Published in October 1995 issue of Prospect Magazine
What on earth can they do with all that money? It is an understandable response to the salary and bonus windfalls for top earners in industry-and especially the City. Nor is the question merely of prurient interest. As one commentator, William Wallace, wrote in the Financial Times: “If a medium sized merchant bank [Barings] pays an annual bonus of ?100m, we can assume that the sums received by senior City employees as a whole are now a significant factor in the economy of the south east-if not of the UK as a whole. Is there any evidence available as to how these substantial sums are spent?” Not until now.
There is no official information on the subject because the top income groups for government statistics generally cover a much wider range of incomes than the top salary earners alone. The government’s General Household Survey lumps together all those above ?40,000, while the top category in the Inland Revenue Statistics includes all those over ?100,000 (for some items, over ?50,000). Even the smallest of these groups-those on over ?100,000-represents as many as 95,000 income earners (0.37 per cent of the total).
Hence our top salary survey. We defined earnings as pre-tax income including salary, bonuses, dividends and capital gains on shares in the companies in which the individuals work. Almost all respondents earned at least ?500,000 per annum, but the strict qualifying level was a minimum average earning for the past three years of ?350,000.
number of top earners in Britain
By extrapolating from the most recent Inland Revenue Statistics we estimated that 4,700 people earned more than ?500,000 last year. This group accounts for about 1.1 per cent of total personal incomes in the UK. They represent only 0.008 per cent of the population, or one in 12,300, but account for 0.5 per cent of UK consumers’ expenditure and 2.3 per cent of total tax and national insurance receipts: in other words each of them-on average-pays as much tax as 125 average taxpayers put together.
What is the occupational breakdown of this group? The annual Labour Research survey of company reports for years ending in 1994 or early 1995 identifies 187 directors paid over ?500,000 per annum, of whom 58 earned over ?1 million. But this survey is mainly based on the records for directors’ emoluments from the accounts of publicly quoted companies and could not be expected to include many of the high earners in financial services, the professions, small companies, sports and entertainment.