Using data from income tax records, new research shows the extraordinary scale of the gulf between the merely well off and the very richest.  If you have a pre-tax income of a little over £50,000 you will be among the highest-income 10% of income tax payers. But you need more than three times that to make it into the top 1%, while the top 0.1% enjoy pre-tax incomes in excess of £650,000 a year. These groups are overwhelmingly male, middle-aged and based in London and the South East. Their geographic concentration has increased further since the early 2000s. Between 2000-01 and 2014-15, the proportion of the top 1% living in London grew by a fifth, from 29% to 35%.
New IFS analysis of these high-income people published today, using HMRC administrative data and funded by the ESRC, reveals several insights about this group. Key findings include:

  • More than half of the top 1% live in London and the South East, with more than a third in London alone. Half of them lived in just 65 parliamentary constituencies in 2014-15 – down from 78 in 2000–01. Of those 65 constituencies, 52 are in London and the South East.
  • To be in the top 1% of income tax payers in London requires an income of over £300,000 a year. The threshold for the top 1% in Wales, the North East and Northern Ireland is about a third of that.
  • There remains a huge gender disparity at the top of the income distribution. Men make up 83% of the top 1% of income tax payers and 89% of the top 0.1%. To be among the top 1% of men requires an income of £200,000, while to be among the top 1% of women requires an income of half that.
  • A 50-year-old man in London with an income of £160,000, enough to be in the top 1% nationally, would not even be in the top 5% of men in London in his age group. He would need an income of over £700,000 a year to be among the top 1% of men aged 45-54 living in London.
  • Between 2000–01 and 2015–16, nearly 6% of men born in 1963 (those who went through their peak income years over that period) were in the top 1% of income tax payers at some point. More than that will be in the top 1% at some point in their life.
  • Around one in three of the top 1% are business owners (they account for around one in five of the workforce overall), including 14% of the top 1% who are partners (disproportionately in hedge funds, law firms and the medical industry). Well over a third of the income of the top 0.1% comes from partnership and dividend income.
  • Business owners and partners pay less tax than employees. This policy choice provides substantial tax advantages to some of the very highest-income people in society.

Robert Joyce, Deputy Director at the IFS and an author of the report, said:

“The highest-income people are very over-represented in the country’s south east corner, most of them are men, and many are in their 40s and 50s. This geographic and demographic concentration may be one reason why many of those on high incomes don’t realise quite how much higher their incomes are than the average. The sheer scale of the gap between the top 1% and the top 0.1% may also help explain that.

It is also important to realise that many more than 1% of the population will at some point in their lives have incomes that will place them in the top 1%. Very few will be in the top 1% all their lives.

What many people will want to know is how some people have such high incomes. For example, do those earning hundreds of thousands of pounds a year derive such rewards from innovations and activities that benefit all of us, or are they exploiting market power at the expense of workers on lower incomes? These are among the key questions that the IFS Deaton Review of inequalities, which we recently kicked off, will look to address.”