Pressure grows to scrap £100k childcare cliff edge as number of families hit set to rise to 179,000 by 2030

The Government is under growing pressure to scrap the £100,000 childcare cliff edge, which is expected to hit more than 179,000 families by the end of the decade. 

Families with one parent earning over £100,000 lose their entitlement to 30 hours of free childcare and tax-free childcare, worth up to £2,000 per year, having already lost their claim to child benefit. 

That has prompted calls for urgent reform to the threshold, which critics argue distorts behaviour and threatens both earnings growth and long-term investment.

Financial experts argue that it is counter-productive for a policy designed to help parents work, encouraging them instead to cut hours to stay below the threshold.

Conservative Party leader Kemi Badenoch has pledged to ditch the earnings cliff edge, claiming it penalises high-earning parents.

'What we want to see is that people who work harder don't get punished for doing so,' she said.

Badenoch's proposal would benefit around 160,000 families with children under five in England, according to estimates by IG. 

By the end of the decade, it is estimated to rise to 179,000, even as the number of families with young children falls.

Frozen income tax thresholds have compounded the issue as more parents' incomes rise above the £100,000 cliff edge. 

If the childcare threshold had increased in line with inflation since its introduction, it would have increased to around £137,000.

Additionally, a parent earning £100,000 or more faces a 60 per cent marginal tax rate as the tax-free personal allowance starts to taper before it is wiped out entirely by £125,140.

A parent earning over £100,000 has also lost their claim to child benefit, and risks paying the High Income Child Benefit (HICBC) charge. The Government claws back child benefit from households where the highest earner has an adjusted net income above £60,000.

Once income reaches £80,000, households must repay all child benefit, meaning many families choose to opt out – though staying in the system can close gaps in a parent's state pension record if they have taken time out of work to raise children.

IG estimates show the number of families who have paid the charge despite earning £100,000 has reached 17,800, while those who have opted out of payments hit 62,500

Michael Healy, CEO of investment platform IG Consumer, said: 'The £100,000 childcare threshold has become a textbook example of how a well-intentioned policy can create a perverse incentive to earn less, rather than more.

'Scrapping the cliff edge would be a welcome step towards a system that better rewards work, progression and aspiration. 

'But the bigger question is whether we are prepared to look at the wider tax and benefit system through the same lens. Britain needs to make it easier, not harder, for people to build wealth, invest for the future and get on financially.

'At a time when the number of families caught by this threshold is rising even as the number of families with young children falls, leaving the £100,000 limit untouched is increasingly difficult to justify.'

Separate calculations by AJ Bell show that a family with two young children can lose around £28,000 in childcare funding if they breach the £100,000 threshold, rising to over £30,000 to include the impact of lost child benefit.