100% effective tax on earnings £100-148k

[Childcare47]

I have posted in the past about the impact of loss of 15 'free hours' plus loss of 'tax free childcare', which combined with the 60% tax rate creates a severe cliff edge in earnings.

The situation is in fact even worse - as it has been announced parents earning >£100,000 will not be eligible for any free hours from 9 months.

For two children therefore:

• Loss of £4,000 annual tax free childcare
• Loss of 30 free hours for the under 3 = £800pcm
• Loss of 15 free hours for the over 3 = £400pm

This is £18,400 a year lost if you earn a penny over £100k.

To therefore break even on that £18,400 loss, you need to earn... £148,000? To have exactly the same income as at £99,000?

Why does the government not address this absurd 'quirk' in the system, surely not one can think its right to be taxed at a rate of 100% on a third of your income, what's the point in earning it?

" it has been announced parents earning >£100,000 will not be eligible for any free hours from 9 months."

Where have you heard this?

I agree it's all stupid but i haven't heard that they are removing the universal 15 hours free - and i can't see anything after a quick Google. Really hoping it's not true 😐

So essentially means testing rather than handing out freebies - sounds reasonable

My dc are older but I think it’s outrageous. Why shouldn’t higher earners have some tax incentives?

I don’t think you understand the issue…

I don't think it's about the means testing, it's the cliff-edge nature of it.

Further the fact that two parents each earning £99k would be eligible for an incredibly huge amount more free childcare (and tax free) then one single parent earning £100k, even though that one parent would be taking home less in the first place as well.

You have missed the point here.

The loss of benefit means an effective 100% tax rate on incomes of £100-148k for a parent with two preschoolers (based on SE childcare costs).

Is this 'reasonable', or will it cause professional people to cut their hours, avoid promotions and generally pay less tax than they would have done if they weren't being penalised to the tune of 100% of their additional earnings?

Its short sighted. Parents should be encouraged to progress in their careers.... both parents, not just the higher earning one!

At least the child benefit removal is staggered not a cliff edge, even if its not fairly administered.

(Should there be cut offs? Yes. But fair ones!)

Imagine if there was a cut off for a pensioners bus pass, or to use the NHS, or state school....

Gosh I’ve got no idea. But I guess there are lots of awful problems with the benefits system

@GlassboatSailor

I have two sources.

1. The government site https://educationhub.blog.gov.uk/2023/07/07/free-childcare-how-we-tackling-the-cost-of-childcare/

What do you mean when you say free childcare is for ‘working’ parents?

Working parents who individually earn more than £8,670 (from April 2023) but less than £100,000 per year are eligible.

If you’re in a couple, the rules apply to both of you, so you must both earn at least £8,670 and neither one of you can earn more than £100,000.

1. The 'childcare choices' website https://www.childcarechoices.gov.uk/

which confirms a 2 year old whose parents earn >£100k won't be eligible for 15 free hours in Jan 2024.

I had previously thought the 15 free hours for age 9months - 3y would be universal.

I haven't seen anything to suggest the universal 15 hours at 3 will be removed.

It is extraordinarily complicated.

So it would be ok if it was tapered from 80k ?

Ah phew! I thought you meant the 15 hours for 3+ would be removed for 100k + earners. So all as I thought. It's so unreasonable to have the effective 100% tax. Thanks for clarifying.

This is why a lot of high earners age quitting the UK! And to pay all that tax to not be able to access a functioning health service, crumbling schools and terrible infrastructure.

I'd actually argue it should be universal.

My childcare bill for two kids in London is >£4,000 a month.

An £80k salary wouldn't even cover the fees, so I'm not sure why that's considered a sensible point at which to start tapering removal of the benefit.

It should be a universal benefit, given the high cost of childcare and social and societal good of providing it. What's the point of paying all that tax if you're excluded from the benefits of it.

so it is only the 30 hours cut. When I had my children no one got this. Suck it up. You are still getting 15 free hours.

If your childcare costs are that high you might need to consider not living in London/ taking a career break/ not having two children so close together. The kind of decisions loads of us have made- it isn’t up to everyone else to subsidise your choices so you can earn 100k 🙄

jeez, what a …!

free childcare ought to be universal. Up the higher rate income tax rate to cover this. We are trying to be a civilised society afterall.

Unless you have twins etc, having two children in nursery at a time is a choice. I would agree with you that fir one child (or multiples) at a time it should be universal. But not choosing to have two close together

Fully agree. It blows my mind that everything is assessed on an individual basis rather than a household income. It penalised single parents and sends a message that every kid should really come from a two parent home so those families 'doing it right' are rewarded. It's ridiculous that a single parent earning 101 could receive vastly less free hours and tax advantages than a couple earning 199. I believe that the child benefit is assessed similarly. Single parents already face big obstacles and limited childcare help, let's support them!

'Suck it up'.

It's 100% tax on £48,000 of earnings. No one in their right mind is going to accept that without complaint, it's obscene.

And no, those earning >£100k will not be eligible for any free hours for under 3s.

Why should it be universal? Having two children so close together is a lifestyle choice. There are many many things that income tax could be used on. Endless free childcare isn’t one of them- especially for high earners.

OP, I'm totally with you here. Inevitably you've got the jealous people responding who think this is fine when it's lose/lose for everyone! My nursery bill for 2 under 3 is £5k a month. Going up by £350 pcm in Jan! The system is broken at every level

It’s not 100% tax. You just aren’t getting a tax relief to pay your child care. If you didn’t have childcare costs you would still have the earnings 🤔

I think the 100% tax rate is being overplayed. The extra costs are not a tax - they are a removal of benefits. Childless workers do not get this 'tax' as they do not benefit from the 'benefit' of 'free' hours etc.
Childcare costs are for a finite time - they drop when the child is in school and eventually disappear.
Given that only 4% of workers earn over £100k pa (govt figures) there seems to be an inordinate number on MN

I am not jealous !

The 100% rate isn't being overplayed.

The comparison is between people with nursery aged children, not people with nursery aged children vs. someone with no kids.

A worker earning £99k and a worker earning £148k have the same take home pay, due to the loss of childcare support.

Calling it a loss of benefits or a tax is neither here nor there - the issue is that you can earn the best part of £50k more than someone else and be not better off due to the governments ill-thought out childcare policies.