Removing the £100,000 childcare cliff-edge: Impacts and cost of reform
By Arun Advani, Josh Flew, Jack Pepin-Hall and Andy Summers (2026)
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 £100,000. Families with a parent whose expected income is above £100,000 – after adjustments such as for pension contributions and charitable donations – face the prospect of losing access to some or all of their free childcare, potentially leaving them worse off overall. This childcare ‘cliff-edge’ is in addition to and, for those affected, more severe than the withdrawal of the Personal Allowance for Income Tax, which also starts at £100,000.
The size of the childcare cliff-edge has been getting bigger, as the value of the free childcare entitlement has increased following recent reforms and rising childcare costs over time. Starting in April 2024, the entitlement has also 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, provided they both expect their income for the tax year to be below £100,000. 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. The threshold has also stayed fixed at £100,000 in cash terms since 2017, so rising incomes pull more parents into its range each year. The combined effect is that the median affected parent would have had to reach income of roughly £105,000 to be no worse off after losing free childcare in the tax year 2021/22, but this will rise to £124,000 by the end of this parliament, in 2029/30.
The childcare cliff-edge has been widely criticised for discouraging work and creating incentives that hold back economic growth. However, quantifying these impacts and estimating the fiscal cost of reform requires analysis of HMRC administrative tax data covering the full population of parents affected by the cliff-edge, which has not previously been available. In this report, we provide the first detailed evidence on who is affected by the withdrawal of free childcare, how they respond, and how much it would cost to remove this cliff-edge by making the free childcare entitlement available to parents with incomes over £100,000, or other options short of this.
