Tax reform group urges action on £100,000 childcare threshold
CenTax says the entitlement’s sharp cut-off may encourage some parents to reduce work or leave employment, and has proposed a tapered alternative.
The Centre for Tax Reform has urged Chancellor John Healey to reform the £100,000 childcare entitlement threshold, arguing that the current structure can leave families financially worse off when one parent crosses the limit.
Since the 2024 expansion, families with young children may qualify for 30 hours of taxpayer-funded childcare a week when both parents earn below £100,000 annually. Crossing the threshold can remove the entitlement altogether.
CenTax estimates that about 1,000 families were suppressing earnings below the threshold in 2022. It projects that figure could rise to almost 12,000 by 2030, although the estimates are based on modelling rather than observed outcomes.
The Warwick University-based thinktank also reported that non-employment among lower-paid partners, usually mothers, rose from 6 per cent below the threshold to 9 per cent above it. CenTax said the figures suggest the loss of childcare support may be associated with some parents leaving work, but do not conclusively establish causation.
The group has proposed retaining 15 hours of free childcare for families above the threshold, at an estimated cost of £210 million by 2030. Alternatively, entitlement could be tapered by 28p for each £1 earned above £100,000, which CenTax says would be revenue neutral.
Healey is due to deliver a budget on 28 October amid concerns about inflation, borrowing costs and pressure on the government’s fiscal headroom. CenTax says the average parent crossing the threshold may need to earn £124,000 by 2030 to avoid being financially worse off.
