Up to 99,000 children are missing out on childcare support because of a “cliff edge” earnings rule that stops families from getting free hours if either parent earns over £100,000.
How the threshold works
Eligible working parents can get up to 30 hours of free childcare a week for three- and four-year-olds. Families do not qualify for the full 30 hours if either parent has an adjusted net income above £100,000. This means a family where both parents earn £99,000 (household income £198,000) would qualify, but a family with one parent earning £101,000 and the other out of work would not.
Impact and cost
New estimates from the Department for Education (DfE), obtained by Quilter through a Freedom of Information request, show that between 50,500 and 99,000 children were affected by the earnings limit in 2025/26. The DfE suggests the value of funded childcare support unavailable to these families was up to £874 million.
The numbers are sharply higher than in 2018/19, when between 10,900 and 22,500 families were affected. The increase reflects the scheme’s expansion to include children aged nine months to two years.
Rising impact
Ian Futcher, financial planner at Quilter, said a relatively modest pay rise, promotion, or bonus can result in a family losing access to childcare support worth thousands of pounds a year. Analysis using the Bank of England inflation calculator found that if the threshold had risen in line with inflation since its introduction, it would now stand at around £137,000.
Mr Futcher said: “These figures demonstrate how a threshold that once affected a relatively small number of families is now having a much wider impact. While £100,000 is still a high income, it is not worth what it was when this threshold was set. As earnings and childcare costs have risen, more families are finding themselves caught by rules that were designed in a different economic environment.”
Planning opportunities
Families can remain eligible by increasing pension contributions or using salary sacrifice, as eligibility is based on adjusted net income. Salary sacrifice involves giving up part of pre-tax salary for a non-cash benefit, such as pension payments.
Mr Futcher added: “The good news is that there are often planning opportunities available. Eligibility is based on adjusted net income, so pension contributions can be particularly effective. Not only can they help improve long-term retirement outcomes, but they may also help preserve access to valuable childcare support and other tax allowances. Given the sums involved, understanding these thresholds can make a significant difference to family finances.”
The Mirror has contacted the DfE for comment.
