Labour Chancellor John Healey faces calls to resolve the issue of the £100,000 tax-free childcare ‘cliff edge’ ahead of his Autumn Statement and Budget announcement on October 28. This policy gap currently means that families where one parent earns just over £100,000 lose access to tax-free childcare, whereas couples with two parents earning below this threshold can continue to benefit.
Research from the Centre for Tax Reform (CenTax) highlights that by the end of the current parliamentary term in 2030, the average income at which parents would be no worse off after losing free childcare could rise to £124,000. CenTax director Arun Advani commented: “Our analysis shows the childcare cliff edge is set to increase substantially by 2030, but viable solutions exist for the government to consider.”
The research also points to a significant increase in the number of non-working mothers when their partner’s income exceeds £100,000, implicating the loss of childcare entitlement as a contributing factor with potential long-term effects on women’s earnings.
To address these concerns, the thinktank suggests limiting free childcare to 15 hours for families with incomes above £100,000, which would incur a cost of approximately £210 million by 2030. Alternatively, a tapered reduction in entitlement-reducing support by 28p for every £1 earned over the threshold-could achieve a revenue-neutral solution while easing the abrupt loss of benefits for parents.