An increasing number of parents are choosing to refuse pay rises in order to keep their earnings under £100,000, thereby maintaining eligibility for tax-free childcare benefits. Current estimates suggest that around 12,000 parents are already making this decision, with projections indicating a tenfold rise by the end of this decade.
Under HM Revenue and Customs (HMRC) regulations, parents can access between 15 and 30 hours of free childcare for 38 weeks annually. However, this support is withdrawn entirely if an individual’s income surpasses £100,000. In 2022, the most recent year for which data is available, approximately 1,100 parents deliberately limited their income to remain below this threshold.
Research conducted collaboratively by the Centre for the Analysis of Taxation, the University of Warwick, and the London School of Economics forecasts a significant increase, with nearly 12,000 parents anticipated to forgo additional earnings by 2030 to avoid losing this childcare support.
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Alice Jeffries of the Confederation of British Industry criticised the policy as creating a “perverse choice” for families, forcing them to decide between career progression and financial support. She highlighted that this cliff-edge effect disproportionately impacts mothers, noting that women whose partners earn over £100,000 are 50% more likely to exit the workforce after losing childcare assistance compared to those with lower-earning partners.
Jeffries further emphasised that as more working-age parents approach this income threshold, the issue is expected to intensify.
The authors of the report described the £100,000 threshold as a “notch in the tax system,” where earning slightly more can actually leave families worse off overall. They noted that this problem has grown in scale in recent years.
Sarah Coles from pension provider AJ Bell expressed scepticism regarding any imminent policy changes, stating that it would be “incredibly unexpected” for John Healey, the Labour Party’s Chancellor, to utilise any available flexibility in the upcoming autumn Budget to assist high earners facing these pressures.
Coles remarked, “It’s hard to see that easing the burden on very high earners will be a Government priority or feature in the Budget.”