What the research found
Using official tax records, CenTax maps how the £100,000 line warps behavior. Roughly half of those affected shift earnings into pension savings to stay below the limit, while the rest dial down hours or pass on promotions. The group also finds that when a partner's pay hits £100,000, mothers are notably more likely to leave paid employment, and in 9 out of 10 cases where a parent steps back for childcare, the one who does so is the mother. The net effect is weaker household spending and a drag on growth.
Arun Advani, who leads CenTax and co-wrote the report, said, "Our analysis shows the childcare cliff-edge stands to grow dramatically by the end of this parliament." He added, "If someone is earning £125,000 they are no better off than when they were on £100,000. So they might as well work a four day week. This is causing enormous distortions to the labor market."
How the cliff-edge works in numbers
Since 2010 in England, families with three- and four-year-old children have been entitled to 15 hours of free childcare each week over 38 weeks per year. From 2017, that rose to 30 hours for families where the main earner makes under £100,000. In 2024, eligibility for the 30 hours expanded to cover children from nine months old for parents with incomes below £100,000, which makes the cliff even steeper because there is now more support to lose.
At £100,000, the basic income tax rate is 40% plus 2% in national insurance. Starting at that level, the personal allowance of £12,570 is gradually removed, lifting the effective marginal rate to 62%. Losing childcare on top can make an extra £1 of income wipe out thousands in support, which Advani described as an "infinite" marginal tax rate. At the lower end of the income scale, CenTax notes that marginal rates can approach 70% as benefits taper away.
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Back in 2022, the typical affected parent had to earn around £105,000 to come out even after losing support, according to CenTax. By 2030, the median case will need to make about £124,000 just to avoid ending up worse off, a shift driven by frozen tax bands and the richer childcare offer.
What this means for your portfolio
CenTax puts the price tag for removing the £100,000 cut-off at £640 million by the end of this parliament in 2030. Nudging the limit up to £125,000 would add £100 million instead. To eliminate the cliff without raising the overall bill, the group suggests replacing the hard stop with a taper that takes 28 pence for every additional £1 of earnings, which it says would keep parents from being worse off at higher pay.
For household finances, this is about real take-home pay and whether people push for raises, accept promotions or cut hours. That can ripple into what families spend on everything from childcare to holidays, which ultimately shapes the broader economy more than any stock chart.
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