AIBU to hope the £100k cliff edge for funded nursery hours is removed?

[horchatatresleches]

News is that the education secretary is looking at nursery funding but it’s unclear if it’s to reduce or increase the support available at either the upper or lower thresholds. AIBU to hope that the harsh cliff edge which stops all nursery funding at £100k is removed or least replaced with something tapered so that people aren’t losing money for being marginally above the threshold?

Link to Times article

The education secretary has said she will review the £100,000 childcare cliff edge that penalises parents who earn six figures.
Bridget Phillipson said the government would review both the lower and higher thresholds at which parents can receive free childcare — although she did not specify whether she intended to make the support more or less generous.

Parents of children aged nine months to four can qualify for up to 30 hours of government-funded childcare a week if they earn at least the minimum wage for 16 hours a week. However, once one parent earns more than £100,000 a year, the entitlement is removed completely.

The threshold has not been changed since the policy was introduced by the Conservatives in 2017 and many parents complain that they have had to refuse pay rises and bonuses because the free childcare is more valuable.

Funded childcare in England will cost the government £9 billion in 2026-27. Phillipson said she wanted to ensure that “we’re getting the best possible outcomes from the money that’s being invested”. She told the Financial Times: “We are going to continue to look at eligibility through the childcare review that we’re undertaking, and it does need to be simpler for parents.”

The cliff edge also marks the threshold at which workers face the tapered loss of the tax-free personal allowance of £12,570. The allowance is removed at £1 for every £2 earned over the threshold until it is lost completely once workers earn £125,140. Workers in this bracket pay a marginal income tax rate of 60 per cent.

This £100,000 tax trap has contributed to the growing discontent of Henrys (high earner, not rich yet), who report reducing their hours, forgoing bonuses or refusing promotions to stay under the threshold, which has negative implications for the economy and tax take.

Phillipson told the Financial Times at a primary school in north London: “I do want to keep under review every element of the childcare system between now and the next general election. There are many quirks that exist, that have developed over the course of the last decade or so as different elements of childcare support have been added into the system.

“It does make sense to make that more coherent, more straightforward, both for the sector but also for parents too, and to make sure that we’re getting the best possible outcomes from the money that’s being invested.”

An education spokesman said the review was part of the government’s early years strategy and that any changes were not imminent.

Tapered fine, but not removed. £100k is an insane salary to me and no-one earning that should get any state help.

I’m not normally one to defend 6 figure earners but I think you’re right.

Childcare is a direct cost of work and someone on that salary doesn’t receive much from the state and Childcare hours seems logical to me.

I would also like to see it extended to year round and have some way of ensuring the hours are applied consistently across settings. There are as many ways of calculating costs as there are nurseries.

It would make more sense to look at household income, not individual. It’s insane that you could have two £95k earners in a household getting help, but a household with one on £100k and one on £25k doesn’t.

But agree whatever they do should be tapered - cliff edges are really poor policy for anything generally.

The loss of 30 free hours plus tax free childcare is worth £15,000 now in my area.

To earn £15,000 after tax over the threshold, I have to earn an extra £35,000. Just to cover the loss of the support.

It’s a ridiculous penalty. Half the parents I know are working part time or using salary sacrifice to claim anyway - so I’d query how much they’re saving by having this rule.

Also, just more generally, I’d have liked to think I paid high taxes for comprehensive public services I could use. Not pay for them for others and be excluded from accessing them myself.

This is going to become a bigger and bigger issue due to inflation, and more people earning over the £100k threshold. That threshold has been frozen since 2017 so more people are being caught in it than originally ‘planned’ too.

100k is a good salary, but it’s not insane. If the threshold had kept up with inflation it would be at almost £160k now, but because the tax bands are static there are going to be more and more people affected by this every year.

When you say no state help do you think that the NHS shouldn’t be free at the point of use for my family, or my children shouldn’t be entitled to a state education. I feel like funding nursery hours for all children makes sense as part of early years education. Because that’s also state help. It’s what happens in Scandinavian countries, and across much of Europe I believe nursery is subsidised for all.

I completely agree with this, it should be household and not individual earner.

This is what I think too. We’re salary sacrificing into pensions, making charity donations and considering reducing hours to get below the threshold because the funded hours are that valuable. We’re not rich and the funded hours are really meaningful for us. But with the cliff edge either we have money which isn’t earned because we’re reducing hours, or money going tax free into a pension, which otherwise would have been earned, taxed at a higher rate and spent in the economy instead of being left untouched. And while I’m sure we’ll be happy to have a healthy pension in the future with high mortgage costs, nursery fees and young children it’s such an expensive time of life now. But at least our local wildlife sanctuary will be able to finish their new enclosure.

Also agree on the high taxes too. I don’t mind paying taxes but it would be nice to benefit. And because the funded hours don’t cover the actual fees, the hourly rate goes up so above the £100k threshold we pay for funded hours in taxes, our children’s nursery bills separately, and those bills are higher than they would have been without the funded hours, so it’s subsidising the funded scheme again. It’s not a surprise that anyone around the threshold makes sure they aren’t over it.

Completely agree with this. We’ve both been salary sacrificing and (at various times) working part time to stay under the threshold since 2017. I’m not willing to pay 60% tax (62% with national insurance) plus lose the tax free childcare. I’d rather works part time and invest in my pension.

It’s perverse really, because if it wasn’t for the £100k cliff edge, we’d be paying a lot more tax, even accounting for the tax free childcare. As it is we’re looking at a very comfortable early retirement, plus spare cash to help the kids with house deposits, as we’ve been maxing out our pensions for years. So not complaining! But a great example about how tax policy changes behaviour, often in ways that the government wouldn’t prefer.

DH salary sacrifices more into his pension to keep it under the threshold. I agree that it’s a ridiculous policy.

It sounds massive doesn’t it!

After tax, NI, auto-enrolment and student loan it is £59,203 a year (£4,934 per month).

One nursery place locally to me is now £2,300 - £2,600 a month (£27,600 - £31,200 a year).

This means even at £100k the cost of putting in one child in nursery is going to be ~50% of your net pay.

Anyone who disagrees with you and supports the 100k cap is a shortsighted fool. We need people working.

Completely agree with this.

Any time you have a cliff edge like this it doesn't make sense. You always need to withdraw these things gradually. Otherwise you create a weird incentive to earn £99,999, not £100,000. People saying that £100k earners are wealthy are missing the point. It would still be true if they were earning £1m and that was the cliff.

Although in practice the childcare money would be less significant to those people and they'd quickly hit a point over £1m where it was worth their while earning the extra. Whereas even at £100k it's still significant money to those people.

And I'm getting really fed up with the frozen bands year after year. It's fundamentally dishonest; it's making the tax system less progressive because it drags more and more medium earners into paying more tax.

I agree with you in principle, but in reality, those earning in excess of £100k are subject to the 60% tax trap. If government don’t want high earners to benefit, I understand. But give them a bloody break from the ridiculous tax cliff edges and frozen thresholds. £125k sounds like beer and skittles, but if you do the maths and see the take home pay that actually delivers, less the childcare stuff, you can see why successful people just say “nah” and go part time or fuck off to Dubai.

@Everanewbie with the 60% tax trap you currently take home ~£10k on earnings £100-125k.

Add 30 free hours and tax free childcare and you take home £0 between £100-125k - in my case I’d still be ~£5k net worse off with one child in nursery.

I have two in nursery and I now need to earn £155k (!) to be better off than £99k + claiming childcare for them.

Thanks for doing the maths! Yes it’s madness. I agree with the principle that higher earners shouldn’t be recipients of state help but to hold onto that principle when applying policy, it is not fair to wield taxation without thresholds moving with inflation, cliff edges and a 45p headline rate.

Frozen bands won’t be going anywhere. Fiscal drag is a feature not a bug when increasing tax is so unpopular with voters.

Its hard to equate someone earning £100,000pa needing assistance with childcare, but as most are saying - its the sodding cliff edge, and all the other things being removed at this level, and not being classed as a family expense.

For most people its the 100k is so much, yeah it is a lot, but its not the holy grail that it feels like to someone on minimum wage. I'm on 80k which is a lot, but I'm not quaffing caviar and champagne, I can get my car fixed without having to worry, and put the heating on.

They can track everything else by household, so why not this.

But higher earners are already recipients of ‘state help’ - that’s the system we have. We pay tax in return for services - not just to fund welfare initiatives for ‘the poor’.

Schools, hospitals, roads, emergency services etc - there are countless examples of services that we all pay taxes to mutually use.

For some reason in the UK however (and most countries do not penalise higher earners with children in the same way) it has been decided on the specific issue of under 5s… higher earners are now longer allowed to participate. And this situation has been made worse several times through increasing of the subsidies given - alongside frozen thresholds.

When my 3 year old started nursery, I lost out on £2k of tax free childcare. When my current bay starters nursery, I lost £15k of free hours plus free childcare. Thats the difference in just 3 years. Thats a huge change for people in that position - and I’d really query the ‘fairness’ of excluding us from this benefit which we are paying for, given around 97% of parents can apparently claim it.

It's not even just fiscal drag though! We we calling it that when bands were rising with inflation rather then earnings. Now there's not even a pretense!

I suppose the counterargument is we are getting richer and as you get richer as a country you pay more tax as a percentage of GDP. But I'm not sure anyone feels like they are getting richer these days!

Totally agree. Why do people on £100k pay full price with their tax contributions subsidising the less well paid.

Childcare is a cost of working and should be subsidised for everyone.

I disagree and think they should close the pension loophole most people use to get around it too. This is people demanding freebies while walking around in diamond shoes, even in London.

It reminds me of when I worked in a pharmacy a few years ago and retired doctors took up gp appointments to get free prescriptions for 16p aspirin that cost the NHS £8 to dispense. They could well afford to buy it but felt entitled so the cost of a gp appt and prescription were absorbed by taxpayers. But you know, “they paid their tax” so felt utterly entitled.

I think there should absolutely be a threshold but £100k is not the same today as it was is 2017 and it should be inline with current market conditions. DH is maxing his pension but still earns just over £100k, which on paper is great but we pay more for childcare than we do for our mortgage. Thankful that the small DC starts school in September, wrap around care is is a drop in the ocean in comparison.

I think the whole childcare funding situation needs review, there are many people (usually women) who are out of the workplace because childcare costs more than their wages.