Calls growing to raise the earnings threshold for funded childcare
Noise is increasing around the proposal to raise the higher earnings threshold for funded places in England which has been fixed at £100,000 per parent since 2017.
This would reduce the numbers of parent-paid hours and some proposals could also add to the existing burden of administration for nurseries and councils.
Following a number of recent press articles, the Centre for the Analysis of Taxation (CenTax), has released a report on the funded childcare ‘cliff edge’ suggesting some solutions to reduce its impact. This ‘cliff edge’ refers to the complete removal of entitlement to government funded childcare places once one parent reaches expected earnings of £100,000 for the year.
The childcare cliff-edge has been widely criticised for reducing incentives to earn more or work longer hours for parents close to the limit. This is because an increase in earnings taking a parent over the threshold can in some cases mean a decrease or no change to earnings once the cost of childcare is accounted for.
Due to the increase in childcare costs and the fact that the threshold has not increased since its introduction, the size of the cliff edge and number of families impacted has kept increasing each year and is expected to continue to do so. The median affected parent would have had to reach income of roughly £105,000 to be no worse off after losing funded childcare in 2021/22, but this will rise to £124,000 by the end of this parliament in 2029/30. The number of parents keeping their income below the threshold due to the childcare cliff edge will rise eleven-fold, from 1,090 in 2022 to 11,980 by 2030.
The report suggests three solutions short of removing the £100,000 cliff edge entirely:
- Removing the threshold only for the first 15 hours of childcare for under 3s to match the current universal offer for 3 and 4-year-olds
- Increasing the threshold at which entitlement to funded childcare is withdrawn to either £125,000 or £150,000
- ‘Tapering’ the withdrawal of free childcare instead of removing it entirely, for parents above the threshold, at either 8, 18 or 28 pence in funding per extra pound earned over £100,000.
Tim McLachlan, Chief Executive of National Day Nurseries Association (NDNA) said: “It is understandable that parents would want more support with the cost of childcare, however evidence consistently shows that children from disadvantaged backgrounds have the most to gain from accessing high-quality early education and childcare. This attainment gap has been growing and it stays with children throughout their educational journey so we have to get it right in the early years.
“Bringing more parents into funded childcare without fixing the current underfunding challenges will only put more pressures on early years providers and their workforce. Any change to entitlements, whether at the lower or upper end of the thresholds would need to be properly costed and cannot happen until the current policy is fixed.
“The idea of a taper that brings down the funding rate would bring a lot of extra administration costs for providers and introduce an unworkable amount of complexity for families, nurseries and local and national government.
“The Government is currently spending around £1 billion a year more on early education and childcare places than it expected, due to the popularity of the policy. At the same time, the funding from the government does not reflect the true cost of delivering places for 87% of providers. If the thresholds are to be reviewed, the government may want to consider lowering them so that they can prioritise support for those with the most to gain while ensuring the future sustainability of the whole sector.”
You can read the full report here
Removing the childcare cliff-edge: Impacts and cost of reform
- England
- England
- funding
- NDNA
- Report
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