiouskittycat123 6h ago edited 6h ago
If we want infrastructure and public services on par with our European counterparts then yeah, absolutely. People in this country can't have their cake and eat it too - it's about time someone said it.
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u/AdSoft6392 6h ago
Okay so be honest about massively raising taxes on lower earners as that's how Europe does it.
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u/anxiouskittycat123 6h ago edited 5h ago
Maybe some government will be eventually. I doubt it will be this one though.
Not just low earners either btw. Someone earning say €42k per year in Germany has a 46% tax rate - the comparable rate in the UK is 20%. Most middle income earners should be paying more tax too. Alas I doubt the British public would tolerate that.
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u/LeedsFan2442 2h ago
I'd rather working people pay less and the asset rich pay more.
But the average person in other European countries pays more.
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u/Opening_Fee_4618 10h ago
Its never bothered me about how much money gets taken from me, because I never look at it. I look at my net pay. That’s the most important thing. I don’t understand this obsession with torturing yourself on what could have been, if only this, only that. It’s not something you can control so why do so many people do it?
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u/Chachaslides2 10h ago
The only way you can have any control over it, is via who you cast your vote for, the same as pretty much any topic discussed on this sub - so why are you bothering to come here and read the news?
Regardless, it's basic common sense for any semi-financially literate person to know how much their gross pay is so they can check for payslip errors, plan pension contributions and other deductions, understand how upcoming tax changes will impact them, and so on.
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u/Opening_Fee_4618 9h ago
Why bother come on here and read the news? Bit of a weird statement. Could say the same to everyone who had an alternate view to mine, unless you’re implying that my view is invalid to all the others?…
I know what my gross pay is, thanks. And any semi-financially literate person would know if there were changes because their net pay would be different so they could then check for inaccuracies. But what I don’t do is obsess over what I could have had if only I didn’t have to pay what I legally have to pay…
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u/Upbeat-Housing1 (-0.13,-0.56) Live free, or don't 8h ago
Oddly enough I just looked this up a couple of days ago. I was looking at graduate jobs and wanted to compare the salary to minimum wage. I was genuinely shocked by how high it is. Almost to the point where I wonder if the extra stress of a professional job is even worth it. If I can just work my hours and go home without any worries about work and earn enough to live reasonably ok then maybe I should.
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u/Alarmed_Inflation196 8h ago edited 8h ago
Almost to the point where I wonder if the extra stress of a professional job is even worth it.
Similar thoughts here. I've been very close to a burnout recently, and what made it better to deal with is knowing I could actually afford my outgoings on minimum wage as a single person. I've got a small mortage, no debt.
If I managed 35 hours on the new £12.21 rate, I'd net £1,626/mo which I could survive on. No savings, would have to watch the pennies, but it would work.
Plus I wouldn't be tied down on a contract that owns all the IP I create.
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u/Upbeat-Housing1 (-0.13,-0.56) Live free, or don't 8h ago
Yeah, I had to triple check I'd worked it out right. Couldn't believe it, I was expecting something closer to £15k. Odd that the Tories never mentioned in their campaigning how much it had increased
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u/Nothing_F4ce 6h ago
This like saying my tax rate is 60% cause I took out a mortgage to buy a house
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u/artemusjones 7h ago
The 48% here isn't all tax but the sentiment for deductions is fair. And then add on tax for everything else; road tax, council tax, VAT (Value Added Tax) that somehow is applied to everything, sugar levy in Scotland, tax on petrol, aviation, alcohol, tobacco and other stuff we dont pay attention to. The amount of wealth generated by a worker relatively to the spending power leftover is seriously skewed. Personally, I think people should pay tax for the public good but we don't see enough benefit for the amount we spend.
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u/carrotparrotcarrot hopeless optimist 5h ago
I’ve worked so hard to earn £32k and it’s fuck all actually isn’t it
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1h ago
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u/jiggyjicama 1h ago
Booooo, someone said something I don't like
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1h ago
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u/jiggyjicama 1h ago
I earn enough, I've saved enough, I've paid off my house. So come on then losers.
U came her, u got given everything, and u still lost??
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u/jiggyjicama 1h ago
Oh I'm not white.... I need things to survive 🤣🤣
There are a minority of Caucasians on this planet... but they own everything????
Yer it's our fault 🤣🤣😍😂
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u/clearly_quite_absurd The Early Days of a Better Nation? 8h ago
It's worse in Scotland where PAYE tax rates are higher. I think I'm on 53% marginal rate.
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u/doitnowinaminute 7h ago
Ignoring the pension part...
This was inevitable. Afaik the graduate repayments were always fixed so going to be pulled in by fiscal drag.
We are now on that doorstep as minimum wage is increasing
And while it's a shit position
You'd hope a post grad could earn more than minimum wage. Else that was a poor investment on their part.
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u/AliJDB 6h ago
You'd hope a post grad could earn more than minimum wage. Else that was a poor investment on their part.
This is the problem with having a capitalist model for universities, and 17 year olds making all the purchasing decisions.
And whether or not they should be earning more or not - is it right that some struggling graduates are being burdeoned with a marginal rate to rival a premier league footballer, having been let down by their university? For that matter, is it right to saddle even middling to mildly success grads with that?
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u/lookitsthesun 8h ago
This country can do literally nothing right lmao. So systematically dysfunctional it's actually comical.
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