The madness of the £100,000 childcare tax trap

[MidnightPatrol]

An interesting article in the FT today about the impact of the current and new childcare schemes on people earning £100,000, which is often mentioned here.

You can read it here

"From September, a parent in London with two children at nursery who passed £100,000 of earnings would need to earn more than £149,000 to compensate for the loss of childcare support from the state, according to new calculations by the Institute for Fiscal Studies — a pay rise of almost 50 per cent."

To earn £12k pm after tax you need a salary of approx £250,000 pa. Who are you referring to?

Taxpayers including recipients of PIP?

Taxpayers, exactly.

So why support policies which disincentivise people to earn more and pay more tax?

I don’t

Only 2% of people earn over 100k in the UK. Of that only 11% are women so 0.22%. 28% of women never have children (probably more in you get gen but ignore that) so that is 0.032% of women.
This is women of all ages, not including women who have already have kids in school. Its going to be a tiny tiny number of people.

I have a huge number of friends and I'm pretty certain only one of them earns £100,000 (she is a consultant oncologist). Statistically this is probably a normal amount of high earning women to know.

It's going to be a problem for a very, very small number of people. I think you probably live in a bit of a bubble.

If they are, I don't suppose they all achieve the desired outcome of the senior doctor staying put on the same hours.

It's the same in any sector really. If the staff are sufficiently valuable and thin on the ground, employers aren't in a position to refuse things like requests to go part time on the grounds of business need. And they're more likely to suffer for it if they do. Whereas if they can reasonably assume an equally suitable worker would become available if the existing one left due to refusal, the employer has more leverage.

The OP said their salary is £260k/year which provides £12k/month after tax.

update
just realised I posted this on the wrong thread. There was another thread this morning where the OP said they were on £260k/year plus had a husband who works and earns less than £100k and how unfair the system was that they couldn’t claim the free nursery hours.

I dunno, my household don't even earn 100k between us but I'd feel pretty affected if me or someone I care about had to wait longer/miss out on the medical or dental care we needed because of this, for example. It's a flawed approach to look at this only in terms of the earners themselves. There's a ripple effect.

Also, there's no reason at all to leave all the men out here. A man earning 100k with a partner (male or female) earning less and young DC is going to be facing the same cliff edge.

@roses2 think you might have the wrong thread?

I think you are confused @roses2 - the OP definitely doesn’t say that. Have you got the wrong thread perhaps?

Men also have families, it’s not just women’s incomes that trigger this problem.

I’d read about 100,000 families will be impacted by losing these benefits this tax year. This is growing every year as the thresholds have been frozen for so long.

In any case - it being a small number of people is irrelevant really, as the top 10% of earners pay 60% of income tax, so incentivising them to work less and pay less tax… not good overall.

We are in this bracket and so fed up of having to explain this to people who can't get their heads around it. (Its totally understandable to be fair). The facts are that £100k in 2021 is the equivalent of £82k today. To not move the cap with inflation wasn't incompetence but a deliberate tax raid to pull more working families in. It will only harm the GDP, VAT, productivity and overall growth of this country as families find ways to mitigate this. So as this tax base declines, where will the money come from to help the poorest families? Its an interconnected system and we all need to band together. This government seems hell bent on creating a them and us society. Its evident reading posts on here :(

I think you're missing the bigger picture.

It's not about a small number of people not having access to state subsidised childcare.

It's about the loss to the public purse which results from disincentivising people from being high earners.

It's all very well to sneer, "oh, your diamond shoes are too tight, are they?" from your perspective of earning £30k.

The reality is that you wouldn't work for free either, which is essentially what anyone in that income bracket who has small children is doing. You too would reduce your hours and pay into your pension in order to avoid earning over 100k. Or go abroad and deprive the public purse of 100% of your taxpaying capacity.

I do think £100,000 is a psychological tax boundary. It feels even more fixed than the personal allowance boundary or the higher rate tax boundary or the additional rate tax boundary (which moved down, so now starts immediately after the 60% tax rate). Inflation is high, therefore more and more people will be experiencing this particular cliff edge in the coming years. Just like more and more people are finding that their income crosses the higher rate tax boundary.

But don't those jobs just then go to other people? Surely there's plenty of people to want to take on those roles? So in the bigger picture it doesn't impact.

I do actually agree that a harsh cut off of any policy doesn't work and it should be gradiated. But I'm just making the point that is not that significant an issue. Even if it is men it's still a tiny amount of people that will be having in childcare and earning that amount of money.

Unfortunately there isn’t a limitless supply of people to do these roles and the reason they are high paying is because the supply is low

when multinational companies consider where to locate they take the tax landscape into account and part of that is around employee taxes and whether or not they can attract the talent

whilst people are critical of private companies you need them for growth and jobs so that the public sector can be supported.

It's madness. We are affected by this cliff edge and what happens is more is put into pensions to get back under the £100k limit. Great for our pension but less tax revenue for the state.

No, that's not how it works. People who earn high salaries do so because they have sought after skills that other people don't have. If there were a limitless supply of people qualified to do these jobs then the salaries wouldn't be so high in the first place.

What actually happens is not that the jobs go to other people just waiting in the wings in the UK, but that they go abroad.

It’s not just skills based @MissScarletInTheBallroom - I don’t believe there’s, say, a shortage of solicitors or accountants, but that profession pays very well as a profession.

It is still skills based.

A solicitor overseeing regional conveyancing earns a fraction of what a City M&A lawyer earns. The conveyancing solicitor can’t step into the shoes of the M&A lawyer, even if they are part of the same profession.

But you’re assuming all solicitors and accountants are interchangeable @Flodda. That’s not the case. Some will have specialist skills/knowledge and will command a higher salary as a result. The more interchangeable ones will earn less.

My point @HainaultViaNewburyPark and @prettyneededchill was also to illustrate the obvious that some professions are just more highly paid than others. I don’t expect many in these professions are on minimum wage. Like if you have a life goal to do something that pays well, you’ll be swayed into certain directions when choosing a career.

I am a solicitor. Not all solicitors are well paid, and even between solicitors, not all skills are transferable.

The kind of solicitors earning over £100k a year are frequently working for international law firms with offices all over the world. Those firms can easily create more corporate finance jobs in Dubai (or even relocate existing employees' jobs to Dubai). They're not going to hire conveyancing lawyers from regional firms on £45k a year to plug the gap.

But it’s missing the point anyway! Why would you want to discourage anyone from increasing their earnings? How do you not see that is a ridiculous tax system to create?
In most cases, the person doesn’t stop working entirely they just reduce their hours and overpay into pensions. So, even if you are right and these highly paid and sought after skills are, in fact, easily interchangeable (👎) the job doesn’t become ‘available’ just done by someone working 4 days.
I am a perfect example. I now work 4 days, overpay into my pension and ensure my salary is 99,999.

You are a high earner. Many can't earn more than £30k wake up

How are those 30k earners helped by the existence of the 100k cliff edge?