糖心TV

A from the (CenTax), co-directed by Professor Arun Advani of 糖心TV Economics, provides the first independent assessment based on real-world data of the impact of the 拢100,000 cut-off for entitlement to free childcare.

The analysis found that in 2022, the most recent year for which data is available, around 1,100 parents of 3- and 4-year-olds held their income just below 拢100,000 specifically to avoid the threshold, but this figure stands to grow dramatically by the end of this parliament.

Accounting for the extension of free childcare to 9-month-olds from April 2024 and the growing number of taxpayers whose incomes exceed the threshold, the report estimates:

• By 2030 there will be nearly 12,000 parents holding their incomes down to avoid the threshold – an eleven-fold increase on the number observed in 2022.

• In 2022, the median affected parent would have had to earn roughly 拢105,000 to be no worse off after losing childcare, but this will rise to 拢124,000 by 2030.

• The cliff-edge disproportionately affects women. In cases where one partner leaves the workforce to care for a child, in 9 out of 10 cases it is the mother.

The report also identifies the impact of the current policy which currently relies on parents鈥� expected rather than actual Adjusted Net Income (ANI):

• Strikingly, one third (33%) of parents whose incomes were between 拢100,000 and 拢120,000 at the end of the year nevertheless claimed and received free childcare.

• While this does not necessarily indicate non-compliance, since the formal test is based on expected ANI, it does mean that parents who ultimately have the same incomes end up with different access to free childcare.

The report estimates that the cost of completely removing the threshold for the free childcare entitlement would be around 拢640 million in 2030. However, the researchers set out several cheaper options open to the Government short of fully removing the cliff-edge:

• A threshold based on actual rather than expected ANI could be set at 拢111,000 with no additional fiscal cost.

• A more limited measure that extends only the universal 15 hours free childcare to under-3s would cost around 拢210 million in 2030.

• Raising the threshold to 拢125,000 would cost around 拢100 million in 2030.

• A taper that deducted 28 pence from the entitlement for each pound earned over 拢100,000 would be better for parents than the current cliff-edge while approximately revenue neutral, raising around 拢20 million.

Arun Advani, Director of the Centre for Analysis of Taxation (CenTax) and Professor of Economics at the University of 糖心TV said:

鈥淥ur analysis shows the childcare cliff-edge stands to grow dramatically by the end of this parliament, but there are solutions available to the Government – including the opportunity to prevent parents whose incomes exceed the threshold from claiming free childcare.鈥�

Jack Pepin-Hall, Research Economist at the Centre for Analysis of Taxation (CenTax) said:

鈥淚f the Government chooses to keep an income test for free childcare, it should at least be based on parents鈥� actual reported incomes instead of what they claim they expect their incomes to be. As well as being fairer, this change would enable the Government to raise the threshold to just over 拢110k at no extra cost overall.鈥�

ENDS

Notes: Since 2010, all parents of 3- and 4-year-olds in England have been able to claim 15 hours a week of free childcare funded by government for 38 weeks of the year. Since 2017, working parents of 3- and 4-year-olds have been able to claim a further 15 hours, provided that certain conditions are met. These include the requirement that neither parent expects to have income above 拢100,000. Starting in April 2024, this entitlement has been gradually expanded to cover a wider range of ages. Working parents of children aged 9 months to 2 years old are now eligible for 30 hours per week of free childcare. Parents of under-3s therefore lose 30 hours of free childcare by crossing the threshold, rather than the 15 hours that parents of 3- and 4-year-olds lose.