S2E5: Do you earn more than average? And how to cross the pay gap
How you compare to average
Median monthly pay in the UK is £2,264, equating to an income of £27,120/year. Source: ‘Pay as you earn real time information UK September 2023’
That’s the average for the UK, but there are regional variances. In Wandsworth it’s £3,488, whilst in Leicester, just 100 miles away, it’s £1,920.
How you can increase your income (or live better)
Upskilling, basically paying to learn a new skill that allows you to earn more, like coding.
Promotions and pay rises. You can sometimes stay in the same role but change your industry, e.g. if you’re doing HR at a charity, you’ll probably earn more if you can change to doing HR in the finance industry.
Timi sucked in the corporate world. He says he couldn’t play the game, he couldn’t get promoted. He actually feels safer now as an entrepreneur which might seem weird.
If you want to present yourself compellingly to an employer, e.g. on a CV, or in an interview, try to speak more in terms of outcomes you’ve achieved, not responsibilities you’ve had. It’s about showing the results of your work, not work you’ve done, e.g. you grew sales by 35% a year for 3 years rather than you led the sales team for 3 years.
If you want a promotion, it’s best practice to get your line manager to buy into your development - with clear goals and timelines accompanied by incentives for achieving those goals. For instance, you can ask them, what do I need to do to get a pay rise/promotion? They should list the requirements and the timeframes, and if you achieve them they should have no choice but to promote you… in theory. Of course, other things can get in the way but that approach gives you a great chance. You want to basically create the following kind of equation/statement “If I do X, will you do Y? It’s important they quantify everything, so it’s clear if you’ve hit the goal in time.
On average, the biggest pay rises occur when people change jobs from one company to the next.
With the work from home phenomenon, more people will hopefully be able to move somewhere that’s cheaper to live but stay on the same wage and have a better quality of life because the cost of living is cheaper - e.g. housing.
Gender pay gap
According to the ONS Annual Survey for Hours and Earnings (ASHE) 2022, the gender pay was:
1997 - 27.5%
2022 - 14.9%
The gap gets worse the higher up the earnings ladder you go.
For every £1 a man earns, women will earn 85p - across all workers.
But a common misconception is that the gender pay gap means a man gets paid more than a woman for doing the same job. The gender pay gap refers to earnings across all men and women (in companies that report their data). To clarify, in a particular company the gender pay gap refers to the difference between the amount earned by the average man compared to the average woman. This is why the lack of women in senior leadership positions really affects the gap because there are generally more men earning higher salaries in a company than women pro rata.
Until people get into their 30s there isn’t a huge gender pay gap (up to 3.2%) but after 30 the gap widens massively. From 40 years old it’s 10.9% and it just goes up from there.
The Institute for Fiscal Studies (IFS) calls this the ‘Motherhood Penalty’.
Mothers in the UK have their first child on average at 31, and mothers are more likely than fathers to be the primary caregivers for children. So, if we want to reduce the gender pay gap, it stands to reason that we need to reduce the burden on mothers generally being caregivers of children. What would happen if we were to level the playing field for parental leave?
Timi says one of the most important, value-adding things we do as a species is bring up the next generation. And whilst money is good at valuing some things, it’s not good at valuing all things, like caregiving work. If you valued caregiving work accurately, which is primarily done by women (things like housework, looking after children etc.) it would be worth £1.1 trillion, or 66% of GDP, according to ONS data from 2014. Mind blown. He says our financial system doesn’t capture this enormous value. Raising a child well is worth so much to the economy. It begs the question, do we need to evolve capitalism?
In the UK we’ve basically outsourced the quality of parental leave to companies. If you work for one company you can get a vastly better package than if you work for another. In other countries, like a lot in Scandinavia, women basically get full pay for a year and it’s the same for men - they are given such good incentives to not work and instead rear their children that virtually all of the men do.
In the UK do we need to flip parental leave from a company’s responsibility to the state’s?
Ethnicity pay gap
Around 20% of the UK are an ethnic minority (Gov.uk).
Ethnicity pay gap reporting isn’t compulsory unlike the gender pay gap which is for companies with more than 250 employees.
According to the ONS, the ethnicity pay gap by demographic in 2019 was:
White - £12.40/hour
Ethnic minority - £12.11/hour
The pay gap was at its largest in 2014, at 8.4%
With ethnicity, the biggest gaps aren’t actually in income but in wealth. The Runnymede Trust did a study in 2020 which reported: “Black and minority ethnic (BME) people generally have much lower levels of savings or assets than White British people. Indian households have 90–95p for every £1 of White British wealth, Pakistani households have around 50p, Black Caribbean around 20p, and Black African and Bangladeshi approximately 10p.”
It’s not about just increasing income but building net wealth.
There are big consequences if you move from one country to another where there can be huge differences in culture, money and care. For instance, in a lot of countries, the elderly are expected to be looked after by their family (in a family home), whereas in the UK there’s more emphasis on state-given care - putting our parents into care homes rather than looking after them at home.
There can be more of a culture of the young supporting the old, whereas in the UK, money tends to flow down from the old to you the young - even in small examples like Damo’s uncle insisting on paying for supper.
Ethnic minorities often send some or a lot of their pay to their families around the world. This kind of gap isn’t measured. Let’s imagine two people get the same salary but one is sending money home whilst the other is actually getting help from the ‘bank of Mum and Dad’. That will make a massive difference to their net wealth over a lifetime.
The white working class demographic is going through a hard time in the UK.
Timi was reading a report by the CMA on their own ethnicity pay gap and they said their issue would be solved (within the CMA itself) by having more ethnicities at a senior level. Which sounds similar to the argument made about the gender pay gap.
Timi says we need to put the right rules in place to bring out the best in people and points to some crazy laws we’ve had - like women couldn’t open a bank account in the UK until 1975. WTF.
But Timi is optimistic about the future, which is nice to hear. There’s so much pessimism because it generates clicks. He’s positive because he says we’re raising the smartest generation ever (certainly got the best access to information). He believes the UK has a lot of potential.
Other stuff you should remember from this episode
The IFS says the recent tax band freeze, which means tax bands haven’t been increased in line with pay rises/inflation, is the single biggest tax raising measure since the 1970s. The idea is that despite lots of people getting paid more, driven by inflation, by holding tax bands where they are - lots of people are moving up into new tax bands so are paying more tax. Fundamentally, if tax bands don’t go up in line with wages and inflation then there’s more tax paid (and people’s net income doesn’t increase on a 1:1 basis with their wage increases).
In 1990, no nurses and 6% of teachers paid higher rate tax - now 1/8 nurses and 1/4 teachers are in higher rate tax bands.
As of April 2023, the UK government increased the annual pension allowance from £40k to £60k and abolished the lifetime allowance which was just north of £1 million. Using your pensions is a great, legal way to avoid tax - and is particularly good if you’ve gone up to a new tax bracket. Check our pension episode for more info.
But, whilst that’s a nice idea (topping up your pension) a lot of people need that extra money to live.
A new government can change these things (tax bands, pension allowances etc.) and Damo thinks the Labour government will probably backtrack on the lifetime allowance of pension (which the Conservative government recently abolished). Pensions have become a hockey puck for the parties to pass around to woo voters.
Timi asks, how do we get back to growth as a country? Good question, we’d love to know. And we’d love to get Liz or Kwasi on the podcast btw if you have an in for us.
Equally, how is there not great internet all over the country? It’s a national disgrace if you ask me (Will, the bloke writing this).
The ONS has just released its latest annual earnings report, after we’d recorded this episode.
Damo’s video on a similar topic is here.
