Childcare costs more in tax than childcare!

I’m interested in whether anyone else thinks this is strange. Let’s consider a professional woman (or man, but this happens more to women), we’ll call her Sarah, who decides she wants to continue her career after having children and work five days a week. Sometimes she’ll have to leave early, come home late and so on, so she is likely to need serious childcare support. The option that most seem to go for in these circumstances is a nanny. Not cheap, but if you have two children it is not that much more than nursery plus attendant pieces, and significantly more reliable. Suppose Sarah is earning £75,000 per year. Respectable, but may go up in many professions as she gains in seniority if she stays working. So, my question is, how much money does she end up with per year, how much goes to the nanny and how much to the tax man?

The answer is as follows:

  • Nanny                   £26,000
  • Tax man               £36,941
  • Sarah                     £12,059
  • Total                      £75,000

Does it make economic sense to make it so difficult for professional women to continue their careers after having children? I’m sure that lots of people will tell me that there are cheaper childcare options – there are, but most can’t cope with the demands of a professional career. If we wonder what keeps women out of many of the “top jobs”, maybe the breakdown above is part of the answer.

Background analysis

  • Nanny wage taken as £10 per hour net, thus £500 per week for 8.00am – 6.00pm, which is fairly standard. Thus Nanny total is £500 x 52 = £26,000
  • Employer and employee taxes on top of the Nanny wage are £235 per week = £12,220 per year.
  • Thus £38,220 total cost of nanny needs to be paid from net earnings of £50,279 (taken from one of the net pay estimating websites), leaving Sarah with £12,059.
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About tobyeccles123

I'm the founder and Development Director of Social Finance, a social change organisation based in London. I led the development of the Social Impact Bond and focus on enabling the emergence of a functioning social economy. I'm married with two small and very lovely daughters.

2 thoughts on “Childcare costs more in tax than childcare!

  1. You gave Sarah a very generous salary. Most women working in public sector even in management positions don’t earn anywhere near that. My wife has just retired as a senior manager in children’s services on £53k. Having said that, many years ago this is precisely what we did and employed a nanny recruited from the pages of The Lady. We paid the whole of her nett salary, but at least continued contributing to her pension!

    • I picked the number in part to hit both public sector and private sector professionals. But you are right, there are plenty of people who make these choices and end up practically losing money, or as one put it to me recently “my salary just about pays for the nanny and the cleaner”. We need to make it easier for women returning to work in demanding roles…

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