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?

You can absolutely play the system and I'm almost at the threshold of having to get concerned, but then I'm in a position where I salary sacrifice 14% of my salary for my pension. But this doesn't benefit society (just means perhaps I can take more holidays when I'm retired).

It's a ridiculous system, where I'm concerned to work harder, to advance my career, because of the very real financial penalties I'd suffer if I went too far above the threshold. Surely we want to live in a society that incentives people to go up the career ladder, rather than stay at a particular rung.

Further, the idea that someone with a £100k salary is somehow living a life of riley is laughable. We live in a 3-bed mid-terrace with a £1200 per month mortgage. Childcare is £1300 per month. We shop at Aldi and I buy clothes from the charity shop. Yes, we're lucky that we can put some savings into our daughter's account each month and we have a cleaner. But the idea that we live in luxury is laughable.

I think you may be massively overestimating the number of parents of 2 preschoolers who earn at that level.

I get that if you live in london and mainly associate with other wealthy mums of preschoolers then it may feel like a big problem.

The vast majority of people with preschool kids earn less than £30k. All the benefits are for them

The only reason people are getting these benefits at all with incomes higher than £30k ish is because there's a huge problem with any means-tested benefits going unclaimed by the poorest and most vulnerable, and if you make them means tested kids will die, so you make them universal but they can be clawed back through idenfying the wealthiest via the tax system so that's a good thing. It's right that there should be a cut off. It's right that it should be quite high. If you think it is too low you have absolutely no idea how privileged you are.

I suggest you structure your work life balance by adjusting your hours, or bump up your pension contributions, to keep your income under £100k for a couple of years, and count your blessings.

Well, in many cases it is a balancing act between the career and children. Many professional women delay having children until they are well established (and earning that £100K+), and then have no other biological option but to have the children close together.
If you are becoming a consultant with some resemblance of a work-life balance only at 35, for example, it is unrealistic to expect to have children with a 10 year gap after that.
A lifestyle choice, yes. But you can argue that education and employment are also "lifestyle choices" for women.

Don’t you think it’s appalling that people ‘can’t afford’ to have babies in this - the 5th largest economy in the world? Don’t you think that ought to change? Don’t you think that it would be nice for children to have siblings of a similar age they can play with?

It’s a quirk in the system but it’s only for 2 years, why would anyone be so shortsighted to not accept a promotion that would pay more into a pension, have a better long term financial position for the sake of 2 years hardship is beyond me, you can also manipulate the figures by paying more into a pension, again benefitting you.

We have too low a starting rate of tax to sustain all these benefits. I started work in the 70s when lowest tax was 30% and the highest I believe was an eye-watering 110%. A better system might be a childcare loan along the same rules as a student loan. You pay back 9% when earning over a threshold. Each child gets a max of eg 10k pa up until statutory school starting age.

@Robinnuts Not only can women in the 5th largest economy in the world not afford to have babies, but women earning in the top 5% are expected to 'cut their cloth' and not have two in a 5 year period as its an extravagant lifestyle choice.

Simultaneously however, they are insanely wealthy and shouldn't need any kind of help funding their childcare.

That these two statements conflict is... fine, apparently.

As I said above telling women they can have it all is a lie. You can’t. Something has to give.

£148K salary is obscene. Don’t try to tell
me you work 10 times as hard as the nursery lady who wipes your child’s bum.

And don’t talk to me about how hard you had to work to get there and how educated you are, I have a PhD.

If you’re earning £148 and chose to procreate, you should not expect to cover your procreation costs by from taxpayer’s money that your nursery nurse, your cleaner, your gardener and I have contributed to.

My kids are well out of nursery but I atill think the state of childcare in this country is medieval

It's a difference in basic beliefs. I think if I earn 4 times the average wage I'll pay for my own childcare. You don't. No point in arguing back and forth. There can never be a conclusion. It's a difference in attitude and values.

on the flip side of this argument- if it is acceptable for women earning over 100k to get childcare subsidised, is it ok for the poorest women to have multiple babies funded by the welfare state? On the basis that their children ‘need’ a sibling or they simply want one?

I don't understand why it's women's careers that are being put on hold etc. In a two parent family it should be equal

You are not being taxed at 100%+ you are no longer recieving something cheaper - you are not forced to have children, or put them in childcare - this is a consequence of your life.

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.

This is you paying for your own children

Can I have a tax discount on my mortgage? I need somewhere to live.

@MigGirl Thing is I've probably got 2 choices.

If I receive a promo or pay rise taking me above £100k

1. I can either accept it (and actually genuinely have less money that I had before)
2. Put a flexible working request in to drop to 9/10 of my working hours and up my pensions contributions.

That way rather than getting a promotion/pay rise and paying more tax. I effectively keep my wage the same, increase my pension pot and take 1 day off per fortnight. My pay rise/promotion is still in place, I've just artificially temporarily capped my earnings cause I'd rather have 1 day off per fortnight and a better pension pot than genuinely literally take home less money than when I was earning below £100k

Once the kids are out of full time childcare you go back up to full time and drop pensions contributions. So you haven't hampered career progression but you have been able to benefit from that progression rather than being penalised for it.

I think we worked out we needed to earn £124k in our particular situation before we'd break even. Anything from £100k-£124k actually means less money than if we were earning £99.9k. Which is fine, I'll enjoy my extra day off every fortnight and (hopefully) a better pension. But it doesn't make financial sense for the government, they should be incentivising me to work more and pay more tax.

Because women put up with it, I didn't - my DH was the househusband, but even if he didnt want to be the SAHP, we would have got childcare (and we did when they were younger)

I have said above that I don't think higher earners work harder than anyone else. Their high salaries are typically because they have in-demand skills, or are good at generating income for the companies they work for.

You are missing the point anyway - the point is that you need to earn £148k to offset the loss of childcare support at £100k. It's a 100% effective tax rate - surely this is unfair, we do not apply a tax rate of this sort anywhere else in our tax system.

I haven't said anything about my personal income.

There's a hell of a lot more whinging by rich people who have 'obscene' childcare costs and 'massive' mortgages than there is by poorer people who can barely afford to put food on the table for their families.

I'm a childminder, I'm not subsidising your childcare bills each month when you earn £100k and I earn nothing like that.

Spare me. It's not a fucking 100% tax rate. Stop trying to frame it that way when it isn't. You are simply being expected to pay for the choice YOU made instead of having the rest of us subsidise your wealthy lifestyle.

It's not a 'difference in basic beliefs'.

It's a challenge to the 'cliff edge' created by loss of free hours and tax free childcare at £100k.

If you earned £130k, you would have less money in your pocket per month vs earning £90k.

It's not about 'beliefs', it's about maths.

Quite! A minority of very privileged people having to tighten their budgets just like those earning 30k a year after choosing to have children.

And agreed it’s not a tax! It’s a cost that comes with having children for just a couple of years.

Again, you have managed to entirely miss the point.

In the scenario I am better off earning £99k, vs earning any other sum up to £148.

Earn £130k? Less in my pocket than if I earn £99k.

Earn £140k? Less in my pocket than if I earn £99k.

This incentivises higher earners to earn less money, making it a crap piece of policy.

It is about 'beliefs' insofar as it amounts to someone selectively demonstrating their perceived slight at this one element of 'inequality' in contrast to the wide ranging and devastating impact that some policies have on very vulnerable members of society though.

How many threads are you going to create on this subject? Do you actually care about anything else? Morevoer why do you appear to expect everyone else to be as up in arms about it as you are?

The nuances of tax policy and what ought to be done to maximise tax take for this country seems to be beyond the understanding of most of the people commenting here, who cannot see beyond their jealousy. Sad.

I agree with you OP, it's absolutely barmy. I think a lot of PPs are missing the point - you're not asking for sympathy for those earning over £100k, you're pointing out that high earners are likely to reduce their hours/increase pension contributions to avoid this ridiculous cliff edge - and that this is bad for the economy, given that those high earners will then pay less tax. People saying that they should just suck it up...why would they? Who wants to work for free?