Chancellor John Healey is being urged to address the £100,000 childcare “cliff edge” which critics argue leads some higher-paid employees to reduce their work hours to maintain entitlement.
Since the expansion of taxpayer-funded childcare in 2024, families with young children are entitled to 30 hours a week of care if both parents earn less than £100,000 annually. This entitlement is lost if one parent exceeds the threshold.
A report by the Centre for Tax Reform (CenTax) suggests that by 2030, a parent crossing this threshold would need to earn £124,000 to avoid being financially worse off after losing free childcare. CenTax director Arun Advani stated that the “childcare cliff edge stands to grow dramatically by the end of this parliament.”
CenTax researchers found that data from 2022 indicates approximately 1,000 families may have artificially suppressed their earnings to avoid the threshold, a figure that could increase to nearly 12,000 by the end of this parliament. The thinktank also suggested the policy may incentivise some mothers to leave work, noting a rise in non-working mothers when a partner's income exceeds £100,000.
CenTax criticised the use of expected earnings for the threshold, noting that some families appear to claim entitlement despite eventually earning over £100,000. The thinktank proposed solutions, including restricting free childcare to 15 hours for families above the threshold, which would cost £210m by 2030, or gradually tapering the entitlement at 28p for each £1 earned above the threshold, which would be revenue neutral.