The £100k childcare cliff edge - how is anyone meant to make this work?

[Saladleaf]

I completely understand that on paper, a six-figure household income sounds like a lot. I’m not trying to be ignorant of the fact that many people are struggling far more. But for anyone actually living it, especially in the South East, the reality feels very different once you factor in childcare costs.

We’re looking at full-time nursery fees of around £2,500 a month per child, and I honestly don’t know how families are supposed to make it work once you hit the £100k cliff edge and lose access to the 30 free hours. It’s completely unsustainable.

I know some people say you can get around it by putting more into your pension so your income technically falls below the threshold, but that just isn’t realistic for everyone. With the cost of living, mortgage, and general expenses, we simply can’t afford to take home hundreds less each month. We already don’t have holidays, don’t buy new clothes, and don’t even have a car. There isn’t any more to cut back.

It’s not even about wanting handouts, it’s that full-priced childcare in this country is so eye-wateringly expensive that it makes working impossible for many women. The system actually discourages the lower earner, usually the mother, from staying in work.

A friend of mine is a good example. Her husband earns over the threshold, and she’s just spent years retraining into a new career that she’s passionate about, but is now entry level. We worked out that if they have a baby, it would literally cost them money they can't afford for her to keep working once childcare, rising mortgage payments and bills are factored in. She’d have to give it all up. It’s so demoralising.

And the whole system makes no sense. Two people earning £99k each can claim free hours, but one person earning £100k can’t. Someone on £50k with one child gets support, but a couple on £100k with two children get nothing, even though their childcare costs are double and they are taxed more. It’s not unreasonable to have worked hard, built a decent career and want two children, but the government seems to penalise you for it.

Other countries manage to offer affordable childcare to everyone because they see it as essential. Here it just feels like you’re being punished for trying to do well. For those of us in the South East, it’s even harder. Living costs are sky high, childcare is extortionate, and it’s not realistic to just move somewhere cheaper when your jobs and lives are here.

It feels like you’re being backed into a corner. I find it so demoralising that the system seems designed to push mothers out of their careers, especially when you’ve worked so hard to build one in the first place. AIBU in feeling like this?

In Wales it’s based on gross income so there isn’t even the option of paying extra into pension or salary sacrifice schemes to bring income under £100k. My husband‘s earnings have just tipped very slightly over the threshold as a result of doctor pay rises and we are so much worse off now.

The threshold is ridiculous.

It makes no sense to push people to earn less so they are better off.

It doesn't affect me, neither of us earn that much. I also got the 15 hours at 3 and childcare was expensive then too, but the tax system didn't make me better off on a lower salary and this tax threshold is damaging the economy.

I think many people just see 100k and think "its massive, how can they spend all that?" Without actually stopping to think through implications.

It is a massive salary but very easy to spend in major cities where just a normal 2or3 bed house or flat costs more than half a million minimum, plus not seeing how much goes on tax each year.

No it isn't. It is forcing couples to look at how they manage the situation they are in. There is no reason the SAHP needs to be mum and society will be a lot better off once this stops being the presumption. There are also other options I work for local government and many of the male staff work 4 days a week and their partners also work 4 days reducing the number of nursery days to 3. Often this is compressed hours rather than dropping a day so still the same salary. With WFT this is a much more accessible option.

YANBU.
I won’t believe a government ‘cares about women’ until childcare is heavily subsidised for everyone; and I mean heavily subsidised to the level it is affordable- and the CMS is completely overhauled.
I agree it’s all about reducing choices for women.

Side note but in keeping with the women’s choices & societal support part - Can you imagine what life is like for single mothers without family support? I literally don’t know how single mothers of young children manage

Why did they remove the childcare vouchers system?

I agree and other European countries have much cheaper childcare. But this is because it is heavily subsidised and paid for by higher taxes - particularly income tax and often VAT. But people in the UK seem to have some primal fear of raising taxes and refuse to consider paying more tax so we’re stuck in this conundrum.

I don’t think there should be a cliff edge on this or on income tax, it should be proportionate to salary. The computer systems are able to handle all this, it’s not like it is all calculated manually in this day and age. It should also be per household salary.

Someone upthread said it was Jeremy Hunt who introduced this. Whatever else I may think of that man I don’t consider him to be unintelligent.

If one of you is on £100K whilst your children are under 5/4 you are in a great financial position and have a long wealthy life ahead of you

You can put up to £60k into a pension to bring the earnings under the threshold.

If you are earning over £160k whilst your children are under school age then you can put a bit less in your pension to cover the few years of childcare costs and still bring home a fantastic wage, plus the other parent's wage because you wouldn't need childcare then.

At some point you have to ask the question how much do you need?

Right now I don't think the country's payments need to be supporting people in this sort of financial position.

dropping his hours is the other option.

I do think there has been at best a lack of regard to which sex will be most impacted here. High earning male partners are not obliged to share their earnings and whilst this thread refers to couples tax planning together as a team, that doesn’t always happen.

See also the high income child benefit cap. This was a benefit designed to “take from the wallet and give to the purse”. A male partner earns over the threshold and (generally) the mother loses it. This is particularly impactful for single parents, the vast majority of which are women, who then lose child benefit on a single salary.

I remember when UC was brought in there was a lot of unease that the claim would be a family claim rather than individual and that this might exacerbate financial abuse.

I do agree with this also, I think these people are buying a house based on their income when they are child free, getting the highest mortgage available to them and there is then no wiggle room later down the line when it comes to childcare.

Having lived in one of the aforementioned countries there is a different attitude to work. Nursery is seen as the best option for the child as it means two parents working full time earning income which is taxed. In this country lots of people simply don’t work. Or only work 16 hours or whatever. Or are SAHMs. Different attitudes in different countries. They see nursery as essential to ensure you maximise the workforce.

The other aspect is the cost of housing. If your housing costs were lower you wouldn’t mind paying more tax to have better public services. Here every penny goes on housing. It’s a terrible way to run a country.

I do wonder if one of our problems is the First Past the Post voting system. If Labour did scrap this policy the Tories would be braying about ‘freebies to the wealthy’ when they know fine well that this is a damaging policy and needs to be scrapped. It would be all over the press. Both parties are well aware of the best changes to make to drive growth and maximise the tax take but they are also well aware that if they introduced these policies they might not be voted in again. This next budget will be really interesting because if you’re going to make big tax changes you need to make them early on in your tenure to give time for voters to forget any unpopular policies.

I have no skin in the game as not in that salary bracket and DS is 16 but the whole system is set up wrong to discourage high earners. It’s worse though as it encourages those who are statistically more likely to have children that require more from the state to have more children for more benefits while discouraging those who are statistically more likely to have children who will go on to be net contributors from having more. No one will acknowledge that though as we’re a nation of “be kind” and welfare.

Because there isn’t an indefinite amount of money and honestly if someone on £10 million a year needs help with childcare costs then they are doing something wrong

There’s a point where the cost of checking if someone is entitled to something is higher than the cost of the benefit. At the lower end of the cut off (£100k to £150k) the increased tax paid would likely cover the cost of the benefit. Above that, the very low numbers of people affected (people earning over, say, £150k with young children) will be very low, so the admin cost per person will be huge.

An alternative to a cliff edge is a scale of losing the benefit, but again the cost to administer it might be more than the benefit savings

It’s £2500 a month! That’s £30k a year…. That’s obscene

Agree with the cliff edge but it sounds like you are earning significantly over £100k if you can't reduce slightly to get under it. I'm in London and we have a joint income of about £140k. We managed it ok. We got nothing until 3 with the first and then 20free h for a bit when it came in with our 2nd. We planned gap between them so they would not need to be in nursery at the same time.

You could definitely afford this unless you have taken out a ridiculously huge mortgage. In which case you should have thought about childcare costs when you applied for it. If this were a post about universal credit we would be saying 'why are you having kids you can't afford'

I also disagree that this is forcing women to be at home. Well, I agree that is happening but that isn't because of childcare costs alone That's because of a societal expectation that they should be the one that does so. In many cases there is no reason other than pride that men couldn't work flexibility or reduce their hours to look after the kids. You should both take the hit.
This has to be part of the solution not just putting kids in nursery all day.

And if you’re earning over £100k and being taxed at 62% you need to earn a LOT to pay those fees.

If they earn 10 million and pay the appropriate tax, why shouldn't they have access to a universal service they have contributed to. They contribute more to services than I do. It makes them more invested in the system overall and the service itself. Instead of this view that they pay for things and get nothing in return. It would be you pay for things and can access them too.

Youre not getting the economics behind this. Say for instance it costs £10,000 a year for the state to provide that nursery place, the person earning over £100k drops their wage to less than £100k, the government pays the £10,000 and the taxman loses out on income tax. Say there is no cliff edge, the taxpayer still pays the £10k and gets the benefit of the income tax receipts.

Our current situation is worse than that though. If someone drops their hours - like in the Welsh situation above - there is nothing to say they will increase their hours after their child leaves nursery. They might get used to part time or their employer might not let them go back up. That’s permanent decline in their earning power and permanent decline in the countries tax take. All because the country doesn’t want to pay childcare for a handful of kids.

Putting in a cliff edge anywhere introduces economic damage somewhere.

Either the 30 hours childcare is worth a lot to you - in which case pop the excess over 100k in a pension and claim the hours and be glad you are building a decent pension cushion. Or it isn't, in which case use some of the excess over 100k to fund nursery.

If you are capable of earning over 100k you are capable of managing a budget and cutting your cloth.

There has to be a cut off and this seems quite reasonable to me.

But then when mine were little I was a single mum (in the south east) funding a mortgage and childcare on my own, so I got very good at budgeting.

It's a few short years of belt tightening and then it all pays off.

if you chuck a load in your pension now you will be very glad of it when your children hit the teenage /university years and you have a decent pension cushion behind you

I sympathise. I gave up work completely, that was 20 years ago. No point in working for nothing. We didn't have so much help back then either. DH worked away, big salary, I was therefore taking up all the slack, and working, no CB, no free hours, South East. The effort and stress, and lack of cleared money made no sense to continue.

Also double whammy of marginal tax rate. If you creep over 100k it's 60% (or possibly even higher if you've got student loans etc). Completely disincentivises work. I know it's a temporary expense, but it makes my blood boil to think that women (usually) have to pull out of careers they have worked hard for both in the here and now, and also future security of pensions earnings just because the gov want to scrape taxes from frozen thresholds.
My OH is self employed in the creative industries with income that fluctuates but is generally low. However, he is contributing to society and culture, like many other creative freelancers. He basically is a sahd now because we can't afford for him to work (huh?!).