Four ways to help the HENRYs
High Earners, Not Rich Yet are being hammered by tax, housing and childcare costs. Here’s how to fix the system so HENRYs don’t just participate in the workforce, but also prosper, says Louis Coke
The acronym ‘HENRY’ has been around for a while, and the problem that it encompasses is only getting bigger and bigger for many young people in the UK. HENRY stands for High Earner, Not Rich Yet. This encompasses quite a number of people in the UK, typically aged in their 30s and 40s and earning north of £100k per year. In a nutshell, the challenge this cohort have is that their income gives them the means to participate in daily life, but not to prosper within it, and to build wealth.
Many of these people are highly educated (with student debt to boot), are working far more than the EU recommended 38 hours per week (otherwise known as ‘Wednesday’ in the City) and are doing what they understand to be the ‘right things’, but they have little to show for it versus their expectations.
Four core pressures
The core pressures here are fourfold. Firstly, tax. The UK is a high tax country, and income is taxed at the highest rates. Years of allowances remaining frozen and some trickery around personal allowances and tapering means that the difference between gross and net pay is now something you could drive a proverbial London bus through. High tax on its own may not be a significant issue, depending on how much everything else costs. However, that links to our second issue; housing.
The UK (not unlike other countries, to be fair) has not built enough housing to keep up with demand for many years. Instead, we have largely used creative financing measures and longer-term debt structures to ‘solve’ the issue of high housing costs. In my view this really doesn’t fix the underlying problem, and it causes another challenge later down the line in terms of retirement provision, which will look very different for this cohort compared to those who came before it. Data shows that the average home in England (let alone London/South East) costs nearly eight times median earnings (2024, ONS).
House price growth has surpassed wages, and house prices do not care if you end up paying a higher tax rate as you try to increase your earnings to catch up. What does that do to motivation? In the past I have heard criticisms of that HENRYs spend their cash on experiences and frivolities, but the reality in many cases is that discretionary spend really isn’t going to compensate for the big, structural disadvantages they face. The numbers are far too big.
Our third conundrum is childcare costs. There is a separate conversation to be had in society about the risks of falling birth rates but at a very high level, we do need people to keep reproducing for our economy, society and government spending model to continue. However, childcare is often cripplingly expensive which either puts people off having children entirely or relieves them of any capital they have accrued up until that point in their careers. The UK has one of the highest childcare to income ratios in the OECD at 19 per cent, although from personal experience of having two young children, I can vouch for periods of time where this ratio can exceed 40%. Good times.
The final challenge for HENRYs is one that many of them haven’t even got onto thinking about yet: retirement provision. Gone are the days of loyalty to an employer being rewarded with a nice final salary pension scheme. This cohort is being left largely on their own. Opinions vary on the future of the state pension, but my personal view is that this is very likely to be means tested away by the time the HENRYs get to the point of retiring. The triple lock is a fantastic offering from the government, but it has become unaffordable and, at the same time, politically extremely sensitive to water down. Therefore, a bit of moving the goalposts around criteria for receiving it is where I suspect the ‘axe’ will fall in future years.
Now, this is not intended to be a tale of woe for the HENRYs, pleading for help. These are highly intelligent, motivated, educated people who want to do their part to grow our economy and contribute to society. It is also true that they stand to inherit, in aggregate, a lot from their parents, if care fees and inheritance tax do not get there first. However, the HENRYs do need some help so that we keep them motivated, keep them paying into our tax system, keep them having families and importantly, keep them in this country rather than see more and more of them lured by the ‘greener grass’ of other jurisdictions.
The challenges this cohort of our population faces cannot be solved overnight or with one simple policy change. By the same token, the HENRYs are not looking for a bailout or pity – they are just looking for a path to put in effort in exchange for being able to build wealth, and grow their way out of these challenges.
My ideas for helping the HENRY’s are as follows. Firstly, personal allowance tapering. This existing tax rule should be amended to exclude those aged under 45. This may seem ageist but that is already a feature of our tax system (look at ISAs for over 65s), and the young need a bit of assistance too.
We also need to look at housing. Akin to the ‘right to buy’ schemes of many years ago, we could have housebuilding schemes that are built for young/starter families, and are sold at a 25 per cent discount on their normal price. The incentive for housebuilders is that they will pay zero corporation tax on the profits from these schemes. Fixing the price, not the financing. This scheme is time limited to 10 years with the idea being that this should encourage significant housebuilding. More supply equals lower prices. The kicker for the government here is this: when these houses are sold, five per cent of the proceeds go to the Government.
Childcare forms a large part of the problem, too, and here the existing 30/15 hours of free childcare should be expanded such that the maximum sole earner income is hiked to £200,000, from £100,000 at present. The price the government pays childcare providers is also an issue here, so work needs to be done to look at what is a fair rate.
Finally, we should look at a family formation tax credit. For parents who are both working and who have children under the age of 12, they should be able to claim income tax relief of £3,000 per child, subject to an overall maximum of 30 per cent of your income tax paid. You grow your career, and the government will progressively assist you with the cost of living and childcare to help you on your way.
There’s no silver bullet, but there are things the government can do – and stop doing – to tip the scales just a little bit in HENRYS’ favour.
Louis Coke is director of private clients at Charles Stanley