Childcare rules: Why hitting six figures leaves high-flyers in a Parent Trap
AMBITIOUS City workers approaching the six-figure salary mark may need to reconsider their request for a pay rise if they’re planning to have children in the near future – with those earning more than £100,000 ineligible for four-years worth of free childcare.
Jeremy Hunt announced in yesterday’s budget that he would extend free access to thirty hours of childcare for three- and four-year-olds to children aged one and two years old.
But the £100,000 cliff-edge means anybody who earns even £1 over the limit stands to lose access to the benefit. Deliberately conservative City PM estimates suggest parents above the threshold will have to cough up an additional £25,000 over the first four years of their child’s life, though in London the reality may be much higher.
Analysts said that while the policy is designed to encourage young parents to return to work, at higher income brackets it could have the opposite effect on higher earners – with earners above £100,000 also entering a marginal tax rate of 62 per cent for around £20,000 worth of earnings above the threshold as the personal allowance is withdrawn.
The Institute for Fiscal Studies said the childcare rules would “exacerbate one of the largest distortions you are likely to see in a tax and benefit system.”
“Even for relatively well-off parents, this could deliver a crippling blow to the household finances,” Tom Clougherty, research director at the Centre for Policy Studies, told City PM yesterday.
“The work incentives here are rotten. It is also unfair to completely withdraw benefits (rather than taper them) and to base withdrawal on an individual’s income, rather than the household total,” they continued.