A recent report from the Centre for Tax Reform (CenTax) has recommended that the income threshold for HMRC’s tax-free childcare scheme be increased from £100,000 to between £125,000 and £150,000. Alternatively, the report suggests implementing a phased withdrawal of the free childcare provision instead of an immediate cutoff.
Currently, families with young children, where both parents earn less than £100,000 annually, are eligible for up to 30 hours a week of free childcare. However, if one parent earns just above this threshold, they lose access to the support entirely, creating a ‘cliff edge’ effect.
The report highlights that restricting free childcare to 15 hours for families earning above £100,000, rather than removing it altogether, would incur an estimated cost of £210 million by 2030.
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Sarah Coles, from pension provider AJ Bell, expressed scepticism about any changes being prioritised in the upcoming autumn Budget. She stated, “It would be incredibly unexpected for the Chancellor, John Healey, to use his limited fiscal flexibility to ease pressure on very high earners.”
This discussion comes as Chancellor Healey recently underscored that fostering economic growth will be his main focus, alongside exercising fiscal responsibility. In his first major speech since his appointment in July, he emphasised the need to support growth across the UK while adhering to government fiscal rules.
“I want to be the chancellor that gets things done and I want to see growth driven from more places across the UK,” Healey said, signalling the priorities for his Budget scheduled for 28 October.