Link to Times article
The education secretary has said she will review the £100,000 childcare cliff edge that penalises parents who earn six figures.
Bridget Phillipson said the government would review both the lower and higher thresholds at which parents can receive free childcare — although she did not specify whether she intended to make the support more or less generous.
Parents of children aged nine months to four can qualify for up to 30 hours of government-funded childcare a week if they earn at least the minimum wage for 16 hours a week. However, once one parent earns more than £100,000 a year, the entitlement is removed completely.
The threshold has not been changed since the policy was introduced by the Conservatives in 2017 and many parents complain that they have had to refuse pay rises and bonuses because the free childcare is more valuable.
Funded childcare in England will cost the government £9 billion in 2026-27. Phillipson said she wanted to ensure that “we’re getting the best possible outcomes from the money that’s being invested”. She told the Financial Times: “We are going to continue to look at eligibility through the childcare review that we’re undertaking, and it does need to be simpler for parents.”
The cliff edge also marks the threshold at which workers face the tapered loss of the tax-free personal allowance of £12,570. The allowance is removed at £1 for every £2 earned over the threshold until it is lost completely once workers earn £125,140. Workers in this bracket pay a marginal income tax rate of 60 per cent.
This £100,000 tax trap has contributed to the growing discontent of Henrys (high earner, not rich yet), who report reducing their hours, forgoing bonuses or refusing promotions to stay under the threshold, which has negative implications for the economy and tax take.
Phillipson told the Financial Times at a primary school in north London: “I do want to keep under review every element of the childcare system between now and the next general election. There are many quirks that exist, that have developed over the course of the last decade or so as different elements of childcare support have been added into the system.
“It does make sense to make that more coherent, more straightforward, both for the sector but also for parents too, and to make sure that we’re getting the best possible outcomes from the money that’s being invested.”
An education spokesman said the review was part of the government’s early years strategy and that any changes were not imminent.