Call for extension of funded places to high-earning parents

A committee set up to review tax law is calling for entitlement to funded places to be extended to parents earning more than £100,000.

The Tax Law Review Committee, set up by the Institute for Fiscal Studies (IFS), called for publicly-funded nursery places to become a universal benefit in a discussion paper published this week.

Currently, the first 15 hours of funded childcare places for three- and four-year-olds are a universal benefit, but each parent must be earning less than £100,000 a year to claim an additional 15 hours. Parents must also earn less than £100,000 each to claim the planned extended offers for children aged nine months and over.

The Tax Law Review Committee said a parent with two children can be better off earning £99,000 and keeping childcare support, rather than earning up to £134,500 and losing childcare support. It said the issue was affecting more parents as incomes rise and thresholds remain frozen.

The committee said if the government did not restore publicly funded nursery places as a universal benefit it should “significantly increase” the eligibility for funded childcare, to reduce the numbers affected.

Bill Dodwell, former director of the Office for Tax Simplification and one of the authors of the report, said: “Thresholds are an essential part of a progressive tax system. However, care needs to be taken to minimise complexity and the distortions that can arise. Very high effective tax rates can discourage individuals from working and limit business growth – which affects the economy.”

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