The nation’s chattering classes were in uproar today after Labour’s shadow chancellor, John McDonnell, suggested his party will shift the tax burden to “the rich” - which he defined as those earning “above £70,000 to £80,000 a year”.
Does £70,000 really make you rich? Objectively, it isn’t a difficult question to answer: annual earnings of £70,000 puts you in the top 0.09 per cent of the global population, according to the Global Rich List.
Restrict your analysis to the UK, and the result isn’t that different: those earning £70,000 are making almost three times the average UK salary - in fact, it puts them somewhere between the 94th and 95th percentiles for earnings, figures from the Office for National Statistics suggest. So yes, if you are earning £70,000, you are, as McDonnell suggests, rich.
Wealth vs income
But that’s not the whole story. For one thing, McDonnell’s definition was characteristically vague: he failed to draw a distinction between the total sum of people’s assets and merely their salary.
“Traditionally, the definition of ‘rich’ means wealth, not income,” says Ben Southwood, head of research at the Adam Smith Institute.
Here’s an example: last year housing charity Shelter said by 2020, first-time buyers will need to earn at least £64,000 to buy a house. In the capital, home to the largest proportion of high earners (the average salary here is 20 per cent higher than in the rest of the UK), that figure is £106,000. And as house prices (and therefore the salaries needed to buy a home) rise, McDonnell’s rich are likely to find it increasingly difficult to accumulate wealth.
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Last year the FT drew pretty much universal ridicule with an article about a family "struggling to get by" on £200,000 a year. Alright, it was silly - but if that’s how those on six figures are feeling, it’s not entirely inconceivable those earning £70,000 a year could be held within the ranks of the so-called squeezed middle.
“I think probably people earning £70,000 do struggle to save pensions,” says Laith Khalaf, senior analyst at Hargreaves Lansdown.
“If you’re talking about a family income [which McDonnell didn't clarify], after tax you’re probably getting £45,000 or so. Given day to day living expenses, if you’re supporting a family you’re probably not going to have a lot left over to save.
“I would say we’re talking about Middle England, really. People who do have an ability to save, but it’s not as if they’re got an ability to put tens of thousands away each year.”
The difference, points out Southwood, is that the closer to the top of the earnings scale you are, the more opportunity you have to increase your wealth.
"Most of them would either stand to accumulate wealth over their life or would have family wealth.
"They might not be in the top one per cent - but do you have to be in the top one per cent to be considered rich? I would feel great if I earned £70,000 a year.” Well - maybe not if Labour gets in.