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.

@MidnightPatrol raising those threshold would have helped us all.

Which ones?

There are so many to choose from…!

Sorry I mean the tax and ni ones

Martin Lewis has been pushing the Government on this, although from the videos he did, I believe the only likely change is that it'll become household income, not individual income, and therefore more people will be excluded, which will be the driving reason for changing it - because the scheme is costing far more than expected, and it's also not paying nurseries enough to actually keep them open.

I don't believe he felt it was going to change this year, however.

it affects me because dh earns over 100k. I don’t have an issue in principle but think
it should be based on household income not individual as that is far more relevant.

I’m a recruiter and I’ve def heard of people asking for basic salary below the £100k threshold for childcare cost reasons

many young people are simply electing not to have children , including my own

children = no spare money at all, and no quality time because annual leave is taken separately to cover achool holidays , and every week day is a mad dash to cover school runs and after school activities and homework and lunchboxes

no children = time and money to enjoy it

'Incoherent' = expressed in an incomprehensible or confusing way; unclear.
What part didn't you understand?

This is a common over simplified opinion. It would increase tax revenue, but not as much as people think, and probably not at a net positive. The three big offsets are: more spending on childcare subsidies – the group is small, but the per family subsidy is large. Not all salary sacrifice would disappear, and only one distortion is removed – it’s still a big tax incentive because the personal allowance taper still exists and people will want to avoid the 60% tax band. The behavioural response is notoriously difficult for governments to model: some people will work more, others were always going to work anyway, and others will salary sacrifice regardless.

PPs have set out how much tax they’re are not paying by reducing how much they work. It is short sighted not
to address this as people work many years after the childcare years are over and are needlessly stagnating potential career progression because of this cliff edge.

And if Reeves thinks it’s fair that higher earners are not eligible, why doesn’t she at least address the mad incongruence where a household with two incomes of 99k is eligible but a household with one income of 101k isn’t.

I agree with you op. I earn about 50k working part time. I won’t do an extra day at work as then my pay is taxed more and the nursery days aren’t funded so I’d only earn about £30 to go to work which would be eaten up by my commuting and expensive lunch and coffee habit when I go in. And more importantly I’d lose a day a week with my little boy.
no one cares about higher earners even though they may even be better off than you if the rent and get uc help and have 2-3 nursery aged children.
what is the incentive of going a really hard professional job when you could do something really easy and be subsidized.

It’s Also so unfair that a couple earning £199,999 between them get all the funded nursery hours but a single mum who works her arse off to earn 100,001 gets no help at all for anything

I’ve not said it wouldn’t increase tax revenue – it likely would. But it’s still difficult to model if it would produce a net positive, because it simply is.

Politically, the household income vs individual income has been acknowledged. There is no quick or even medium term fix to this. There are several issues: either many people will become newly eligible, rendering funding unaffordable, or many more people will be cut off – creating a new tax distortion and disincentives to earn. It creates more ‘edge cases’ with parents who live across two households. There is costly and slow HMRC admin attached – not just in creating the new system, but also guarding a system which is more vulnerable to fraud and error risk.

Do I agree that the current system creates unfairness? Yes. But the barriers are the barriers.

It would be interesting to know how many NHS doctors are cutting days because of this, at least so we can follow the impact to services and waitlists.

I just think everyone should be able to purchase as much as they want tax free Chilcare at least, as the high earners wouldn’t even get their actual tax as a deduction but at least they’d get 20% of those taxes back

Whoa, I did not suggest there shouldn't be a cut off, I was pointing out that the cut off wasn't decided by Reeves.

Personally I think it is tone deaf to complain about this on a salary of £100k plus. Reeves is right to point out that a person in the top 5% of earners is not a priority for public funds.

I don’t want to be outing but I do a very in demand job that involves waiting lists for my time , most on mums net would love it If I worked more as they’d get a better much needed faster service and I COULD earn 100,000 k if I worked full time doing locum shifts but I won’t while my child is in nursery

She’s silly as it’s these middle earners on salaries that provide us with public funds in the first place.

op I think you should put it in a pension or go part time

Not middle earners I mean middle class high warners on paye

My understanding is the issue is the all or nothing cliff edge, if it was tapered it wouldn't be so bad?

I don’t think anyone earning over £100,000 needs any help with childcare costs.

I pay more tax per year than your actual wage, yet you think I don't deserve any subsidies at all? What a load of crap.

The really stupid part is the government (well, you and I really) pay for childcare for those that dont work!! Its a scandal.

Take it up with those who devised the system, it wasn't Reeves policy, she doesn't have the funds or the legislative time to change it given that it is low priority

If people actively try to avoid a salary over £100k they need to apply their brain and read up on how the threshold actually works. They could accept the higher salary and divert the excess to their pension or give it to charity to stay below the threshold. Long term this would be much more sensible for their career. It baffles me that people earning this salary - who surely must be reasonably bright and well educated in the main - can get this so wrong.

I got added to a year long NHS waitlist last week, so yeah, I can fully believe this policy impacts our health systems. We could do with firm numbers.