If you are lucky enough to earn £100,000 each year, you are probably well aware of the cliff edge that kicks in at that point on the income scale. By pocketing one extra pound, you stand to lose childcare subsidies worth £20,000 or more. In practice, many well-paid professionals reduce their hours or increase pension payments to avoid this fate.
It’s a problem that has been well-covered in the press. Although the cliff edge was introduced back in 2017, recent months have seen a spate of articles interviewing affected parents and offering advice for those approaching the threshold. Yet there has been next to no coverage of a nearly identical issue affecting unpaid carers at the other end of the income spectrum.
Thanks to carer’s allowance, anyone providing at least 35 hours of care a week to a severely disabled person is entitled to a payment worth £4331.60 annually. Because this allowance is supposed to serve as an alternative to full time work, it is only available to those earning up to £10,192 each year. As soon as a carer’s earnings exceed this threshold, they lose every penny of the allowance. This slams the brakes on any full time carer looking to supplement their earnings with part time employment.
The personal consequences are severe. Half a million carers – around half of those in receipt of carer’s allowance – are struggling to make ends meet. Those balancing unpaid caring with work are twice as likely to be women, many of whom take on caregiving responsibilities at precisely the age when they could otherwise expect to reach the peak of their professional career. This is particularly harmful for workers who need to work part-time to keep up professional registrations such as nurses.
Penalising an extra pound in earnings with the complete withdrawal of carer’s allowance, all at the relatively low level of around £10,000, is a punishing fate to inflict upon those going out of their way to balance care with part time work. It is all the more remarkable when one considers that, in the absence of those carers, their caring responsibilities would very often fall to the state.
The significance of cliff edges goes well beyond the egregious case of the carer’s allowance. Even in opposition, the Labour Party is generally defined by its belief in the capacity of the state to make things better. This identification with the cause of government grows that much stronger when the party is in power. It is a grave problem for a Labour government, then, that polling earlier this month found just one in five Brits think the UK’s system of government functions effectively.
While far from the only source of dysfunction, the tax system is responsible for some of the starkest illustrations of state failure. There are, above all, the tens of thousands of workers who would like to work more if only they could do so without facing a stiff financial penalty. There is the unsightly spectacle of marginal tax rates rising as high as 20,000 per cent for a parent at the £100,000 cliff edge, an anomaly described by the Institute of Fiscal Studies as “among the most severe you will ever see within a tax and benefit system”. Then there is the sheer human cost of keeping thousands of carers trapped in deep poverty.
These products of the tax system are not only visible symbols of dysfunction; they are also eminently fixable. Modelling done by the Centre for British Progress – detailed in a forthcoming paper – shows that if the cliff edges for the carer’s allowance and childcare funding were replaced by well-designed tapers withdrawing the benefits more gradually, thousands of workers would choose to work more and the Treasury would profit too. The tapers that exist elsewhere in the tax system, such as for those in receipt of child benefit, could also be markedly improved while protecting the Exchequer’s bottom line.
The government faces its share of intractable problems, not least in tax policy. But in the case of cliff edges, there is a ready-made opportunity for the Treasury to fix the accumulated errors of the past by simply replacing the tax traps that face carers and parents with a system of smooth tapers. In taking up this challenge, Labour would boost economic growth, allow carers to lift themselves out of poverty and show that they can tackle the state at its most dysfunctional.
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