Even members of Britain’s highest-paid 1% don’t feel particularly well-off, according to a new study by the London School of Economics – because of comparisons they make with the 0.1% super-rich with whom they rub shoulders.

“Due to the vast absolute difference among the 1%, top income earners experience ‘relative disadvantage’,” the report, A Relational Analysis of Top Incomes and Wealth, states. “They are disadvantaged compared to others at the top, while being aware of their advantage compared to the general population.”

The study’s interviewees included five people with fortunes of more than £100m, and three people on the Sunday Times Rich List.



A financial professional in the City of London said she did not feel her income was high compared with others working in finance in the capital – and that she would consider high income to be those “earning millions”.



“That’s partly because I see a lot of people who I have contact with on a daily basis who do [earn millions],” she said. “However, I’m in London, in an environment [where many people have high incomes] … if I go back to where I grew up, then I’m definitely a high earner.”

Chief executives of FTSE-100 companies now earn, on average, 386 times more than workers on the national living wage. Photograph: Hannah Mckay/Reuters

The top 1% in Britain are defined as those earning more than £162,000 before tax, according to HMRC’s latest Survey of Personal Incomes (SPI). The average income for the top 1% in the UK in 2010 was approximately £267,000 a year before tax, according to the 2016 World Wealth and Income Database, while the average earnings of the top 0.1% was £990,000.



A senior investment banker, who earns hundreds of thousands of pounds a year, said he “just doesn’t feel particularly wealthy” compared with other parents at his children’s private school who, he said, were sitting on £100m-plus family fortunes.

“I feel like I’m fairly well off and I earn multiples of the hundred thousands,” the banker told a researcher from the LSE’s International Inequalities Institute. “But I feel very poor in the context of the classmates [of my children] ... Their parents can spend a lot more time with them, because none of them really work, or some of them work but it’s working on their own terms: they might run a hedge fund but they can take the kids to school.

I feel very poor in the context of the classmates [of my kids] ... I’d say nine or 10 of their​ parents have over £100m Senior investment banker

“I’d say nine or 10 of their classmates’ parents have over £100m,” he added. “That to me feels wealthy, but earning a hundred thousand just doesn’t feel particularly wealthy.”

The unnamed investment banker said earning a few hundred thousand “does not feel that great”. He said it would be better to define the rich in terms of assets rather than earnings. “I think that’s where we see the kind of big change ... there are a lot more people within London who have £100m [in assets].”



According to the report, written by Katharina Hecht, a PhD researcher in the LSE’s Department of Sociology, members of the top 1% are often working for the 0.1%, and regular exposure to their lives and lifestyle can create feelings of disadvantage and aspiration to earn more. “While recognising their advantage compared to the general population, they experience disadvantage when ‘looking up’,” Hecht writes.

“In their daily lives, [the top 1%] are surrounded by vast absolute income inequality, because the differences between top income earners are much higher than those between individuals situated in the middle of the distribution.”



The investment banker said £100m was a lot of money – but “not a ridiculous amount of money”. He told the researcher he was “fairly confident” that a driven and passionate individual could “start from zero and get to £100m within 20 years”.



The LSE report suggests rich people’s experiences of relative disadvantage might ‘drive economic inequality at the top’. Photograph: Hannah Mckay/Reuters

Many of the 30 anonymous rich people interviewed for the study were keen to stress they do not begrudge those who are doing better; in particular, they admire entrepreneurs. Hard work is seen as key for achieving high earnings, and economic disadvantage was talked about as something that could be overcome through aspiration.

One hedge fund manager said he was able to achieve huge earnings because he had “unique pricing power” similar to professional footballers.



No one could describe what I earn as being fair. It’s just the market Hedge fund manager

“If you’re someone like Wayne Rooney, you can go to Manchester United and say ‘pay me £200,000 a week or I’m gonna go to somewhere else’ and Man Utd just say ‘yeah fine’ because he’s got unique pricing power,” he said. “If you are a successful hedge fund manager, if you make money for your clients, you also have unique pricing power because of the fees that we receive.”

Hedge fund managers typically collect a management fee of 2% of all their funds under management, and 20% of the profits made on the investments. The world’s most economically successful hedge fund managers made $1.7bn (£1.3bn) in 2015.



However, the hedge fund manager interviewed said it would be “ridiculous” to say he deserved his huge income. “I can’t spend [all of my multimillion-pound income]. I mean, what can I do: buy some pictures? Yeah, but I already have pictures all over my house, so what should I do?



“No one could describe what I earn, or what people in my company earn, as being fair. It’s just the market; it’s literally just a pure Malthusian sort of outcome in terms of what the market can bear. Is it fair? No, it’s not fair and so therefore it should be taxed, and I should pay much higher levels of tax.



“But I think I’m a minority of one amongst hedge fund managers [laughs] ... I am sure they would say they all deserve it – but how can you say you deserve it? It’s ridiculous!”

The shadow chancellor, John McDonnell, has said Labour would increase taxes on high earners to make “the rich pay their share”. He defined the rich as those earning more than £70,000. According to the SPI data, £70,000 a year equates to the top 5% of UK incomes.



A majority of those interviewed disagreed with the statement that ‘the government should reduce income differences’. Photograph: David Levene/The Guardian

Another hedge fund manager, who told the researcher he would “really like a private jet but can’t afford one”, said it would be “better for the country” if he got richer because he pays a lot in tax.



However, one City of London worker included in the study said she found it hard to reconcile how much she was paid compared with teachers, firefighters, nurses and doctors, who “clearly do something that’s much more important”. She said her salary could cover the annual pay of seven teachers: “Why do these people get paid so little, and people like me get paid so much? Is it right? I certainly don’t think I’m worth £140,000; that’s the truth.”

Why do some people get paid so little, and people like me get so much? I certainly don’t think I’m worth £140,000 City worker

The LSE study found that a majority of the participants believed market-determined incomes were a fair reflection of talent and economic contribution. Of these participants, two-thirds disagreed with the survey statement that “the government should reduce income differences”.

But a significant minority (a third of the study’s participants) questioned the view that market-determined incomes are necessarily fair, and 80% of this group agreed with the statement that income differences should be reduced.

In the report, Hecht suggests rich people’s experiences of relative disadvantage might “drive economic inequality at the top, because those at the very top of the economic hierarchy are [viewed] as being the ‘best’. Inequality may ultimately be reproduced because [the idea that market incomes reflect someone’s talent and contribution] turns experiences of relative disadvantage into a driver to ‘do better’.”

Chief executives of FTSE-100 companies now earn, on average, 386 times more than workers on the national living wage, according to an analysis published by the Equality Trust, which is campaigning for new government rules to expose pay gaps.



The charity used annual reports to calculate that chief executives of FTSE-100 companies pocket an average of £5.3m each year, compared with £13,662 for someone on the national living wage of £7.20 an hour.

However, the pay of chief executives is likely to be eclipsed by those working in hedge funds, private equity and the partners of accountancy and law firms. As private companies or partnerships, they are not required to publish data on earnings.

The world’s top 25 hedge fund managers earned $13bn in 2015 (the latest year available) – more than the entire economies of Namibia, the Bahamas or Nicaragua. Sir Chris Hohn, the billionaire founder of a hedge fund, the Children’s Investment Fund, was the highest-earning British fund manager, taking home $300m, according to research by Institutional Investor’s Alpha magazine.

• This article was updated on 4 May to take account of HMRC’s latest Survey of Personal Incomes. This states that the top 1% in Britain are defined as those earning more than £162,000 before tax, rather than £140,000.

Are you a member of the 1%? If you’d like to be interviewed anonymously about your views on income, wealth and inequality, email us at inequality.project@theguardian.com