Childcare can be terrifyingly expensive prospect for parents and would-be parents. And a complex one too, with UK parents of under-fives facing a hodgepodge of overlapping schemes, rules, and exclusions.
Navigate this support system correctly, and even highly-paid mums and dads can save tens of thousands of pounds a year.
But play it badly – as many parents do – and you could end up working some of the lowest-paid hours of your life.
In fact even if you’re a parent who’s happy with your current arrangements, I’d urge you to run the numbers to make sure you’re getting the most for your money.
Let’s survey the territory.
Why parents need government support
First off, you might be wondering why any taxpayers’ money is going towards childcare in the first place?
Well I’d argue there are plenty of reasons for the state to provide some support. Not just for the sake of the parents, but to help society as a whole get the most from all its citizens.
At the sharp end, nurseries can easily cost £100 a day in London and the South East. Prices do vary around the country, but the minimum wage and legally defined staffing ratios means there’s little wiggle room to undercut competitors.
A 20-something earning the average salary of £34,724 takes home about £110 per day after tax. That’s only £10 more than that daily nursery fee.
Ouch!
And once you factor in commuting costs and time off when the child inevitably gets sick (and if you thought the nursery would waive the fee after sending them home, think again), a parent is in the red.
Now call me a hopeless romantic, but I’d like to think our economy is better served by encouraging young professionals to stay in work. This way parents continue developing skills, contribute to productive economic growth, and eventually become higher-rate taxpayers – rather than dropping out for several years just to look after children.
There’s also a straightforward numbers argument.
If a child is aged three or over, nurseries can operate at a ratio of one adult to eight children. That means eight parents can potentially remain in work, earning and paying tax. Not to mention the nursery worker who has a job and an income, and so makes a tax contribution of their own.
Compared to all those parents quitting work to provide childcare themselves, that’s nine taxpayers instead of zero!
And yet plenty of people – perhaps some to come in the comments to this article – argue that funding pre-school childcare is a costly extravagance.
There’s a demographic problem, too
As we’ve seen, given typical nursery costs and salaries it simply doesn’t pay for the average person to work and also send their child to nursery without government support.
And if a parent does give up work to look after a nursery-age child, then good luck them saving a deposit for a suitable family home near a decent school.
Without any government intervention, only a handful of groups could realistically afford to have children:
- The very wealthy
- Those fortunate enough to have healthy parents or in-laws
who can all bear to live with each other - People relying on benefits
Isn’t it curious that many of the same people who argue the state shouldn’t fund childcare are also unhappy about funding non-working families on benefits?
What’s more, if average young professionals are effectively shut out from having children then we face a looming income-tax gap. A missing cohort will never grow up to earn and pay taxes (and to fund pensions…)
I suppose we could fill the gap with mass immigration? That shouldn’t cause any controversy.
Know your limits
Do I think everyone should have unlimited access to free childcare?
No. But I do believe it’s worth recognising there are good reasons for providing some state support.
Unfortunately, given the political awkwardness of spending money at a time when we’re supposedly slashing everything except tax rates, perhaps it’s no surprise that the system we’ve ended up with is convoluted and unwieldy.
So what support can a working parent get?
First: Child Benefit
You receive £26.05 per week for the first child and £17.25 for subsequent children – £1,355 and £897 per year respectively.
However, this is clawed back for people with an adjusted net income over £60,000, at a rate of 1% for every £200 of income (since 2024). By £80,000, the entire amount has to be repaid.
On the plus side, if you do earn over the £60,000 threshold then you can treat it as an interest-free loan and repay it via self-assessment. (Possibly the most time-consuming form of stoozing yet devised!)
You receive this benefit whether or not you use nursery care, so I won’t dwell on it — but it’s worth being aware of.
Second: Tax-free childcare
As you’ll see, we do love giving these things stupid names.
Tax-Free Childcare lets you pay money into a ring-fenced account, with the government topping it up by up to £500 per quarter. Pay in £8,000 a year, and it becomes £10,000.
So it’s ‘tax-free’ in the sense that many people pay 20% income tax (we’ll ignore National Insurance and Scotland here) and the top-up is also 20%.
But if you ask me, that’s not exactly intuitive.
Also, that pesky adjusted net income business makes another appearance, too. If either parent earns over £100,000 then the family isn’t eligible.
And now for the big hitter…
Third: Free childcare for working parents
Bear with me, because in my opinion this is an absolute mess. I’ll even skip some darker corners and edge cases for the sake of brevity (and your sanity).
So… if your child is aged between nine months and four years – and if you meet a long list of conditions – then you’re entitled to 30 hours of free childcare per child, per week.
Sounds simple?
Gotcha!
Of course it isn’t.
Those 30 hours only apply during the 39 weeks of term time. If your family doesn’t conveniently cease to exist during school holidays, then many providers will ‘smooth’ these hours into 22.8 hours across 50 weeks.
Which leaves the remaining hours charged at full price.
Also, you might think nurseries would allow parents to take a couple of weeks’ holiday each year. But actually they’ve typically decided it’s much easier to just charge everyone all year round.
Still at least you get 22.8 hours free each week… right?
Well… not quite.
Providers are allowed to charge extra for food, nappies, and similar essentials. Which means in practice you’ll find yourself paying a seemingly arbitrary additional amount for those ‘free’ hours.
In my case, it works out at about £1 an hour. But it seems to vary according to the luck of the draw.
Starting to see why I question whether this really counts as ’30 hours per week of free childcare’?
Oh, and of course if one of your adjusted net incomes is over £100,000 then you’re not eligible anyway.
Funding childcare: in practice
Let’s consider Hannah, who has two children under five years old.
Hannah has found the cheapest (acceptable) local nursery charges £100 per day. That’s on the basis of a 10-hour day, 8am-6pm.
This enables Hannah to work her 9-5 job and make it back for pickup.
On paper then, Hannah is set to pay £1,000 per week to send her two kids to the nursery at full whack.
That’s £52,000 per year – well above the average gross salary of people in their 40s, let alone 20s.
(Perhaps better to delay getting frisky until the arthritis is setting in?)
Thankfully, state support can make a big dent in Hannah’s looming cash crunch.
Supposing Hannah and her husband Ben each earn £40,000 per year. That’s an above-average income, but it’s not so high that they can’t take full advantage of the three support mechanisms I outlined above: child benefit, tax-free childcare, and free childcare for working parents.
I’ll ignore child benefit, since this is accessible whether they use nurseries or not and doesn’t change the maths. We’ll just look at the 22-odd hours a week of pseudo-free childcare and that ‘tax-free childcare’ account.
After the free childcare they’re paying per child:
- £10 for nappies and food on Monday
- £10 for nappies and food on Tuesday
- £80 for 2.8 free hours and 7.2 chargeable hours on Wednesday
- £100 for a chargeable day on Thursday
- £100 for a chargeable day on Friday
That’s £300 per week, or £15,000 for 50 weeks. Plus £1,000 for the unfunded two weeks. So £16,000 per year all-in.
They can also claim £2,000 per child in top-ups via Tax-Free Childcare.
That cuts the total bill to £14,000 per child – or £28,000 for the pair.
How much is Hannah actually earning?
Maths-savvy Monevator readers will notice that £28,000 is substantially less than the £52,000 bill Hannah and Ben faced without government support.
It might therefore seem churlish to protest further.
However this is still a lot of money going out – and a lot of running about from work to nursery to home and to bed.
So how does it compare to the alternative of one parent quitting work for a bit?
Let’s assume – with due deference to the potential for stereotyping – that of this particular couple, Hannah is the one who is more inclined to look after their children in place of work.
Of her £40,000 in annual pay, Hannah takes home a net £32,320.
Going down the childcare route, the £28,000 nursery bill we just calculated leaves her with £4,320 leftover from her £32,320.
Which means that across 260 working days, Hannah is effectively clearing just £17 each day.
Let’s hope she doesn’t have to spend that on a train ticket to get to her office.
Sick notes
Hannah’s effective earnings will only shrink further if she has to spend a week unpaid at home when one of the kids has a temperature.
Which will happen sooner or later. If you’ve ever experienced the joys of kids attending nurseries, you’ll know they will get coughs, colds, and temperatures. Constantly!
(Mind you those are a breeze compared to the norovirus.)
In any event, the nursery, of course, continues to charge whether the kid is there or not.
True, with no government support at all, even just one child in nursery will cost more than the average salary brings in. A parent would be more or less compelled to quit their job.
But in Hannah and Ben’s case – with two children and government support – there’s a choice to be had.
The benefits of working are still pretty marginal for Hannah though. At least in pure cash terms.
The fun of marginal tax
Here’s another scenario to ponder.
Let’s assume that Hannah’s employer is happy for her to work part-time.
On a pro-rate basis with respect to her £40,000 annual income, Hannah effectively earns £8,000 for each day of the week that she works. (That’s £40,000 / five days of course.)
But since the first £12,570 of that isn’t taxed at all thanks to the personal allowance – and National Insurance is in the mix too – reducing your income can have a big impact on your actual take home pay.
If Hannah drops her income by 20% – going from £40,000 to £32,000 per year – then her take home pay reduces from £32,320 to £26,560.
That’s a smaller fall of 17.8%. Not quite as bad as you might have expected?
If Hannah now sends the children to nursery only four days each week, the cost falls to £10,800 per child per year. With the benefit of ‘tax-free childcare’, that drops to £8,800 – or £17,600 for both of them.
We calculated earlier that, working five days per week, Hannah had an annual income surplus after nursery costs of £4,320.
Now – having reduced her net earnings to £26,560, and by looking after the kids for one day a week and subtracting £17,600 in nursery costs – Hannah is effectively bringing home £8,960 from staying in work.
That’s right! By dropping from five days a week in the office to four, Hannah ends up getting almost £5,000 extra cash into her purse over a year.
What’s more, cutting her days back to three leaves Hannah even further up on the deal:
| Scenario | Gross Income | Net Income | Nursery annual cost | After Tax Free Child-care | Net benefit of working |
| Full-time work | £40,000 | £32,320 | £32,000 | £28,000 | £4,320 |
| Four days work a week, one day childcare | £32,000 | £26,560 | £21,600 | £17,600 | £8,960 |
| Three days work a week, two days childcare | £24,000 | £20,800 | £11,200 | £8,960 | £11,840 |
This is partly because the 30 hours support stops above 22.8 hours per week, which equates to two-and-a-bit days. Hence working for those fourth and fifth days are disproportionately expensive.
Factor in the effective cap of ‘Tax-Free Childcare’ – which doesn’t help you further once costs go above £10,000 per year – and the fact that marginal tax rates mean your fourth and fifth days each week are effectively your least lucrative, and for Hannah more work really does not pay.
Paid more than £100,000?
The situation is even more diabolical.
With an adjusted income exceeding £100,000, Tax-Free Childcare isn’t available.
You mostly aren’t eligible for any free childcare either (though you may get ’15 hours per week’ for children over three).
In the worst-case scenario, with children under-three, that means you’re losing out on 22.8 hours worth £10 each across 50 weeks – that is, £11,400 plus the £2,000 of tax free childcare.
Which works out as £13,400 per child.
Also bear in mind that someone earning £100,000–£125,140 is paying a marginal tax rate of 60%.
What if you were earning £99,000 (£67,981 net), and your employer announced that you were receiving a £25,000 bonus. How much of that would you expect to keep?
Well that bonus is going to get taxed heavily due to that notorious 60% marginal tax rate. Hence you will take home £77,681 net.
But hey, that’s still £9,700 more than you had before, right?
Ahem… not so fast. Remember you have also lost £13,400 per child in government support.
Ah…
In the worst case, with two children under three, you actually end up £17,100 worse off than if you had never got that £25,000 bonus in the first place!
Of course you could decide to shovel your bonus into a pension, keep your adjusted net income under £100,000, and prepare for a life of champagne cruises once the kids have left home.
Also I’m not sure that I think people earning six-figure incomes should get more support with childcare, given all the other pressures on the state coffers, even after acknowledging this horrible maths.
But it is a good demonstration of how poorly thought through these various schemes are.
It’s entirely possible that it might be more profitable for talented high-earners in the prime of their careers to actually work less. Which is not exactly a recipe for improving Britain’s productivity crisis.
P.S. Your mileage may vary
Of course real-life is never quite as simple as raw numbers chosen to make a point in an article.
For example, your employer might not even entertain the thought of enabling you to cut a day or two at the office, just to help with your ulterior motive of saving money on little Boris’ nursery fees.
Also consider that by quitting work for a bit – or even just by reducing your hours – you could miss:
- Promotion opportunities given only to full-time employees
- Career prospect-boosting special assignments
- Higher bonuses
- Matched pension contributions
- The cream of the office gossip
I can’t quantify what those are worth for you. But I can tell you my wife and I have faced this childcare challenge ourselves.
Neither of us wanted to give up our careers or to be full-time stay-at-home parents.
But I admit there was a moment when we sat down and looked at the numbers – and it seemed to be madness for one of us to schlep to work every morning just to earn the train fare and a sandwich.
Especially when a motivation for having kids was all the fun you can have by spending time with them.
If you’re a parent with young children, run your own numbers. You might be surprised how little you’re really exchanging your time for!
OK. But let’s be clear, it’s not “state support” for childcare, you are asking me to pay for your children as well as my own. At least be honest about it while you take my money.
@Baron — We live in a system of taxing and spending. You could apply your reductionism to anything. (I write as someone without children…)
@all — Better we keep comments on-topic rather than shaking our fist à la @Baron please.
Blimey. How complicated.
You can see why successive governments thought it simpler and cheaper just to import people rather than help endogenously grow the next generation.
Barons statement is typical of the transactions based relationship mindset that has taken hold greatly in the West. It’s so ingrained culturally that people aren’t even aware of it now.
Fortunately, the old adage still applies: it takes a village to raise a child.
@Vic — Baron’s statement is typical of the kind of comment he leaves on many new articles now. Ho hum.
Again I know our audience skews older and thus this article probably isn’t insanely directly relevant for a majority of readers, but we do have a chunk in their 30s and a few in their 20s, so again (re: your comments on immigration) please let’s leave this thread for those who want to discuss the mechanics of navigating the system.
Don’t want to delete but might have to in order to stop it become a rant thread. Cheers!
Re:ranting. You directly stated in public: ‘Also I’m not sure that I think people earning six-figure incomes should get more support with childcare, given all the other pressures on the state coffers, even after acknowledging this horrible maths.’ which is very upsetting for the high-earning parents.
You basically just told me I don’t deserve any state help with kids. Sure, you can delete, but that the message you posted.
This is a really excellent article. I’m thankfully past having to worry about full-time childcare myself now, but others will surely benefit from truly understanding what this means financially. I’ve always thought it dreadfully sad that so many parents end up putting their new babies and toddlers into childcare for 10 hours a day, 5 days a week. It seems to be driven principally by economics – the cost of housing being the main factor forcing both parents to work full-time. Yet this article proves that isn’t always the full story if you understand the numbers. Without able and willing older family members around to help out, the sweet spot is probably both parents finding jobs which are either part-time, will allow the working week to be compressed into 4 (different) days, or involve some other combination of evening or weekend work. That way you can maximise joint post tax income and limit the number of days you have to pay for a nursery. Working from home and self employment could also help, but realistically nobody is going to get much work done with young children around!
“First off, you might be wondering why any taxpayers’ money is going towards childcare in the first place? Well I’d argue there are plenty of reasons for the state to provide some support.”
I don’t find the reasons offered compelling. Having children is a worthwhile project, I’m sure, but it isn’t a universal one. I’ve made different choices. Personally, I find dogs better value. I don’t receive state support for dog sitters.
If the principle is that the exchequer should subsidise people’s chosen life projects, a cleaner way would be to issue everyone with a single, equal “subsidy token”. Spend it on children if you wish, I’ll allocate mine elsewhere.
What I don’t buy is this argument that we need to pay people to reproduce. There are roughly eight billion humans and no obvious shortage, we’re not, last I checked, an endangered species. Badgers, foxes and water voles manage to reproduce annually without fiscal incentives, which suggests the underlying mechanics aren’t especially fragile.
If this is redistribution, that’s a political choice — fine. But let’s try to not insult my intelligence by attempting to package it as an urgent exercise in societal preservation.
Re Free childcare for working parents and getting 30 hours over 39 weeks. A few years ago my son’s private nursery increased fees whilst he was there and the nursery couldn’t really fully explain how the GBP amount is calculated.
I had to take my question to the Local Authority.
It turns out that you’re not actually getting the 30 hours over 39 weeks x the actual cost of the childcare.
You’re getting 30 hours over 39 weeks x some arbitrary GBP amount which differs depending on the Local Authority.
It turns out Central Government allocate a GBP amount per hour per Local Authority and then Local Authorities then take a cut of this amount and then send the residual to the nurseries.
Checking back at my notes, this was £5.38 an hour passed to the nursery, not coming even close to the hourly cost of childcare.
It’s highly dependent on sector and employer, but if part time is possible for a few years it’s a great option. My wife and I both worked a 4-day week, with 3 days of nursery care. We were very fortunate to have flexible employers, decent salaries and fairly low fixed expenses, plus enough savings buffer to be confident doing it (I credit early 2010s Monevator, SLIS and MMM for getting us to that financial state).
Having tried various schedules all at around 80% of full time, having 4 full days of work and 1 day off was definitely the best in terms of maintaining momentum and productivity at work as well as keeping the non-work time work-free.
@AngelTax — Well that was the author not me but appreciate you may be new around these parts. 🙂
Look, I accept there’s a political angle here, and indeed another subsequent commenter has continued to raise it despite my request. Ho hum!
So I want to be clear I’m not saying there’s not a valid debate to be had. There is!
I’m saying that it’s not so constructive to discuss it on this particular thread, which will likely live on for months/years in people’s search results when they look for help understanding and navigating the support system.
Thanks on that score to @David @Ghenghis and @FL for adding further thoughts/detail. 🙂
I just want to add my thanks for this article. I’ve got two children and we’re in the last year of nursery thank goodness, but elements around child benefit, tax free childcare and bonuses are still applicable and useful to see.
On top of that, I have several younger colleagues who are about to embark upon this journey who I’ve shared this article with, a few of whom I’m confident this will be their first window into this particular topic in specific, and Monevator more widely.
Impressed that this article has been published, given TI’s childless status.
On:
‘What’s more, if average young professionals are effectively shut out from having children then we face a looming income-tax gap. A missing cohort will never grow up to earn and pay taxes (and to fund pensions…)
I suppose we could fill the gap with mass immigration? That shouldn’t cause any controversy.’
I’ve been making this point for years with little traction, but here it is in black and white! For all the politics, there is definitely an eclectic spectrum of perspectives in MV articles, and an extremely resilient support of their ongoing discussion. This is rare and very commendable.
One small comment on another bullet that could be added to the cons of part-time work, but which is possibly the most insidious – Whatever part-time hours you do, the expectation will be that you achieve full-time hours output. Speaking from my own 4 day week experience. Still wouldn’t/couldn’t go back though!
@AngelNoTax Apologies if that was your take on it – the point was not that one group deserves and another doesn’t – more that I can understand the political awkwardness of millionaires getting free childcare. I don’t necessarily fall out with having limits somewhere along the way, but I do think that the way the current system hits you like a steam train at £100k is flawed – and wanted to highlight that.
@hosimpson On a global level, I agree. The UK (and other countries) have got to a position, though, where we expect to fund future state pension, NHS etc off the back of future generations’ income. Japan and South Korea are in a particularly precarious position and have started throwing increasing resources at encouraging people to have children – and as far as I’m aware have seen limited success so far. Nonetheless, the point of the article was really to navigate the complexities of the current funding system rather than a broader economic debate (though I felt it did need some addressing, since the topic can attract a fair amount of ire).
@genghis Yes, when the policy was announced it was never really fully costed. So the paying parents at each nursery to some extent subsidise those that use government funding. Some nurseries, as a result, don’t accept the government funding at all.
@Ed Thank you. That was really the aim here, I know it’s a tremendously complicated system and I know plenty of people who have got it wrong and screwed themselves over, so if it helps a few parents make better decisions then my time was well spent.
@Rhino Yes, I’m here to offer some slightly different perspectives, including where my life and experiences have varied from TI. Albeit all with a central theme of finances! I completely agree on the boundaries point, it has been a major challenge for us. I hope also, though, that it will be a good window into how feasible it might be to embrace reduced working hours as part of a journey towards early retirement rather than simply working full time (and unpaid overtime!) right through until the day of retirement.
Investor #4
I’ll ignore the snide ageism in your comment. I have a 5 year old child, therefore my interest in both childcare costs (having lived it) , immigration and the future of the country in general is certainly greater than yours.
My point was one level of abstraction down from missing income tax take. Even if you (miraculously) have the tax pounds in the coffers, you can’t spend them delivering nursing in the NHS or council staff collecting the bins, etc, etc. if those warm bodies don’t exist, or live thousands of miles away in the case of immigrants..
Kudos to the parents out there! We salute you!
Many thanks from this grandparent for shining a light on ways to fund childcare.
There are many benefits to society by having the pre-school cohort properly prepared for school; around 1.6m children are in nursery places. The net cost to parents of these 1.6m pre school places is around £14 billion per year, or less than 1% of the current Budget. Some might argue that funding this as a public good might have a higher priority than some other items of expenditure.
As somebody going through this at the moment, the announcement from Rachel Reeves to extend the tax thresholds until 2031 was meet with a lot of disappointment. I guess I am fortunate to be earning around the 100k mark (aka tax cliff edge), but due to the childcare situation, I can’t spend any of the money I earn over 100k for the next three four years, until my soon to be born second child finishes nursery. It’s actually resulted in me turning down extra work and not pursuing a promotion.
@Vic — That escalated quickly. From memory only about 10% of children are born to parents over 40 (less than 5% to women under 40) so my comment was not ageism it was statistics.
@MW there seems to be progressively more government legislation that is incentivising people to work less rather than more.
The analysis here in the OP that part time work is financially beneficial and your own observation around the 100k threshold.
I don’t believe the govt is actively trying to encourage parents to spend more time with their children, but it *could* be the case that this turns out to be a beneficial unintended consequence. It’s plausible that outcomes for children who spend more time with their parents (but who aren’t subsisting around the poverty line), will be better in comparison to those who spend 100% of the working week in child care?
I’m glad that we personally have moved beyond having to think about this but a commendable article highlighting the complexity of the system. For us as basic rate taxpayers it seemed to make more sense for one of us to stay at home until the youngest reached school age.
As we had just moved back to the UK on the back of me getting a job that meant I had to be the one to go out to work. But my wife did do p/t evening and weekend work in retail/supermarkets which seemed to be the most economic way of arranging things, and don’t forget you get a 10% discount working for the major supermarkets plus a contributory pension, which I never had before auto-enrolment…
Backalong I used to get really miffed when my rota would get changed to accommodate the child-care needs of parents. The magic phrase was a trump card and the childless workers found themselves shuffled around.
But, isn’t it funny how my views changed. The responsibility really lay with the firm. Not the parent nor other employees to make accommodations. A few refusals to move, and requests for overtime codes seemed to smooth things out.
Again, over time, I changed my thinking about whether the public purse should assist. Frankly I’m now in favour because I got a university education on the state and subsidised childcare probably has the same economic benefit that I, and the state, got.
There’s a fourth option which is workplace nursery schemes where you have tax free childcare theoretically up to your salary (it was not capped in the recent salary sacrifice changes).
HMRC (probably rightly) thinks the scheme is being abused so asking an employer to set this up now is likely difficult but I know people on legacy schemes that have gone unchallenged so far.
Thanks for this article, which nicely highlights the complexity of the current system and the incentives it creates.
My wife and I have done exactly what’s envisaged in the article – both ended up going part-time to avoid the £100k cliff edge (when combined with judicious use of pension salary sacrifice), accepting that this may limit our future career trajectories. It has felt like the right move for us both financially and in terms of well-being, and I can’t see either of us going back to full time. The loss of potential tax revenue for HMRC across the population as a whole from people making similar choices must be pretty material.
What was the Charlie Munger quote again – “Show me the incentives and I will show you the outcome”?
Yes, I understand the PAYG / dependency-ratio argument, but there’s a disconnect with the current backdrop of automation and robotics. Am I really meant to believe that both severe labour shortages and mass unemployment are imminent — the former because people won’t reproduce unless subsidised, and the latter because AI-powered machines are about to make human workers redundant? Both cannot be true. If AI really is on the verge of replacing work, it’s arguably more accurate to say we’re at risk of running out of benefit claimants rather than taxpayers.
Japan and South Korea are often trotted out here, but they actually reinforce my argument rather than yours. Both have spent a lot of money trying to increase fertility, with very limited success. All they really show is that throwing money at incentives to manufacture future taxpayers is largely pointless. Pronatalist policies in rich countries have low elasticity … which is hardly shocking.
Which leaves redistribution. That’s a legitimate political choice, but it would be more honest to describe it as such than to present childcare subsidies a solution to a civilisational emergency.
As for the classic nurses-and-binmen argument: I don’t know many parents whose ultimate aspiration is for their kids to take up these roles. In practice, we already resolve this through immigration, and will likely continue to do so.
As an aside: the phrase “mass migration” does rather stink of the Daily Mail. Whatever one’s view on immigration, such phrasing reads less like an analysis and more like tribal signalling. Fun fact: around 24% of the UK’s top 1% of income taxpayers are foreign-born. You’re welcome, and I hope the nursery provision I helped fund was at least competent.
@Frugalist: Thank you for the article about complexities of the childcare system. We are almost through with DD starting Reception this year! We’ve also found that 3 days of childcare is optimal with the 22 odd hour cover and only 3 days worth of additional expenses. WFH is just brilliant!!
Luckily I kept my Childcare vouchers scheme going until now and it’s been great savings via salary sacrifice.
Wow. You have to chuckle at some of the comments. I’m not advocating for Communism but didn’t even the USSR provide heavily subsidised childcare to enable the workers to, you know, work to make society more productive. I expect that if the ratio of children/future tax payers declines, affecting state services and state pensions then people would also object to that!
I have 4 children ages between 10 and 1. We started the first on nursery and the monthly payment was bigger than our mortgage. The biggest change we made financially was swapping to a childminder rather than use the nursery. It was about 40% cheaper and the relationship with the provider was personal and genuine rather than corporate. It was the best decision we’ve made around childcare and we’ve stayed with them for years.
The only downside is that childminders take holidays or get ill, so using grandparents, friends or parental leave to cover a few weeks each year was needed, but well worth the cost saving.
This is really funny for a number of reasons:
– my wife is called Hannah
– we did the maths
– she works 3 days a week as an average earner and it doesn’t make sense to work more
– I cap my income at £100k and haven’t had a pay rise in 5 years as even though I earn well there’s no way my earnings outmatch the cost of childcare. So my pension is plump and I drive an electric car and take summer long time out
– The system is crazy, I actually pay less tax than I would pay if there wasn’t a cliff edge loss of childcare because I would be “happy” taking home only 40p in the pound but no way am I going to take home less (ie -ve), what do you take me for, a fool? The gov is missing out on revenue and paying childcare anyways.
Actually it’s not funny, except for my wife is actually called Hannah.
Thank you for this article Frugalist and to the powers that be for publishing on the topic, it was thought provoking on several dimensions the least comfortable of which was that I read until “…my wife and I…” vaguely assuming the author was female and as a father of two young girls highly involved in this topic myself I am rather troubled by my presumption.
I think you hit the nail on the head with “Of course real-life is never quite as simple as raw numbers…”. We were wildly inefficient in utilising ‘the system’ when it came to pre school childcare but consciously so and with big picture goals in mind / what we felt was in the children’s best interests given the particularity of our situation. Very good analysis though, no doubt it will be of great value to many given how bonkers the system has become.
My 2 grandkids are both at school now, but when they were toddlers, my daughter and partner both dropped to 4 days a week, employed a childminder for 2 days a week and we grandparents took care of one day a week. In terms of the children, their week consisted of a day with each parent, 2 days with both parents, a day with the grandparents and 2 days at the childminder with other kids. I can’t think of a better way of nurturing small infants. By working 4 days each parent avoided higher rate tax, and so earned a household income of nearly £100k on basic rate tax, with childcare vouchers to cover most of the childminder costs, and of course family allowance to boot.
Thank you for this comprehensive article. I found it explained important, interconnected factors very well.
Tackling topics like this, which many of the older FIRE nerds discount or overlook, can only broaden the appeal and utility of the Monevator corpus of wisdom.
@Frugalist thanks for this article, well set out and very timely as we are expecting our first child in July so I was planning to run our numbers.
@AoI one to watch out for, the author could be a female and also have a wife 🙂
Thank you for the article, shame about the threads of neoliberal myopia on childcare being a ‘lifestyle choice’ subsidy below the line. I’m reassured that the majority of commenters haven’t fallen into this transactional viewpoint though.
To the topic at hand, which is one I’m familiar with due to a toddler in a London nursery and a wife whose income breaches the £100k cutoff.
One alternative to salary sacrifice for high earners seeking to retain the subsidies which I rarely see mentioned in these discussions is the use of your entitlement to unpaid parental leave.
Every parent receives a statutory right to eighteen weeks unpaid leave per child, which can be used until the child turns eighteen. You can use up to four weeks per year. What this means is you can accept promotions and pay rises which bring your salary above £100k and then use your statutory unpaid leave to bring your net income back below it.
Final thought re: Charlie Mungers incentives vs outcomes – Dan Niedle has done some excellent research on the impact of the £100k childcare cliff edge on marginal tax rates and behaviours. Well worth a read – not sure if I’m allowed to post links though
For those who earn a decent amount, and have twins+, the tax system is really punishing. Really punishing. A huge disincentive to work. I took a few months off unpaid as my net financial position was the same.
However, what disappoints me most, is the lack of support for single income households. Studies show it’s far better for small children to be raised by family. Yet single income households are destroyed by the tax system. Yes, it’s worse for GDP, but it should produce more stable and rounded citizens….which we all gain from.
As an economy and a polity we don’t value reproduction, but as a species we are dependent upon it.
It’s widely quoted that it’s easier to imagine the end of the world than the end of capitalism; and our attitude to helping societally with the burden of child raising renders that statement ever truer.
With the rise in the cost of housing relative to labour, and with the fall in the share of labour in global and national economic output; is it any wonder that global and UK TFRs are, respectively, just heading below 2.1 now and have been below 2.1 replacement levels for decades?
As long as global TFR remains below 2.1 then there mathematically will never be more than, at the very most, another 26 billion humans born, compared to the 8 billion alive now and the 109 billion who lived and died previously in all of history.
That’s the magnitude of what’s at stake here. Literally the survival of the species.
I speak as one with no children (as one half of a childless, now middle aged, couple). So, whilst we (Mrs DH and I) arguably haven’t done our bit, we also don’t have a vested stake here in advocating for more assistance to parents.
The one thing that helped me most regarding kids……..pursuit of FIRE!
With a 40% saving rate, a budget and a modicum of financial management knowledge going into kids, we had a huge moat.
Merci Monevator team!
For any pre-parents on here; Have a plan, don’t expect anything to go to plan and i hope you enjoy the adventure of parenthood as much as me.
Thanks for doing the sums. We have just been told that we will become great grand parents for the first time in July. We have passed on your calculations to help with our granddaughter and husband’s financial planning, and reminded them not to forget their student loans.
Thanks for article and timely as I have been re-evaluating our situation in light of changing circumstances.
I still use childcare vouchers through my employer and must’ve been one of last people to sign up before this was closed to new entrants in 2018.
I can get a maximum of £243 vouchers each month, this max figure has remained unchanged. But for the newer tax-free childcare system I believe the max amount that the Govt will provide has also remained capped at £2000/year/child. Another form of fiscal drag I suppose?
Just on the profound economic (and of course existential) importance of child rearing for the future (as if not self evident):
“Shrinking Populations and Fewer Young Workers Define Economic Limits”
http://uk.investing.com/analysis/shrinking-populations-and-fewer-young-workers-define-economic-limits-200621605
@DH # 40 and #36 > Literally the survival of the species.
I’m really sorry to oppose another somewhat hyperbolic claim, but there are more than twice as many people in the world as when I was born. I am nowhere near clever enough to have an informed opinion about the pros and cons of subsidising childcare in a rich country but I do suggest that the extinction level event is a very, very long way in the future. The one thing we do know is that natural systems are adaptive. I can guarantee you that
> global TFR remains below 2.1
is an exceptional condition the assumption of which requires exceptional boundary conditions to be specified
Perhaps that is the one thing that limits the requirement of extractive perma-growth – endless growth to feed the billionaire class seems to produce a society/world people don’t find worth reproducing in either because it is unsatisfying to live in or it imposes such high opportunity costs in having children so perhaps a different balance will be iteratively found.
Adaptable buggers, humans. It’s our one great strength. We’ll find a way.
@ermine — Indeed. I can confirm that in a world of say 1 billion people I’d have been a little more likely to have wanted to have children. So I’m sure plenty of people closer to the middle of the fence would lean into going for it.
As things stand today I think 8 billion plus people is causing plenty of problems, and the world would likely be a much nicer place with far fewer people in it (presuming we got to that point via a gradual process, not war/pestilence/ecosystem collapse/whatnot).
With that said, the maths is quite interesting in terms of how quickly the population *could* fall…
“maths is quite interesting”: The subject of (long term) demography and destiny is an infinitely regressive rabbit hole to fall into, but I found these resources quite useful over the years:
https://www.sas.upenn.edu/~jesusfv/Slides_London.pdf
https://www.sciencedirect.com/science/article/pii/S0169207021001394
http://www.demographic-research.org/Volumes/Vol28/39/
https://globaltrends.thedialogue.org/publication/world-population-to-2300/
https://www.globalprioritiesinstitute.org/wp-content/uploads/Charles-I-Jones_The-end-of-economic-growth-Unintended-consequences-of-a-declining-population.pdf
https://users.ox.ac.uk/~mert2255/papers/climate_and_population.pdf
https://ipc2009.popconf.org/papers/91677
https://uwm.edu.pl/wne/podstrony/oej/oej_2011-v6-n1_01.pdf
https://www.cold-takes.com/most-important-century/
Just one example of how complicated things have been made. Regardless of anything else, what we as a country need to do is make things simpler and less divisive.
I clearly don’t have the numbers, but I’d have hoped someone at the treasury will have modelled the cost of policing this versus “just” making it universal and simpler. I have a nagging feeling a lot of this ‘100k cliff edge’ or ’60k HICBC’ stuff is not really designed to raise revenue or reduce costs, but to demonise higher earners and virtue signal.
Noahpinion on why this is so important:
https://open.substack.com/pub/noahpinion/p/lets-save-the-human-species
What’s gets prioritised gets done. At the moment, as a society we’ve insufficiently supported child raising. I speak as one half of a middle aged couple with no children of our own, so I’m not beating my own drum here.
A great article on a subject matter that is rarely ever touched upon, and yet we can’t go a week without the state pension being discussed. I appreciate that your readership is more concerned with England, but would have been great if you could have considered Wales where 30 hours free child care isn’t offered until the child is 3 (unless you live in a deprived area) . It makes the burden of child care even greater, especially in a part of the UK where average salaries are comparatively lower.