25-year-old London bankers on £200k do not want to pay more tax

If you earn £200k ($266k) in the UK, you may yet be asked to explain yourself to His Majesty's Revenue and Customs. Associate level bankers in London typically earn more than this, but ahead of today's budget, young bankers would like to let it be known that they do not feel rich.

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Starting salaries for 22 year-old junior bankers in M&A in the UK are circa £75k at major banks. These are supplemented by bonuses of circa £30k (or more, depending upon the year). Three years later, as full associates, the same juniors can expect salaries of over £100k and equivalent bonuses. 

This puts them in the top 1% of UK income tax payers. But juniors in London banks today say they do not feel rich. They do not want to pay more tax. They suggest that managing directors (MDs) should be targeted instead. 

"Base starting salary after tax isn’t really at the level to support renting on your own anywhere in Central London," says one LSE graduate. "So you need to live further out or to accept a longer commute. Or you need to stay at home with your parents for much longer."

Without family money, she says the only way to afford a house now is to wait and to save bonuses for a deposit. But junior bankers educated at UK universities who have the notorious Plan 2 student loans pay a 71% marginal rate of tax on income between £100k and £125k. If they have a Master's qualification and additional Plan 2 loans, the marginal rate is 77%.  "It’s very tough," says the LSE graduate. "There's a massive disconnect between the pace of inflation on housing versus starting salaries which have barely moved in 15 years."

One 28 year-old associate says he's just bought a London apartment with help from his family. "I'm not even sure the after-tax proceeds from my next bonus will be sufficient to cover the renovation costs alone. Despite earning what would objectively be considered a very good salary, the taxes, cost of living and property prices in London make it difficult to feel particularly wealthy." Another junior said he's worried about paying his large mortgage if interest rates rise.

Instead of taxing junior bankers, junior bankers suggest taxing senior bankers. "My MD told me he was buying his 4th house," says one. "I pointed out that this is why 25 year-old bankers can't afford to buy a place any more. We are having to compete with your generation that racked up a lot of cheap real estate." 

He tells us that young bankers look at MDs and see that they have lives very different to their own and that it was always thus. "People aged 40-45 in banking were able to buy cheap houses and so today they have a lot of security. Relative to purchasing power they had much higher salaries and bonuses than we do now." 

If taxes are going to rise, he suggests they should therefore rise on MDs. "Every junior person in finance/law/medicine, anyone aged 25-35 in London, feels stretched." MDs are "surfing on the back of the new generation," he adds. "These people really can't be on the same tax bracket as the 20-30 year olds earning £145k and trying to make a living. 

Taxes on £5m houses also need to rise, he suggests. Some offer a word of caution, though. "MDs already pay 45%+ of their earnings in taxes. The idea that someone should be taxed even more simply because they have worked their way up to a highly paid position seems fundamentally misguided," says another associate. "These are highly skilled, internationally mobile professionals who can often earn comparable salaries in other financial centres." 

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