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Want to know if you are rich by today’s standards? Telegraph Money has a calculator to help you find out. Pop your salary, house price and a couple of other details into the tool, and it will reveal how you compare to national averages.
Of course, these numbers are only part of the picture. The skewed nature of the UK’s income distribution means that within the top 10pc of earners there are both billionaires and those earning £68,000 a year – the latter being a group who may struggle to get a mortgage.
Many will remember Rob Barber, the IT consultant from Lancashire, on BBC Question Time in 2019. Angry at the Labour Party’s then-plan for a 45p rate on earnings over £80,000, he insisted that he was not in the country’s top 50pc of earners – despite earning over £80,000 a year (which put him firmly in the top 10pc).
But, he said, he didn’t feel rich. And he’s not alone: research from 2017 shows a third of six-figure earners don’t feel rich.
Recent polling by Redfield & Wilton Strategies also found that despite being in the upper 90th centile for income, 60pc of Britons earning £80,000-£100,000 say they consider themselves “about average” on income levels.
Academic Marcos González Hernando, co-author of Uncomfortably Off, said that of the dozens of people in the top 10pc interviewed for his book, none said they felt wealthy.
“Culturally, being rich is thought of in absolute terms not relative terms – we think of the Jeff Bezos and Elon Musks of the world – so there’s a certain distance with the term, even though we are all rich and poor compared to others.
“And because of very high earners’ social circles, it becomes a necessity to spend on school fees and so forth to stay a candidate for climbing the corporate ladder – so their frames of reference become normal.
“The top 2pc on £125,000 have contact with the top 1pc (those earners on around £180,000 and upwards a year) in their workplaces and socially, and will feel the difference – feelings of wealth that are less about the hard cash and more about the pecking order,” he said.
Most fascinating are the higher levels of the top 1pc, a super class of astonishing wealth. The average FTSE 100 chief executive pay in 2022 was £3.91m a year, according to the High Pay Centre, for example.
“One man in (the lower level of) the top 1pc explained to me he never feels rich because all his money goes on the mortgage, school fees and, in his own words, a sensible German car,” says González Hernando.
It’s perhaps understandable why a relatively well-earning worker might dislike being put in the same bracket as people with exponentially larger earnings.
In absolute terms, those at the 5pc mark sit much closer to the median income earner (currently £29,328 according to government national statistics) than to the super-rich.
Dwindling spending power
The cost of living crisis and recent tax changes also reveal that £125,000 simply no longer stretches as far as it once did.
When the 45p income tax rate fell to £125,140 in April last year, analysis from The Telegraph showed that a £125,000-a-year earner can be left with just £1 for every £10 they make after taxes and basic outgoings.
This assumes student loan repayments, pension contributions of 8pc, a 25-year mortgage of £600,000 at the then-4.25pc central Bank Rate and childcare costs of £1,000 a month. And this is before household bills and other expenses are considered.
Stefanie Tremain, from the accountancy firm Blick Rothenberg, said if this particular worker received a £10,000 pay rise they would only receive around 35pc of their pay rise after tax and the same deductions as above.
“If you factor in the inflationary increase in mortgage and living costs then it is likely that this worker would be worse off,” she says.
High-earning self-employed people who draw their income as a dividend have also seen their spending power fall after changes to dividend tax and corporation tax as well as the additional tax rate threshold.
For example, an entrepreneur who makes £180,000 profit and draws this as a dividend is worse off by £1,480 (£1,392 due to the additional tax rate change from £150,000 to £125,140 plus £87.50 due to the tax-free dividend band change from £2,000 to £1,000).
Joe Neal, of Blick Rothenberg, added: “Due to the increase in the corporation tax rate a company would need to make £17,574 more profit to be able to distribute the same £180,000 dividend.
“With the reduction of the tax-free dividend allowance and the additional tax rate, the individual would still be £1,480 worse off. With inflation currently running at 6.8pc the contrast is actually much worse than this.
“Although the company has made 7.9pc more profit the individual’s take home pay will be down by nearly 8pc in real terms.”
Francesca Henry, financial coach and founder of The Money Fox, sees her clients grappling with their falling spending power: “Mainly with mortgage rates increasing, this has led to many having a serious think about whether they want to stretch themselves financially for their home, or whether it would be better to downsize to make things more manageable,” she said.
Financial planning – including ensuring you use all your allowances and claim tax breaks – may be one way to help you feel rich.
Justin Modray, of Candid Financial Advice, says: “When it comes to savings and investments, making the most of available tax allowances is usually a sure-fire way to boost your riches over time. As is investing sensibly and staying resolute during the kind of choppy markets we’ve endured in recent years.”
He also encourages not looking at your wealth too often. “A few days or weeks of falling markets can make you feel poorer and potentially lead to hasty, poor decisions, maintaining perspective is key.”