The average cost of a full-time nursery place for a child under two dropped from £305 a week to £149 between 2024 and 2026, according to a survey by Coram, because of the rollout of more free childcare from 2024. But for parents that are not eligible, the cost was £372 a week.
The authors of the report wrote: “The £100,000 childcare threshold is a notch in the tax system, a point at which earning slightly more can leave a family worse off overall. Its scale has increased in recent years.”
It is not the only tax trap that parents earning £100,000 have to be aware of. Between £100,000 and £125,140, taxpayers lose their £12,570 personal allowance, meaning they pay an effective tax rate of 60pc.
The report found that removing the £100,000 threshold would cost £520m in 2028, but the authors suggested the threshold could be increased to either £125,000 to £150,000, or the removal of the free childcare could be staggered.
Another alternative would be to remove the £100,000 threshold for the first 15 hours of childcare for children under 3. This would halve the impact of the cliff-edge for parents whose child was under 3, but would cost £210m by the end of the decade.
