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.

Quite!

I don't fully agree with it but this was a clear answer and not at all incoherent.

This.

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.

Anecdotally......most of them that we know!

This is exactly our situation with DH being a high earner and me just slightly above the average wage. In the end he went to four days a week like a lot of his colleagues in order to keep the benefit and have a better work life balance.

DDs are now both in primary school so the nursery years are behind us but DH hasn't gone back full time. IMO the cliff edge encourages behaviour like this.... cutting hours or putting more into your pension that then becomes normalised so the government loses the tax revenue on a continuing basis. This is the problem with cliff edges anywhere in the system rather than a tapering of benefits.

Don't get me started on the fact that our friends have a higher household income than we do as they both earn just under the threshold so they get the childcare funding and we didn't. It seems madness that you could have a household income of £120k and not receive it but a couple earning £198k between them would receive the benefit.

@MidnightPatrol the free hours in London are worth £14 per hour?

I think it works out at around £11.40 an hour.

£13,000 / 1140 hours.

Then tax free childcare on top.

I agree, the cliff edge is ridiculous. My husband and I are both higher earners (would be well over £100k gross each) but I have dropped to 4 days a week and heavily salary sacrifice into my pension, my husband does the same with his pension as that is what the system incentivises financially. The government is missing out on a huge amount of tax by doing this.

Of course it's more possible if you're looking for unskilled, low paid work. They may prefer someone with experience but ultimately you are much more likely to find a job and not have to pay a career penalty if you have a break from this kind of work. It's how most young people get their first job. It's definitely harder now than it used to be but it can be done whereas those in better paid, more professional jobs are much more likely to have to re-enter at a lower level than they left at if they can re-enter at all.

But a lot of those jobs are going. Self service checkouts, more internet shopping etc.

A young person looking for their first job may well be a better bet than a returning parent as they are more likely to have flexible schedules and be happy with anti social hours eg deliveries.

I'm not saying there isn't some disadvantage. My point is that there is a clear economic argument regarding keeping people that are highly skilled in work through heavily subsidising childcare. The economic argument for low paid workers where there is a high level of unemployment is less compelling.

A very simple way to ease the impact which would take very little legislative time and effort would be to increase the £100K threshold in line with inflation so it is the equivalent of £100K in the year the policy was introduced. Same with the loss of the personal allowance - the £100K threshold for that was introduced in 2011 I think and has not changed in 15 years. £100K in 2011 made you pretty well off. £100K in 2026, if you have a mortgage and childcare to pay, does not.

But someone earning £99K (or indeed a couple each earning £99K) needs £25,000 worth? That is the absurdity of the system and the cliff edge.

£25k is not a universal value, though. OP based it on £11.40 ph but this will vary by area and age. From Parliamentary briefings:

The national average hourly funding rates for local authorities in 2025/26 are:

• Three and four-year-olds: £6.12 per hour. The rate has fallen by 3% in real terms (when adjusted for inflation) since 2017/18 (in 2025/26 prices).
• Two-year-olds: £8.53 per hour. The rate has increased by 19% in real terms since 2017/18.
• Children under two: £11.54 per hour, an increase from £11.22 per hour in 2024/25.