The high-earning parents who can’t afford their children ...Middle East

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There are two questions about our welfare system that are going to become more pertinent as Labour’s forthcoming reforms unfold: what is the difference between a benefit and an entitlement? And how should politicians decide who should receive state support?

When it comes to childcare, parents crossing a £100,000 income threshold by just £1 can end up tens of thousands of pounds worse off because they lose their entitlement to free childcare hours at nursery.

This cliff edge means it is no longer only the poorest and most vulnerable people in society who are looking to the state for support, but people who earn good wages – and it has become a political problem. 

At the Conservative Party conference this week, Leader of the Opposition, Kemi Badenoch, scrapped this contentious childcare cliff edge in the tax system and made benefits her big-ticket topic.  She hit back at Andy Burnham’s decision to end the state pension triple lock, promised to clamp down on people “cheating” the benefits system and vowed to end the £100k childcare “trap”. 

Coming up in this week’s newsletter: 

In theory, the welfare state is, like the NHS, meant to be there for all of us – no matter what – when our hour of need comes. It is that philosophical basis of contribution that underwrites the consent we give to politicians to take our money via taxes. And more than that, the knowledge that if you pay into the taxation system you will get services out, incentivises people to work and contribute to society.

Last year, the Government expanded free childcare so that working families with children aged under three were able to claim 30 hours of government-funded childcare a week on top of the tax-free childcare scheme. 

Britain has some of the most expensive childcare in Europe, with costs swallowing up more of parents’ wages than they do in Germany or France.

The average cost of full-time nursery (50 hours per week) for a child under two in England or a child aged three-four years old has gone up despite the expansion of government support, according to the 2025 Childcare Survey by the children’s charity Coram.

But if one parent’s adjusted net income tips over more than £100,000 a year, even by £1, the entire entitlement to this support is lost. Earning £100,000 presents a steep cliff edge because it is at this income that you also lose your personal tax allowance of £12,570.

Families who are not eligible for free hours pay the full price: an average of £188.75 a week for 25 hours part-time in a nursery, or £155.28 with a childminder. That figure has risen 4.6 per cent in a year, and it is now the highest it has ever been in the 25 years the survey has run and equates to nearly £10,000 a year.

Without any funded entitlement, the same full-time 50-hour place costs £372.06 a week or nearly £20,000 a year.

The Institute for Fiscal Studies (IFS) has described this system as “absolutely insane”. The think-tank estimates that a parent with two children would need to earn £137,000 a year outside of London or £149,000 in the capital to be as well off in cash terms after childcare costs as they would have been if they earned £99,000 and had kept the entitlement to free hours. 

Badenoch claims, because of this cliff edge, if you are a parent earning between £100,000 and £150,000 (or thereabouts), work simply doesn’t pay as much as it should.

Her critics have argued that people earning £100,000 or more are wealthy and do not need state support. It’s certainly true that some very wealthy people could benefit from removing the threshold entirely. However, a taper system could be much, much fairer.

Earning £100,000 puts you in the top 4- 5 per cent of UK earners but, unless you have inherited family wealth, particularly in London and the South East, it doesn’t necessarily make you wealthy. 

A household income of £100,000 or more is now necessary if you want to buy even an average-priced family-sized home, for instance. 

According to Rightmove, the average house price in London is £652,242. With a £150,000 deposit, you’d still need a hefty household income to be able to borrow enough to buy a home at this value, let alone pay for a mortgage and childcare. 

Someone with a Plan 2 student loan who earns this much could also face repayments on their tuition fee debt of more than £500 a month. 

Indeed, because real wages were stagnant for a long time in the 2010s but have recently begun to rise in response to inflation, HMRC data shows about 2.06 million workers now earn over £100,000, up from roughly 1.2 million in 2021–22. This means that more people are now being pulled over this tax and benefits cliff edge, losing their childcare support and personal tax allowance. 

Many of them will be the younger, early middle-aged workers that Labour needs to remain invested in both work and funding the welfare state in order to make the creation of a National Care Service and sustaining the state pension with a double lock possible. 

Meanwhile, our birth rate is falling. This is going to be a problem in years to come. So, why not give younger parents a break? Why not encourage them to ascend at work and accept pay rises with a few years of free childcare even once their earnings pass £100,000? 

The £100,000 threshold for childcare support was introduced in 2017 when the rollout of free childcare first began under the Tories and has never been increased. As “fiscal drag” carries more taxpayers over it, parents are finding that a small pay rise can leave them seriously worse off. Indeed, I have had The i Paper readers contact me to tell me they are avoiding pay rises, dropping down from 5 days a week to 4 and upping their pension contributions to avoid ending up in this situation. That is no good for them, for the economy or, in the case of the women I’ve spoken to, for gender equality in the workplace.

Labour are the eponymous party of work, and this is one policy where Badenoch could back them into a corner by suggesting that they are not as serious about supporting young people who are earning well but still struggling to pay for having a family as they are about helping those in the most desperate situations. 

In order for our welfare state and the taxation system that funds it to survive, politicians have to speak to both groups and the system has to feel fair. 

Having a child under 4 years old who needs to be in nursery is, by definition, a temporary situation. It can only last for a few years after they are born. Providing parents, particularly women, with childcare support during this period helps to keep them in the workforce and has a direct economic benefit.

Andy Burnham faces a very difficult Budget in a few weeks. All roads which will lead him and his Chancellor John Healey to meeting the government’s fiscal rules are rocky and painful. But they must tread carefully. The number of Brits who believe the state now taxes and spends too much has risen to 42 per cent, one of the highest levels the pollsters at YouGov have ever recorded. Indeed, more polling from the National Centre for Social Research (NatCen) contains a warning for the government: younger people have broadly moved to the left, but are not keen on higher taxes.

The question of who should be entitled to benefits is going to define our politics in the coming months. Scrapping the triple lock to pay for better care for older people was bold, but Labour must not take younger higher-earning workers for granted.

Housing crisis watch

As I outlined in my first book Tenants, the way that the benefits system interacts with the reality of becoming homeless is often nothing short of dystopian. In the book, I tell the story of Limarra, who, after becoming homeless because she couldn’t afford to pay a rent hike on the flat she rented from a private landlord in Peckham, was told by her local council that the best thing she could do was “stop working” in her job as a manager at Nando’s so that she would qualify for more housing support.

This week, the Department for Work and Pensions (DWP) are acting to sort this out.

More than 325,000 people living in supported housing and temporary accommodation will no longer be forced to face a drop in income if they increase their working hours, under new rules coming into force this week.

Under the old system, people like Limarra, who were living in supported housing (this is housing for people who have been homeless and have complex needs) or temporary accommodation, usually received help from the state with their day-to-day living costs through Universal Credit. But support for their rent was paid separately through Housing Benefit.

The problem arose because the two systems had different rules about how much someone could earn before their benefits started to be reduced, and for people receiving Housing Benefit, the allowances were less generous than for people whose support was provided entirely through universal credit.

So if someone, like Limarra, was working or wanted to work more, there was a risk that their Housing Benefit would be reduced quickly, leaving them worse off despite earning more. In some cases, the fear of losing support with housing costs acted as a disincentive to take on work or, as in the case I reported, meant people who had become homeless were actively discouraged from working. This created a cliff edge that trapped people on benefits rather than supporting them to stay in work or return to it.

This is good news for the thousands of people who become homeless through no fault of their own and then find themselves in impossible situations.

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