AIBU- high earners now better off cutting hours following hunt childcare reforms

[ant1234]

In light of Hunts childcare reform announcements I've just run the numbers .... and as a high earner have concluded I would be £400 a month better off cutting my full time work to 3 days a week!!!

Don't get me wrong - the reforms are great for very many people and this is definitely a first world problem, but because of the 100k a year eligibility cap they are v biased against families with one high earner earning enough for a 3 bed place in the south east (ie core Tory young professionals). What am I missing?!

Numbers: current salary 150kpa. Contribute 30k pa to a pension and will pay 3800pm for childcare next yr when 2nd child arrives and in nursery (will have 2.5yr old and 9month old in sept 24). Net= 2590 per month

If go to 3 days a week and earn 99,999 I will need only 60hrs care a week (3x10)which will cost me c810 a month with the gov free 15hrs for each child factored in. Net = 2902 a month

Or is my maths all wrong?!

I'm not really sure why you'd expect to 'get' anything out of the budget, in these really straightened times, when you are already doing really well?

Don't get me wrong - the reforms are great for very many people and this is definitely a first world problem, but because of the 100k a year eligibility cap they are v biased against families with one high earner earning enough for a 3 bed place in the south east (ie core Tory young professionals). What am I missing?!

Two households with a very similar income:
Two earners who earn under 50k would get child benefit and taxed less (due to tax thresholds)
One earner on 100k and one SAHP wouldn't get child benefit and would get taxed more (due to tax thresholds).

The household with one income would financially be significantly worse off for take home pay after tax and child benefit was calculated than the household with two earners. The household with two earner would also get already get some childcare fees but the one with the single income would not qualify. This makes it particularly hard for a SAHP wanting to work part time or on low wage to return to work whilst having young children.

I think you need to be careful here because there are certain disparities and inequalities if you have one high earner and SAHP v two professionals. The high earner household sounds better off - people don't necessarily realise this. This isn't necessarily the case because of how the tax / benefit system works. This naturally disadvantages women in the high earner scenario more often than not and can make it hard for them to separate from a partner because they don't have financial independence and having to step back from work for a number of years makes it much harder for them to return to work later.

It does make sense, and I'd actually argue it's possibly fairer than the current system in some ways.

Whether households with a joint or single income of £100k should get these benefits is a different question.

I think the lengths the government are going to with this, suggests where they think one critical labour shortage lies - it's with lower paid, middle class women. That does make sense tbh.

These women will also be missing out on personal pension contributions and in theory may find themselves with problems later in life because of years because of the lack of employer contributions. Again, it makes sense for the incentive. And if these women are out of work for shorter periods, they are more likely to pay more tax over the course of their lifetime. So I'd argue in those terms it's probably less of a giveaway in the long term than it looks because of the returns it brings.

I can see why a lot of people will be up in arms about it, but I do think there's more logic and less 'giveaway to a Tory demographic' than you think there.

The 100k cap has been there for ages and hasn't kept up with inflation / wage rises etc. It really should have been increased but I guess it would have cost the government too much...

might be encouraging for a lot more men to take time off to reduce costs :)

i wonder how many will make the suggestion if earning that much

Do the new measures have the £100k threshold or just the old measures?

"The government will provide £4.1 billion by 2027-28 to deliver 30 hours a week of free childcare for eligible working parents of children aged 9 months up to 3 years in England, where eligibility will match the existing 3 – 4 year old 30 hours offer."

“Odd effects for some”

OP there have always been people who are better off not working, or working part time, because of the way their income, childcare and any government benefits intersect. The child benefit earning cap is a good example. You’re clearly just not used to it being you who is affected.

Thank you! I kept checking online and couldn’t find the detail!

@JL642 source document: www.gov.uk/government/publications/spring-budget-2023

My heart bleeds

We’re in a similar both. Live in the South East, super expensive mortgage, nursery and trains. My husband earns over 100k but I don’t earn much, people think we’re rolling in it and we’re really not.

At least the yearly pension contributions are now 60k. I am a single parent that earns around the 100k mark. Like you I know I am lucky. I would have loved them to have sorted the 60% tax issue between 100 and 120k. My son is in school but when he wasn't I was paying 1200 mortgage, 1000 childcare and 500 commuting costs. It's financially responsible to work the figures.

Ah amazing thank you

I'm confused, i thought there was a 40k cap on pension contributions

So will high earners not even receive 15 hours funding from 9 months then? Do they miss out entirely?

Have I got this right:

If OP stays in full time work but increases her pension contributions by £50k she will then be able to access the free hours and still be better off with £2,902 net pm?

It has just been increased

Not quite, she currently contributes £30k so would increase £20k if her overall total contributed was £50k

I've always thought it's a bit mad that two people can earn £99,999 and be entitled to free childcare and one person can earn £101,000 and not get it.

Yes… but if you earn £101k, you stick £1k into pension and handle it that way,

take your point, though!

I don't think the OP is asking for sympathy.

Any system which has hard cut off limits and no tapers is going to have these odd effects, and because the new childcare plans are worth so much money there will probably be a fair number of people at the edges incentivised to either put more money into pensions which is fine, or drop to 4 days a week, which is probably not what the government intends, especially if they're senior doctors.

What are your employers pension contributions like on the 50k salary drop you are proposing? Not enough to completely change the finances, but would probably close the gap fairly significantly.

“Any system which has hard cut off limits and no tapers is going to have these odd effects,”

yeah, we played around with pensions for a bit to stay below the CB limit but couldn’t after a bit.

A lot of higher earners are not able to just "cut their hours" though, even if they want to.

I don’t begrudge anyone making a situation work for them but I don’t think it’s completely in the spirit these policies are intended. It was quite clear in the budget speech today that the childcare policies are intended to remove barriers to work. If you’re already a high earner and were already intending to return to work then it’s not aimed at you.

Again, I’m not judging anyone who arranges their work life to take advantage of it legitimately but the reality is it is taking advantage.