Rachel Reeves incoherent response on the £100k childcare cliff edge issue

[MidnightPatrol]

Mumsnet have interviewed Rachel Reeves about various topics, and one of those questions put to her was about the £100k childcare cut off (asked by me).

Her response is completely incoherent - shared below for the many others stuck in this ridiculous situation (or interested in it).

Transcript:
Justine Roberts: Okay, so we've had quite a lot of questions around the tax system which is obviously your specialist subject. Here's a typical one. MidnightPatrol said: I have a one and four year old in nursery. As I earn over £100,000, I lose £25,000 in childcare support for them. I need to earn an extra £55,000 over that £100,000 cutoff to cover that loss. Where I live in London every other parent I know is either working part-time or salary sacrificing tens of thousands into their pensions to try and avoid this. Is there any suggestion that this absurd cliff edge might be changed?

Rachel Reeves: So again, this is not a cliff edge that I introduced, but is one that I inherited and I do understand what is being said there about if you've particularly got young children that you miss out on some of these key supports. Now obviously, the childcare offer is quite a new offer and it's the first time that it's been properly funded. We've put the funding into it. It is much more popular than anyone anticipated. It's actually costing taxpayers more than we originally thought. But that's a good thing because it is helping more people into work. I think it is right that it isn't available to the highest earners. If you are earning more than £100,000, you are within the top 5% of earners in the country. And I don't think you could have a system where everybody has all of their childcare costs paid because that would require even higher taxes on people to be able to afford that.

Justine Roberts: But do you acknowledge the cliff edge?

Rachel Reeves: I absolutely recognise the cliff edge and we are looking at how we can always ensure that the tax system incentivises people to work. But I think most people recognise, especially if you are in your thirties and forties and at sort of maximum earning power, that although you may lose some benefits in the short run by taking that promotion or taking those extra hours, actually you are going to progress whereby you are no longer losing out because you are earning so much more. And you know, we should celebrate people doing well and being in those very top income brackets. But I think it is right that if you are earning so much more than the national average, you should pay a bit more tax.

YABU if you expect a coherent response from the utterly uselessRachel-from -customer-complaints. Shehas no qualification to do her job -only in place to make SirKeir look almost competent by comparison.
Their ignoranceis terrifying.

“I think it is right that it isn't available to the highest earners. If you are earning more than £100,000, you are within the top 5% of earners in the country.”

So you shouldn’t get any childcare help specifically because you’re in the top 5% of earners, but everyone else should? Why?

Given the endlessly frozen thresholds (this one in place since 2017), in five years will it be that it’s right for the top 10% to not receive help? How has this specific cut off been identified?

What part of that is incoherent?

I think it's fair enough that if you earn more money you receive fewer benefits.

You would have to ask the Tories about why they set the system up that way and how they determined £100k was the appropriate limit.

There’s got to be a cutoff somewhere surely?

Sorry, am I missing something? I don't see the issue. Higher earners pay more than those who earn less. There has to be some sort of cut-off or the benefit becomes unaffordable. What's the issue?

The issue is that it's a cliff edge, so you lose it all in one go, which means that earning £1 pushes you into a bracket that means you lose 100% of the funding, your pay rise is a punishment. Not only that, it's based on one parental income, so you can have one person on £100k and one on minimum wage, and lose it all, or two people on £99k each and still have it.
It needs to go, to encourage more people into work (more full time high earners = more income tax). The cliff edge is encouraging behaviours that don't support economic growth and career equality.
It's a huge hit at £100k as you not only lose the free childcare, you're in the 60% tax trap so every bit of extra responsibility for that pay rise, becomes not worth it if you're getting pennies in return. Might as well stay in a lower job, or go part time and benefit from free childcare, and less responsibility at work.

I’m sorry but with so many public services needing tax money , I can’t get exercised about someone on 100k moaning about childcare costs . I would rather it went on social care for the elderly, Education especially SEND provision , even defence - given the chaos the orange mean has caused.. ahead of childcare for people in the top 5% of the earning population. It’s all competing priorities and I’m afraid your situation would be near the bottom of the list if I was writing the budget .

You would have to ask the Tories about why they set the system up that way and how they determined £100k was the appropriate limit
What would you suggest as a cut off? £100k is about three times the average wage, and an even bigger gap between £100k and the minimum wage.
I earn around the average wage and I wouldn't want my tax subsidising childcare for someone on £100k.

The issue is that when you create a cliff edge in the tax system (and there are several, one as you come off benefits, one when you lose child benefit and then the one at £100k) then people make the perfectly rational decision to either work less or (at the higher points) increase their pension contributions to kerp them below the threshold. Which A) reduces productivity, B) reduces the tax intake. A third point is that by having a cut off you exacerbate a culture of 'us and them' where high earners wonder why they stay here and pay so much in tax when they get nothing back but envy and low earners are encouraged to be jealous of the people who pay their benefits.

I don't agree with cliff edges for any benefits, although I am much more sympathetic to very low wage carers than £100k earners. Be careful what you wish for though, as if they introduce tapering, it doesn't have to start at £100k. It could start at a much lower amount and end up being the full whack at 100.

I earn around the average wage and I wouldn't want my tax subsidising childcare for someone on £100k.

As an average earner you are being subsidised by the high earner, not the other way round.

It should be a taper, I know people who put 20k+ into their pension a year or have dropped days as nhs consultants to avoid the cliff edge. That seems so stupid. They start by making small changes when they are just over the 100k them continue on them on until we get really weird outcomes. We aren't getting any of that tax on their above 100k income because of that

For the record I would be ok with this!

Did you listen to the end? She added that all of the issues raised (including yours)
she’d love to fix if she had more time in office/ was financially doable. This is something that was set up by the (coherent-talking) Tories.

I think you were lucky your question was picked even though most of us (I assume, as it’s top earner bracket only) do not have that problem. It’s your choice after all, and you’ve decided it’s worth it as you’re expecting to get returns on your career progression eventually.

The full interview -

https://www.mumsnet.com/i/rachel-reeves-mumsnet-asks.

If you earn an average wage you aren’t subsidising anyone with your taxes.

The £100k earner is however subsidising the childcare of the other 97% of parents while being excluded from such support themselves.

I think it should be universal - it will pay for itself by people not being incentivised to reduce their incomes / work part time.

The value of 30 hours and tax free childcare at my nursery for one baby is £15k. Thats the tax paid on £100-125k of income. Anyone in this situation would probably be salary sacrificing to claim anyway.

Precisely!!!!

Reeves may say she'd like to fix it but she's hasn't done anything has she? I judge politicians on what they choose to do (or choose not to do), not on what they say they will do.

It could be tapered

At what point do you think people should be expected to cover their own costs?

I’ll use my childcare example. I lose £25,000 in childcare help if I earn a penny over £100k.

This means my income at £100k is equivalent to ~£50k plus childcare help + child benefit. Theres no additional value to that extra £50k of earnings.

For me to recoup that lost £25,000 of benefits, I need to earn about £155k. Around £30k of that additional £55k is tax (the rate is as high as 60% on half of this income).

So - yes I am paying more tax than lower earners (if e), but also losing around £25,000 on top of that.

This creates incentives to work less, pay less tax etc. And that’s what people are doing.

Childcare support is funded through taxation and is intended to help mothers primarily back into work where the cost of childcare cancels out any benefit of the amount earned on low wages. It is a disincentive to work (and therefore pay tax) if all your wages are swallowed up by the cost of childcare. Childcare support enables a degree of financial independence and it’s far easier to increase hours as the DC age than find work after a career break.

You are not in this position. It is not fair to expect those earning less to fund through taxation those earning more to receive benefits which would be nice but wouldn’t be essential.

Personally I think an earning threshold of £100,000 is too high. It encourages high earners to try various dodges like those you mention to qualify for the benefit. Cheaper to administrate but has unintended consequences when the top 5-10% of earners try to cash in.

In that surely it would be better to encourage people earning over £100k to keep working full time, rather than forcing many of them to reduce their hours so that they do not have substantially lower take home pay by earning £100,001 than £99,999. Particularly as a significant proportion of these people will not
work full time again.

How do we choose what is a universal benefit, and what is not? Health, education are universal - why is childcare for under-5s means tested to exclude ~3% of users?

It is a real challenge to the idea of the ‘cradle to grave’ state to start excluding higher earners (and those paying the greatest share of tax) from the services they fund.