Are you better off than half the country? Average household take-home pay revealed

29 July 2019

The median disposable income in the UK is £29,400, The Office for National Statistics has revealed

Image

UK households enjoyed a £400 boost to their incomes in the year to March with take-home pay hitting a record high of £29,400 on average. 

The rise in disposable incomes came during a time when the employment rate grew by 0.5 percentage points and total pay for workers rose by an average of 1% above inflation. 

Families will also have benefited from the rise in the personal allowance over the period, which means the first £11,850 of wages are earned tax free, up from £11,500 the previous year.

Higher earners are also taking home more of their pay, as the point at which the higher tax rate of 40% kicks in rose from £45,000 to £46,350. The National Living Wage also increased from £7.50 per hour to £7.83 per hour (up 4.4%).

Kay Ingram, director of public policy at financial advice firm LEBC, comments: "A real increase in wages above inflation will be welcome news for many households and reflects the high level of employment.

"This will feed through to increases in pension saving for all employees earning up to £50,000 who are auto-enrolled into a pension scheme, except for the lowest paid who do not qualify for inclusion in this where earnings are below £6136 per year.

"Those benefitting from an increase may like to consider the impact their higher pay has on their tax bill and ways they can claim tax relief or redistribute taxable investment income between themselves and a partner or spouse to keep more of their pay rise.

"Where earnings exceed the £50,000 band for the first time the recipient will be liable to 40% tax on the excess. They will also see their tax free savings allowance halve from £1,000 of interest to £500." 

Meanwhile incomes of pensioner households will also have increased due to a 3% rise in the basic state pension from April last year.

However, disposable incomes of some households will have been driven down by the continued freeze on some certain working-age benefits, such as housing benefit, child benefit and tax credits. These have not risen with inflation since 2016 and will mean that the value of these benefits has fallen in real terms. 

The figures released by the Office for National Statistics are for the median average disposable incomes, which is the amount of money that households have left for spending and saving after direct taxes, such as income tax and council tax have been accounted for. It's a good way of measuring the impact of taxes on incomes. 

The median household income is the income of the middle household, if all the households in the UK were sorted from richest to poorest. In other words, 50% of households earn £29,400 or less, and 50% earn £29,401 or more. 

The mean disposable income of UK households is £35,300. This figure is higher than the median because some households earn disproportionately more than others, and totting it all up gives a slightly higher figure. The mean is calculated by adding up the disposable incomes of all households and dividing this by the number of households. 

Households have seen only modest growth in their disposable incomes in recent years. The median income grew by just 0.7% between March 2017 and March 2018, compared with a 2.8% rise between March 2013 and 2017. 

Image

Ms Ingram adds: "Those who have children will also need to watch out for the High Income Child Benefit Charge which progressively taxes Child Benefit at up to 100% when one partner’s income exceeds £50,100 to £60,000. The impact of this can be reduced by making salary sacrifice arrangements to fund pension savings, financial advice or gifts to charity. 

"Couples need to look at their respective incomes and see if rearranging ownership of investments can reduce the tax they pay leaving them with more to save.

"Many may be entitled to extra perks, such as the marriage allowance,  which can be worth £250 a year where one partner earns less than £12,500 and the other is earning between this and £50,000. If backdated four years it can produce up to £900.

"Reviewing finances and savings every time a pay rise comes round is a good way to keep savings habits growing and protecting longer term needs against the effects of inflation." 

Whether or not a family feels wealthier over time is not just down to a growth in their income - it is also affected by how much their money can buy, which is measured by inflation. 

The chart below shows wage growth (blue) versus inflation (yellow). The line in the middle shows the actual growth in income after inflationary effects are counted for.

The UK has experienced higher bouts of inflation since the EU referendum in 2016, but as the chart shows, not actually unusually high compared to earlier in the decade.

Image

The difference in growth of median disposable incomes between working and retired households is also notable.

Since around 2001, retired household average incomes have risen faster than those of working households. See the chart below.

Image

Much of the disparity can be accounted for by the guaranteed growth of the State Pension, according to the ONS. Currently the State Pension is guaranteed to increase by inflation, wage growth, or 2.5% - whichever is higher.

State Pension income grew by 3% in April 2018 matching 3% inflation levels recorded in September 2017.

Comments

Average household income report

Perhaps Ms Ingram should learn some basic statistics before writing such reports. Mean and median are very different things!!

Difference between mean and median

And Ms Ingram has explained the difference between the two Alan K.

Average household income report

Would be interesting to see what the average household retirement income is now too.

Really?

I barely know anyone who comes even close to that figure. It maybe the median figure, but it sure isn't accurate considering how many people are on zero hour contracts, the people hidden from the figures such as unemployed and people on benefits. You'll find the real figure closer to £10,000 rather than the ridiculous amount you probably can only get if your a high paid doctor or banker. How many of those are there in most areas - mostly none!

Definition of disposable income?

Wish the article would explain what disposable income includes.

Add new comment