Comparison can be depressing. One of my neighbours here in Portugal has a teenage daughter whose best friend’s Dad drives a Bentley. She complains to her parents about being poor, despite there being two Porsches on the drive. A Cayenne and a 911 clearly don’t cut it in twenty-first century teenage brand wars. If she was my kid, I’d tell her that fancy limo is just a re-badged Volkswagen so get over it.
Needless to say, the girl and her brother go to private school. Fees here may be less than in the UK, but are high enough to top the family’s monthly outgoings. It’s all part of an unpleasant truth about life in the 2020s. Living what we might call an aspirational middle class lifestyle has become eye-wateringly expensive. I’m talking about a nice house, a couple of foreign holidays a year, two kids in private school and an acceptable set of wheels that your children are willing to be seen in.
A new report for The Times by IFAs Chancery Lane suggests that a lifestyle like this would require mum and dad to each be holding down a job that brings in £102,850 a year. That’s why there are households earning £205,700 a year who do not feel especially wealthy and find that they too can run out of money before they run out of month.
If you have a nagging feeling that it wasn’t this tough for your parents, you’d be right. Back in 1985, a similar lifestyle would have required you to be earning £16,000 a year each. Even allowing for the recent runaway inflation that’s destroying wealth faster than a Zelensky photo opportunity, that only equates to £46,000 each in today’s debased money. So, the cost of a good middle class lifestyle has doubled in real terms in little over a generation.
Yet, if you listen to the mainstream media, Keir Starmer or Jeremy Hunt, these people are fat cats who need to stump up their ‘fair share’ in order to fund important programmes like those that are shown on daytime TV to the 6 million people choosing not to work. The reality is, they are being forced to pay double their fair share because of government policies over several decades.
The financial repression of zero interest rates for a decade and a half has pumped air into the property bubble meaning a massively increased burden to acquire a family home. The imposition of university fees has trickled down to private schools and driven unjustifiable education inflation. If you don’t pay the private school fees, you’ll need to pay a premium for a house in the catchment area of a decent state school.
But reality is irrelevant when there is an agenda to be pushed. The general message from On High (read World Economic Forum, Bank of England etc), is that we will all have to get used to being poorer, as if that is some natural state over which we have no control. Whatever happened to ambition? Or work ethic? Or individual responsibility? Usually, the high earners (and their parents) have made sacrifices through education, deferred income, working long hours, moving around the country (or the world) for career advancement and so on. Their success in life is hard-won and deserved. The market has decided that they are worth their six figure income – no organization pays more than it needs to when attracting or retaining the best talent.
The sub-text underpinning much of the narrative has moved from equality of opportunity (a Conservative philosophy older members might recall from somewhere in the hazy past) to equality of outcome, which is Marxism in its purest form. That equality is gradually being forced onto successful people through ever higher taxation and inflation that consistently runs higher than salary increases.
The Chancery Lane report gives examples of couples whose household income is pushing a quarter of a million a year who are having to make changes and prioritise their spending habits. In the case of one family, school fees have risen to £3400 a month, their children take packed lunches to school and both their cars are ten years old.
I can remember paying 60% tax in the 1980s and being delighted when the recently departed Nigel Lawson reduced it to 40%. But the reality is that the overall tax burden today is much greater than when headline tax rates were so much higher back in the day. Think VAT at 20%, National Insurance climbing ever higher and Drag Queen Jeremy Hunt’s freezing of tax allowances until, I suspect, hell freezes over.
Interest rates were much higher in the 80s, my first mortgage was above 13%, but the house only cost £17,000. According to the Halifax, a family house in South East England now costs 1,165% more than it did in the mid 1980s. Inflation in the wider economy has been a mere 225% over the same period. Stamp duty on that house has gone up nearly 500% in that time, from 0.7% to 3.3%. See what I mean about comparison being dangerous? Each of these costs increases in relatively small jumps, often at different times. It’s only when you look at the whole picture with real data and 20/20 hindsight that the shocking truth emerges.
The deliberate, calculated impoverishment of the middle class is an ongoing work in progress. I doubt if anyone on the opposition benches could do a better job of hastening this outcome than Jeremy Hunt. By freezing the higher rate tax threshold until 2028 he will bring 2.6 million more people into the 40% band. The even higher 45 per cent rate now applies to income over £125,140, down from £150,000 in April. The latest report from the Institute for Fiscal Studies (IFS) confirms that many teachers, nurses and electricians will be caught up in the 20% of UK taxpayers who will be clobbered by a tax rate designed for ‘the wealthy’.
A generation ago you had to earn £100,000 a year to hit the 40% rate. Today it’s a tad over £50K without making any allowance for inflation in the intervening years. Back in 1993 just 0.6% of nurses paid higher rate tax. Today it’s 13.2% and rising. Teaching staff caught in the trap have quadrupled from 6.1% to 25.6%. The only good news in the numbers is that more lawyers than ever are paying 40p in the pound, up from 35.2% to 49.3%. Taken as a whole, the IFS describes this fiscal drag as the biggest tax hike since Geoffrey Howe doubled the VAT rate way back in 1979.
The IFS tells us that the freezing of child benefit thresholds will cause 700,000 families to lose some or all of their payments by 2028. This threshold has already been in place since 2013 so has been ravaged by inflation long before this latest twist of the knife. In theory, child benefit is paid at a rate of £21.80 a week for the first child and £14.45 a week for the second and subsequent children. But, if either mum or dad has the temerity to reach a salary of £50,000 a year, they pay a high income child benefit charge, which of course reduces the net amount they receive. Should they join the world’s elite by earning £60,000 a year, they lose the benefit completely.
Real wages are falling month on month a inflation refuses to obey central bank forecasts by quietly coming back to their 2% target. If you or I missed our targets by as wide a margin as the Bank of England does, we’d be down the Job Centre looking for any Central Bank Governor vacancies with our freshly printed P45. Hey Andrew, I hear there might be a job going in Turkey if you agree with that nice Mr Erdogan that the cure for inflation is low interest rates.
The IFS criticises the disjointed nature of successive tax changes which have caused spikes like the withdrawal of personal allowances for people on more than £100,000, which results in an effective 60p rate until the top 45p rate kicks in at £125,140. Equally, the withdrawal of child benefit for people earning more than £50,000 which I just described creates an effective tax rate of over 55% for them. These measures represent a massive disincentive to work more or to find a new job at a time of labour shortages.
If you and your family are struggling to maintain a middle class lifestyle on less than £200,000 a year, you’ve only got yourself to blame. Follow Rishi’s example and marry a billionaire. Or do what Jeremy the Drag Queen did and sell a business for £14.5 million. Of course, you could always gamble on our great leaders seeing the light ahead of the next election and making sweeping cuts. Now that they’ve alienated landlords, business owners and the middle class, remind me exactly where their bedrock support will come from at the next election?
There is one outstanding goal that they’ve achieved which I would never have dreamed possible. They’ve made Keir Starmer look electable.