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?

THERE IS NO EXTRA MONEY IN EARNING OVER £100K FOR THESE PARENTS!

They make a huge loss on any earnings from £100k-£150k. They take home much less money for earning more. The money in the bank goes down for earning more. Do you understand that?

Everything you are saying is true and correct. There is no support for high earning women in this country, we as a group are largely decentivised from meeting our full earning potential, why I’m not sure. My advice is to reduce your hours for the next year at least, however as tax free childcare is available until kids are 11 years old (can be used on holiday camps/nanny’s), the issue doesn’t really change. Tax free childcare should be for all working parents in my opinion.

There is if they chuck it in a pension. That's still money, just deferred.

And i volunteer for a charity that supports people who don't have two pennies to rub together. So forgive me if I have limited sympathy for people who can't cut their cloth.

Exactly this.

Why should net contributors not be able to access services they fund?
Why do you think the should be able to access the nhs / system education / use roads but not childcare?

Why should they exclusively be cash cows to subsidise and fund lifestyles of net recipients without corresponding benefits themselves?

Yes OP. Its stupid. We're in a similar situation. My suggestions would be:

A) Don't think of your base salary. Look at it after pension contributions have been deducted and any other salary sacrifice items.

B) If you have such a scheme available, you can look to get a car through salary sacrifice. Going electric this way can be quite efficient. You're salary will reduce, but your motoring costs overall may not increase too much.

C) Exploit any other salary sacrifice offered through work, bike to work, gym, buy extra holiday entitlement and so on.

D) As mentioned, you can use pension contributions to mop anything up.

E) Ultimately, you could take the financial hit and drop a day. Great fiscal policy mind, a tax and childcare system that encourages you to be less productive. Congratulations, successive governments!! Not.

The biggest issue for me is the unfairness in the system. Two people can each earn nearly £200k, but as soon as one person crosses the £100k threshold, they lose childcare funding.

Especially in London or the South East, the extortionate cost of housing, alongside day to day family expenses like groceries, bills, and running one car means £100k doesn’t go nearly as far as it should.

There are so many costs to grapple with that can upend your monthly budget. A broken boiler, a failed MOT, a burst tyre, dental work or a worn-out mattress giving you a bad back that needs replacing. Add in basic but let’s be real essential costs like swimming lessons, a few clothes for everyone, the occasional haircut, birthday and Christmas gifts for friends and family and there’s very little left over.

For a family of four, £100k pretty much just keeps you afloat and just about out of debt in London or the South East. So even with a decent income, the tax system can make it feel like you’re perpetually treading water financially.

I do agree with it being ridiculous that 2 people can earn £99k and a single parent will lose the hours if the household total income is £100k. It’s the same with child benefit and also the IHT thresholds, it seems governments dislike single parents.
However, as someone who has brought up 4 children while working in min wage jobs, I struggle to understand how you are struggling, obviously, I am a peasant as a pp puts it.

Yes, that’s all very altruistic of you, however high tax band earners are what keeps the country afloat. So whilst no one needs or wants your sympathy, those you help are undoubtedly being propped up by people who meet and exceed their full earning potential. That is what’s is being discussed here, not pension contributions, or other tax dodges.

It’s not about ‘cutting your cloth’ though is it, it’s about those paying the most tax being very heavily incentivised to pay less tax (either through pensions or working less).

I know lots of people doing both to get below the threshold.

I lose £22k in childcare help by earning over £100k. Let’s say I earn £150k.

So I put £50k in my pension. HMRC immediately lose £26,000 in income tax and NI. They also are now on the hook to pay me £22,000 in childcare.

So the cost of my doing this to the UK is £48,000.

This is completely irrational.

I totally agree. People insist on saying “earning 100k? Pay for it yourself” without grasping the wider impact on tax revenues.
Nobody at this level is working for nothing. You simply work less (or not at all) and pay more into pensions. It’s ludicrous

The answer is a sliding scale, not bands or cliff edge. I don’t believe it would cost more to administer ‘means testing’ when it’s all done electronically.

The answer is not to means test at all IMO.

How on earth can you have £100k a year coming in and yet you allegedly live like paupers? If you don't have a car, new clothes or holidays, you must live in a really, really expensive house. All that money is going somewhere.

We are on half what you're on in the south east and we manage just fine. We live according to our income. Why are there so many wealthy people on Mumsnet who are determined to try and convince themselves they're victims because they don't get free stuff that they can easily afford?

You're doing better than the vast majority of people. Stop feeling sorry for yourself and check your privilege.

And how are the people you support being helped by a Government that is incentivising people to pay less tax?

It isn’t about high earners not being able to cut their cloth. It’s about a loss of £20k+ entitlement which basically guarantees higher earners will “chuck it in a pension” or reduce their hours because otherwise they need to earn such a ridiculous amount more to offset the loss.

We’re talking up to tens of thousands a year per person which would be taxed at the higher rate, now disappearing from the income tax calculations because of a Government created incentive.

Multiply that by the many people doing it now which is much higher than when the cliff edge was brought in because 100k isn’t worth anywhere near what it used to be ten years ago and is a more common salary, and that is an awful lot of lost tax, at a time when public services are crumbling and the Government is talking about how there isn’t enough money. It’s idiotic.

Part of the issue here too is that thresholds have been frozen for quite a while. £100,000 salary 10 years ago had far more purchasing power than £100,000 now. With housing costs where they are, £100k really isn't the land of milk and honey anymore.

The punishing of high achievers really needs to stop. We hear all this "broadest shoulders" talk, but someone earning £125,000 is paying a rate of tax in excess of 60%, plus the nursery fee cliff edge.

Its a great salary, don't get me wrong. And I can understand (but not agree) why people would say "cry me a river", but it wont make you loaded.

They haven’t said they live like paupers.

OP mentioned childcare costs of £2,500 a month. With two children, this would be 100% of the take home pay of a doctor on £100k after tax and pension.

If they have a £500k mortgage at 5% - that’s another £3k a month on housing costs. In London that still wouldn’t buy you an ‘average house’.

The value of the free childcare hours is very significant - if you were losing this much of your income due to bad tax policy (while paying tax rates of 60%+), I’m sure you’d be complaining too.

How is any of this relevant?

I get it. I'm a single mum and don't earn anywhere near what you do, largely I feel because I couldn't afford to work when DC were small. I got 30 hours free, when they hit a certain age (obv had to wait years for this to happen) and no where employs someone for 30hrs a week, let alone a single mum with responsibilities.

Trying to find a job now is the same thing - you've had time out, you have kids, your degree isn't relevant any more. So bored of it. Living on the breadline being told I'm lucky because I live in SE, where everything just seems more violent, expensive and angry.

What is so bad about becoming a SAHM for a few years? There seems to be an expectation from women that they have to work. When I was younger I would definitely have been a SAHM if my husband was on £100 k. The early years are so precious for you and your child. A few years out won’t hurt

“A few years out” really does hurt women’s earning and professional potential. If that’s the choice of the woman, it’s one thing. If she’s pushed into it through necessity because of tax policies, it is quite another.

a) affordability of only having one income in context of the high cost of living

b) long-term prospects of the non-working parent in terms of financial independence / ability to earn / ability to retire

Nothing wrong with choosing to be a SAHM - but you shouldn’t be forced into it because you’re excluded from using childcare provision which the other 97% of parents are allowed to access.

Oh - and of course, some of these £100k+ earners are women ourselves…

Because they are complaining about being hard done by at paying for childcare, yet they're bringing in 100k a year and allegedly they're not spending any of it on normal things like a car, clothes or holidays. So where's the money going? They're acting like they're poor when they're not. At all. They have plenty of money, they just don't think they should spend it on childcare.

People in the U.K. have a primal fear of raising taxes? Since Labour took over all we’ve done is pay ever increasing taxes with more taxes to follow in the October budget. What people in the U.K. are sick of is our taxes being misused by successive governments and society gaining nothing of benefit to show for it.

Maybe for the childcare but I am thinking in terms of income tax as well, it does need to be proportional to salary but I don’t agree with the bands.

But the cliff edges currently in place create a disincentive to work. Regardless of your views on OP’s earnings and expenditure, surely we all agree that a system where there is a net positive impact to tax receipts benefits society as a whole. The current system does exactly the opposite 🤷‍♀️
Not to mention the impact on women and inequality.