If you earn around three times more than the national average each year, you are rich - at least statisticallyShadow Chancellor John McDonnell unleashed quite a media controversy recently when he suggested that those earning £70,000 per annum are rich. The response from the media was fairly predictable, with the newspapers largely echoing their traditional political orientations. Now things have calmed down somewhat, we ask the question: is Mr McDonnell right?
The first obvious point is that we often consider those who earn more us to be relatively rich; in other words, if we take home £55,000 a year, we quite often regard individuals earning £15,000 more as being rather affluent and perhaps even wealthy.
Discussing this phenomenon, a recent article in the Independent looked at the example of the FTSE-100 boss who earns £4m per year. Are they unquestionably rich? Not if you ask him or her, with an American CEO apt to earn five times more.
This, of course, is a hugely subjective standpoint; however, there are more objective measures. The latest statistics from HMRC, for example, suggest that the median average pre-tax annual income in the UK is just £22,400, although this figure is somewhat contentious. If you earn around three times more than the national average each year, you are rich – at least statistically; in fact, you are among the top five per cent of earners!
Similarly, the national living wage in Britain is just £7.50 an hour. The Global Poverty Project has an even more stark message, namely that the majority of the world’s population has just a £1 per day for food.
It is not quite that simple, however. Firstly, there are wide variations in the cost of living across the country; for example, the Londoner’s £70,000 won’t go as far as the Liverpudlian’s £70,000. By way of example, the average cost of a residential property in London is an eye-watering £490,718, compared with a national average house price of £218,255 and a Liverpool average of £151,443.
Another factor is an individual’s family status. An unmarried young solicitor with no children will certainly feel the financial rewards of earning £70,000 more than his or her married counterparts who have three children. The latter will pay commensurately more for essentials such as food, energy and clothing, and for elective expenses such as private schools or medical insurance for their families.
Likewise, the bare £70,000 figure does not make adjustments to account for higher levels of tax and national insurance paid or – crucially – hours worked. A small business owner might conceivably earn this sum each year but need to work every hour that God sends to keep the enterprise profitable.
Can such an individual really be called ‘rich’? This is clearly a point for debate, especially when you start to consider the person working two full-time minimum wage jobs and being paid nowhere near £70,000.
In this context, definitive conclusions are virtually impossible. Perhaps this is the real point: very few people actually feel rich, whatever the official statistics might have to say on the issue.
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