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?

How much do you earn out of interest? How much is your house worth? Mortgage or rented? Any top up of income whth UC or are you in receipt of any help through other means?

i think a wage over 100k is a magical amount for those who earn far less. Yet when you dug into the numbers of most peoples incomings and outgoings lots of people are really really shocked at how much they get in help monthly to how much a high earner pays out.

The loss of personal allowance over 100k (leading to the effective marginal rate of 60%) was introduced by Alistair Darling in 2009 and came into effect under George Osborn. The free hours initiative, which excluded people over 100k was introduced by George Osborn in 2014 / 2015.

Jeremy Hunt wasn't Chancellor until 2022, long after this stuff happened.

100% agree. I am from (and live now) in a country in Europe that is often looked down on in the UK. I went to uni in Scotland. I left the UK in 2016, but it was always shocking to me how education isn’t free - we have free nursery/kindergarden (unless you choose to go private), affordable private healthcare and state healthcare - you get to see a dr in the same day you have a problem. So yes - the cost of childcare is eye watering.

so childcare costs £30k a year, you earn over 1 million a year. So what is happening with the remainder of £970,000+?

It doesn’t seem like the right hill for you to die on.

Jeremy Hunt extended the hours to 30 hours from 9 months, and kept the £100k threshold.

The original poster asked who introduced it, it wasn't Jeremy Hunt.

Jeremy Hunt introduced the 30 free hours from 9 months which has made the policy really terrible (and more likely to impact two kids at a time).

A couple of years ago, with a 9 month old, as a higher earner I lost out on £2k tax free childcare. This meant over £100k I needed to earn ~£5k gross to recoup my loss. Annoying, but didn’t really incentive behaviour change.

Today with a 9 month old as a high earner, I lose out on £2k tax free childcare and 30 free hours. This is worth £15k to me - and means over £100k I need to earn ~£35k additional gross to recoup my loss.

That’s all as a result of the policy introduced by Jeremy Hunt.

I agree we should have free chuldcare like they do in parts of Europe, as an investment in the country. This is yet another example of why I'm glad we're older and although there was no free childcare when ours were little in the 90s I can't even begin to comprehend having to pay 2500 per child. I honestly don't know how familiies survive in the South East.

The tax system in this country is full of unfair thresholds like this and successive governments never address them.

The loss of CB and CC help where two workers get it and one doesn't should be equilised- and the two workers get two zero and lower rate thresholds!!! Is extremely unfair and has been clear for forever. These unfair rules should have been stopped well before now, but anytime soon would be good.

They probably dont change it because of the complexity it would cause but systems but technology should not be a boundry to fairness.

He didn't introduce the policy that excluded people earning 100k from tax free childcare or free hours. He extended the provision of free hours which increased the impact of the exclusion but he didn't introduce it.

I don't think the cliff edge makes any sense. Childcare is a cost of working and so however much you earn you should get the tax relief - at least for one child per parent (so two overall). High earners will pay it back anyway.

It's a really weird thing for a Tory/Coalition government to have done.

As for the high cost of childcare I think it's because of our adult to child ratios.

The threshold being talked about is £100,000 not £1m. And that’s gross not net. The absolute vast majority of people are not earning £1m net. I think we would all agree that if you have that sort of income you are not going to be disincentivised by paying childcare costs.

Gosh whereabouts do you live? I keep trying to think of places my kids could move to when they’re older and where you live sounds wonderful!

Bloody hell. Who is talking about earning millions?!! A million pounds is a number with six zeros after it, so 1,000 000. One hundred thousand pounds is a number with five zeros after it, so 100, 000.

Maybe this is what’s causing all the confusion on here. Are people thinking that one hundred thousand pounds a year is equivalent to one million pounds?!

It's an illogical policy and it's kept me out of work, or working fewer hours than I'd like. Without the cliff edge we both would have worked more and the extra tax we paid would have covered the additional childcare many times over. But I shan't moan too much, it's a nice problem to have.

A cliff edge is always illogical. It causes perverse incentives like encouraging people not to get promoted. Fine, don't give lots of help to higher earners, but taper these things. Everything around the £100k is badly thought out; it's also where you get the withdrawal of the personal allowance. Just be honest and make that a higher income tax rate. Although at least that is gradual.

The only thing I will say to people saying they can't afford to salary sacrifice is that at their level of income I'd be expecting them to have a way of smoothing longer term income vs expenditure. By which I mean you accept that for a few years income will be lower while you pay childcare/salary sacrifice under £100k. But those big pension contributions now mean you can afford to reduce them slightly in later years, thus recouping the 'lost' money. If it makes sense to shove a ton of money into a pension one year and less the next then I'll do that level of medium term planning. It's still far less stressful thean balancing payday loans to pay your council tax.

France? Any Scandinavian country? And that's just the countries I know of but it's probably like that in Italy and other countries as well

@StrawberrySquash the issue with putting it in your pension though, is that housing costs are so high - people want the money now, to pay their enormous mortgages.

I’m in London and know lots of people in this situation with childcare costs - but also pay £3-4k in monthly mortgage costs for a house that would be seen as utterly unremarkable elsewhere in the country.

That means putting a third of their annual income into a pension for several years is more complicated than ‘at least you’ll have a good pension’ - as they want to be able to afford a family home too.

My kids are at university. When they were born, we didn’t have any of these free hours and had to pay out of our income.

However, I can see how ridiculous the new rules are. How they discourage mainly women from earning more, and can result in less tax income for the UK. Which is in nobody’s interest. And I quite like having a world where there are high-earning women occupying positions of power in medicine, the judiciary, politics, the police, business etc.

People from the ‘cut your cloth’ brigade are either too stupid/uneducated or too resentful/jealous to understand what they are saying. They see five zeros in a salary and lose the capacity for rational thought.

The ‘cut your cloth’ brigade are ensuring the brain drain out of the country continues alongside people who would have otherwise had two or three children, now only have one.

I just really struggle to understand posts like OP's. I know families living in the southeast, with mortgages and kids, on half or even a quarter of a hundred grand, and they still manage to buy clothes and go on holiday. Every post like this just makes me feel some people's incomes must vastly outstrip their financial management skills!

Or of course the people you know are getting help or have had a financial leg up from family. There are some people who are lugging behind them student debts, high mortgages and now eye watering childcare costs with absolutely no help from grandparents or future inheritances.

Or their circumstances are just different. The value of the subsidised hours is thousands of pounds a year. Someone who bought a house a decade earlier might have a mortgage tens of thousands of pounds (or more) smaller. Or they might have social housing. Or a cheaper commute.

People earning over £100k aren’t supposed to have children, they are supposed to use all their free time to work more to pay for other pwiple’s children.