High pay, low confidence: why rising salaries are not making people feel rich

Many Britons who earn substantial salaries report they do not feel wealthy, even as official data show sizeable household wealth concentrated in property and pensions. Analysts and business groups say the disconnect between headline incomes and day-to-day financial confidence is driven by taxes, rising essential costs and limited discretionary income for spending or saving.

Office for National Statistics data on household wealth in Great Britain break accumulations into four components: property (40 percent), private pension wealth (35 percent), savings and investments (14 percent) and physical possessions (10 percent), minus debts. That composition means much of measured wealth is illiquid or reserved for retirement, leaving monthly income and what is left after essentials as the key determinant of how affluent people feel.

A salary and earnings calculator published by This is Money allows users to compare their pay, self-employment profits or pension income with local and national medians and to see how much tax is deducted. The outlet said someone earning £50,000 — the typical threshold for higher-rate income tax — earns more than 76 percent of people, while a £100,000 salary sits in roughly the top 6 percent of earners. Despite those relative positions, public sentiment surveys and retail trends indicate many households feel financially constrained.

Disposable household income, defined by the ONS as income available for spending and saving after direct taxes such as income tax, national insurance and council tax, has shown limited growth in recent years. ONS figures cited by analysts indicate median disposable income adjusted for inflation was broadly steady in the financial year ending 2024 but remained below its 2020 level and roughly in line with levels two decades earlier.

Policy changes and tax design play a role. While national insurance contributions have been cut in recent years, freezes to tax thresholds and rising local charges such as council tax mean households face an effective income tax squeeze, analysts say. Those pressures reduce the share of gross pay available for discretionary spending.

Beyond taxes, essential outgoings on housing, transport, food and utilities are consuming larger shares of household budgets. Data from Asda’s income tracker, cited by This is Money, show wide variation in leftover weekly income after essentials across income quintiles. The lowest fifth of households on average end up at minus £73 per week, the middle quintile has about £91 per week remaining, and the top two quintiles report £289 and £916 per week respectively. For a two-adult, two-child household, Asda’s analysis suggests the middle and upper-middle levels of leftover income translate into modest monthly amounts once split across household responsibilities.

Analysts note that discretionary income must cover non-essential spending, savings, investing, holiday costs and larger infrequent purchases. Even households with several hundred pounds of leftover income a week may feel constrained once those commitments are taken into account, prompting cutbacks on dining out, leisure and retail spending.

The change in consumer behavior is reflected in recent business reports. Hospitality and leisure outlets, including restaurants and pubs, along with retailers, have reported softer demand as households prioritise essential bills and saving. Company executives and sector representatives have pressed the government to consider measures to boost households’ financial confidence and spending power.

In recent days, senior retail figures, including the head of John Lewis and retail veteran Lord Stuart Rose, have publicly urged the government to address household finances to support the consumer economy. Government officials have been lobbied on a range of options, though there has been no immediate policy shift announced linked to those appeals.

Economists say restoring growth in real disposable income is likely to require a combination of fiscal choices and policies that address the cost of essentials. They caution that headline earnings growth alone may not translate into greater consumer confidence if net pay, taxes and living costs continue to outpace household budgets.

The debate over who feels rich and why has broader implications for the economy. If significant numbers of households, including higher earners, reduce discretionary spending, sectors that depend on such outlays could face prolonged pressure. Policymakers and businesses watch those trends closely, since consumer spending accounts for a large share of economic activity.

This is Money’s salary and earnings calculator is intended as a tool to help households benchmark their incomes against local and national norms and to see the effect of taxes. Analysts say such tools can clarify relative position but will not on their own alter the balance between incoming pay, taxes and essential outgoings that determines how people experience their wealth and living standards.