Our salary calculator helps you get smart about keeping up in 2024

What pay increase do you need to keep up? The answers vary widely based on personal circumstances, with the most affluent requiring only modest pay rises to stay afloat, while lower income families will need much bigger raises–which they are unlikely to get.

James is hard to like. It’s bad enough that he earns so much. Indeed, as a high flyer in banking, his total income in 2023 was a cool £500k (some of that a generous end-of-year bonus). But what rankles is that when James sits down with his boss to talk about next year’s pay, he only requires a fairly modest (in % terms) 6.9% pay rise to maintain the same spending power he’s enjoyed over the last 12 months.

At the other end of the income distribution, consider Steve and Tanya. With three kids, they have a combined household income of around £35k. Tanya needs a whopping pay increase of 12% – nearly twice as much as James – to maintain their standard of living. That’s despite the fact that more than half of their total household income comes from the Government. 

There are two main factors at play here. The first is that inflation does not affect us equally. A household’s rate of inflation varies depending on its composition and income level.

For instance James, despite his fancy Docklands apartment and natty wardrobe, earns far more than he spends. And because essentials like food and energy, which have risen in price so steeply over the last 24 months, consume so little of his take home pay, James has been much less affected by the cost of living crisis than the rest of us.

Lest you dismiss James as an extreme example, around 1 in 200 employees in London earn at this level, so likely as not there’s someone much like him on the train with you today.

Steve & Tanya, on the other hand, have a far tougher time of it. Tanya’s modest income of £15k is supplemented by £20k that Steve claims in universal credit (Steve has full-time responsibilities as a carer for his elderly parents which prevents him from working). 

Not only must they cover all their outgoings from a much smaller pot, essentials for them and their three kids take up a far larger proportion of their take home pay. This means that the rapidly rising cost of food, for instance, is proving punishing for them. 

So in other words, the effective impact of inflation falls hardest on lower income households and those with bigger overheads. But that factor is further exacerbated by another one: fiscal drag.

Fiscal drag is the name that economists give to the effect of freezing tax thresholds.

Jeremy Hunt has avoided increases in headline tax rates. However he has opted instead for a form of stealth tax: freezing income tax thresholds until 2028. That means if you get a pay rise, a larger proportion of your gross income is taxed at higher rates–which in turn means you need a bigger pay rise to compensate for your higher effective tax rate.

It’s when you combine these two effects – fiscal drag and differential rates of personal inflation – that things get complicated. Taken together, these two factors mean that some individuals and households have really felt the cost-of-living crisis where it hurts –unless of course they've persuaded their employers to be extremely generous.

Consider the monthly spending picture for three quite different households:

All of this means that when the time comes for The Conversation, whether you’re set to have it with your boss, your HR department or your union rep, you’ll want to know just how much of an increase you’d need to stay still. Even if it’s more than you expect to get, forewarned is forearmed.

Want to find out what you need to ‘keep up’? My business, Nous.co, has put together a tool at nous.co/payrise to help make sense of all this for your own situation. 

The disappointing reality is that most earners won’t actually achieve pay awards anywhere near the levels they might need to ‘keep up’. Precious few employers are actually able, let alone willing, to step up pay by double digits next year. Which means that 2023 may be a really tough year.

Unless you’re James, that is.

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