Should tax-free childcare and ‘free hours’ be universal?

[Nursery772]

Having attempted to apply for the new 15 free hours for my nearly two year old, I discovered you are not eligible if you earn over £100k.

My four year old also receives only 15 of the 30 free hours for the same reason.

I am not sure if the additional 15 hours from 9 months / 2 years will be income contingent.

Between this and tax-free childcare, I will lose about £12,000 of post tax income in 2024/5 tax year.

This seems very onerous!

Should tax-free childcare and ‘free hours’ not be universal? It is an expense to allow me to work, and I’m paying quite a bit of tax.

Also being applied as a cliff edge is brutal, seems to create an artificial ‘cap’ on the amount parents of preschoolers can earn.

@SecondUsername4me my personal income isn’t relevant really, the question is should it be universal or not

I was just going to suggest if you weren't massively over the cap that you could redirect the extra into your pension, which would bring it down below the 100k and you'd then qualify.

No, I don't think it should be universal, but I do see how frustrating it can be to earn over the cap and lose out, if the pension option isn't possible.

I agree with this, and I say it as someone where both partners are earning over £100k although no longer have big childcare costs. I do have sympathy for those who feel they are just paying in tax but getting nothing in return though, even if I think benefits should be directed to those who really need it.

But isn't this just the middle class equivalent of "don't have more kids than you can afford"?

People are quick to trot this line out to low income families. Why not to high income families (eg 2x parents earning at or above 100k)?

I haven’t said I’m struggling. I’ve asked if the benefit should be a universal one - as it is in other countries.

The way in which the benefit it removed (and the high value of the benefit) has a significant impact on the effective tax rate. That does impact how people work, if they are incentivised, and breeds the othering which is the fuel that keep the Conservatives in power.

Healthcare is universal, school is universal- why not childcare?

What I can’t quite get my head around is the £100k tax cliff edge that means you go from 40% to 60% because the allowance is taken away. And then it goes down to 45% over £130k or so. How does that make sense!

I don’t believe that is deliberate policy, just some bloody political cock up of messing around with the tax system.

Healthcare is universal, school is universal- why not childcare?

Everyone can (and will) need health care. Everyone needs an education.

Not every family needs childcare, and not every family needs multiple places in childcare overlapping. It's a choice to have children and it's a choice to have children overlapping in childcare. And it's a choice you can have control over.

@Nursery772 how much over the £100k do you earn. My DH cut our hours so not only did we have more time with our children, but we also got the 30 free hours as well as the 20% tax free allowance. We had 2 under 2 so quite a large nursery bill. They are both now at private school but it was good to save the money and have time with them when they were young.

We have primary aged children now, but dh and I aren't eligible for tax free childcare anymore because we earn too much. I'm okay with that. We do earn well. We didn't always and back when the 30 funded hours first began we were in one of the test case areas and got it before everyone else and it was a godsend. But honestly, I can cut back on holidays and the amount of money I spend on hobbies (which is a lot) to pay for childcare when I need it. We have the flexibility because we earn so well. I am happy for someone who doesn't have that flexibility to have that funding even when I don't, because I'm sure they need it more than me.

Yes the £100k cliff edge is very strange isn’t it.

And because that’s where you lose the childcare benefits… you are £0 better off until you earn £130k?

Unless you are able to salary sacrifice into your pension. But why are we incentivising people with preschoolers to over-invest in their pensions at that stage in their lives?

I also suspect it’s not policy - strange to have this arbitrary cut off however.

YABU, it should not be universal but I don’t underhand why it’s not household income. The cap on one income isn’t fair.

I think every situation is different. It also depends how far over 100k you earn or how much your partner earns.

Eh.

Having a child is a ‘choice’ so nurseries shouldn’t be free.

but you also think schools should be universal.

Is there no choice element in having children once they hit the September after they turn four?

There are many, many services not everyone uses but we fund for the benefit of society.

Education is for the rights of the child and healthcare too. Childcare isn’t a right.

I do think it should be better govt funded but you’re massively missing the point.

@Nursery772

Of course the benefit should be universal. Its one of the few uses of public money that gives enormous ROI.

But once again, the politics of envy rears its ugly head in the UK and MN

They think you have "more" and they have "less", so you need to be dragged down a bit for their benefit. Its all emotion with them. They don't think the scenario through.

When people say "putting money into pension" that money is not spent in the real economy quickly, thus this dampens demand for goods and services. Economic activity therefore goes down and we have less tax revenue. Thats why the £50k and £100k clifff edges on childcare damage the UK economy.

People earning £100k/year already pay in ample taxes, which are then used to subsidise the childcare of the lower earners (but in their mind it is unfair that it helps them too). They also then pay higher prices at the point of use via top ups because of their income.

Its much easier (operationally and economically) to subsidise childcare fully, and then use a sliding scale for "how much it costs at the point of use" based on income. That way high earners would end up paying £500 or so (which is what happens in Scandinavian countries) and lower earners £100 (or less).

Everybody wins.

But envy in the UK has become corrosive. It has gotten a lot worse in the last few decades from what I have seen.

If they means test this they can means test pension benefits too. Oh wait….

@Teder if it’s not important for the child why are the government investing billions in tax-free childcare and ‘free hours’ for those earning up to £100k?

And I’m not sure healthcare or education are a seen as a right for any other reason that we as a society value them. I’m sure people objected to paying for them too when they were introduced.

If we valued parents staying at home vs using childcare, such policies would exist to help enable this. They don’t.

Society progresses, the world changes, we change the way we do things, surely?

I agree with you. In fact I think childcare should be fully tax deductible as it's essential for enabling people to work, regardless of how much you earn. For full disclosure, I've not got any skin in the game, mine are teenagers.

This is exactly the situation with my husband and I - he earns over 100k and I earn 30k yet I pay for childcare out of my salary (just how we do our finances, not because he views it as a woman's responsibility before people come at me!) and I have never benefited from the tax free childcare, child benefit or funded hours for my two kids. I appreciate a 100k seems a lot but he is taxed very heavily on that and pays a lot into the system so it is unfair that we receive no help in my opinion! Especially as 2 working parents on 99k each would receive it. It's a flawed system for sure.

I don’t think “cliff edge” tax / benefit rates are ever fair. They should either phase out the entitlement or just make it universal.

If it’s making people earning over that amount put money in their pensions, it’s costing more in tax relief than they’d save by just allowing it anyway.

I’d actually support a combined tax-relieved annual allowance covering both pension and childcare.

Education is a right, it is drafted into law.

They are investing in all the free hours to try and get more mothers out working more and therefore paying tax back into the system, earning more and claiming less in theory in benefits. There is essentially a deficit in income coming in vs money going out and they are trying to rectify this

I don't think it should be universal either. I agree with means testing it on a household basis and having a sliding scale of entitlement with how much people have funded vs how much they earn.

if it’s not important for the child why are the government investing billions in tax-free childcare and ‘free hours’ for those earning up to £100k?

The vast majority of jobs earn way less than the cap. And the parents in those jobs cannot afford to pay childcare.

So you get shortages is essential jobs. Carers, retail staff, teaching assistants, admin, road sweepers, nursery staff themselves, because they all earn under 30k pa and cannot afford full time childcare to then be able to work

So, the govt funds free childcare for them, from a certain age, to enable these essential and low paid workers to remain in the workforce.

If you earn over 100k you have so much more money than your child's nursery staff/ the guy who serves you lunch/ the person who runs the garage you fuel up etc. so so much more. But you both still need to pay the same costs for childcare!

While I instinctively want to agree with you as it is a very good salary, less a basic pension contribution and student loan you might be taking home ~£4,800pcm.

It is salary after pension though.
If you earn just over, it would probably be worthwhile just upping your pension contributions.

Good point.

Say I earn £130k.

I lose £12,000 of income for earning £1 over £100k.

I can get 60% tax relief on most of the sum £100-130k by getting my employer to put that income into my pension.

This would leave me with ~£28k extra in my pension, £0 tax additional tax take for HMRC, and the additional £12k in childcare benefit.

Surely they have discussed this anomaly. It’s extraordinary really. I don’t think I’ve ever seen an MP discuss it.

This country would be much better off in the long run if it encouraged high earners to work as many hours as possible due to the tax this generates. Dropping to part time permanently affects a woman’s earning ability. See the gender pay gap. This permanently reduces the nations tax take. But the politics of envy people can’t grasp such realities.

so yes OP. You ought to drop your hours as you will be earning minus wages for a salary from £100k to £130k.

Yes, I think it should be universal. I know someone earning just over £100k and childcare costs for 2 children was thousands. Add a mortgage of £1400 on a modest house in London, there wouldn’t have been much left. She got herself just under the £100k by putting more into her pension so she could claim.

Absolutely ridiculous to say low earners should be supporting free childcare for folk on £100k a year.

Lol. They’re not. 🤦🏻‍♀️🤦🏻‍♀️🤦🏻‍♀️