Middle-class parents £17k poorer than five years ago
Surging nursery fees and stealth taxes have left middle-class parents £17,000 worse off compared to five years ago, figures show.
Data from the Office for National Statistics show that high-earning parents have seen their disposable income fall by nearly a fifth since 2020.
The highest-earning 20pc of parents had £74,129 left after tax in 2023-24 – down from £91,265 in 2019-20.
The sharp 18.8pc drop means they have seen their incomes fall much faster than parents on middle or low earnings.
High-earning married couples with no children fare better but also have felt the pain of higher taxes, with average disposable incomes of £104,606, down by £4,765 in five years.
It comes after workers face significant tax rises by stealth, with the Government having frozen income tax bands since 2022 rather than raising them with inflation.
Tom Waters, from the Institute for Fiscal Studies, said: 'We've had a reasonable amount of fiscal drag in the form of tax thresholds being frozen, whilst inflation and nominal earnings growth have been very strong.
'That increases the tax liability for higher income people in particular. That is an important factor.'
Jeremy Hunt, the former chancellor, also slashed the additional rate threshold for when people start paying income tax of 45pc to £125,140 from £150,000 in April 2023.
The figures published by the ONS suggest that top-earning parents have the lowest disposable income in 20 years once accounting for inflation. The last time their income after tax was lower was in 2003-04, at £73,765 in today's money.
This figure is before factoring in childcare costs, with British parents paying some of the highest nursery fees of any rich country and little support being available to high earners.
Parents who earn over £100,000 lose access to thousands of pounds in government support such as free nursery hours and tax credits.
IFS analysis has previously shown that a parent in London with two children in nursery would need to earn more than £149,000 to actually be better off if a pay rise put them over the £100,000 threshold.
It comes as nursery fees have surged over the past decade, rising much faster than inflation.
The latest figures from Coram, the children's charity, show the cost of a part-time nursery place for under-twos rose by 7.7pc in 2024 from the previous year.
The combination of surging taxes and some of the world's highest childcare costs has left many of Britain's high-earning parents feeling increasingly hard done by.
Mr Waters said it is difficult to see the logic of the limit for childcare support, which has not been raised to account for inflation since its inception in 2017.
He said: 'The childcare £100,000 threshold is pretty difficult to justify. There is no reason why someone with an income of £99,999 should be treated to the tune of thousands of pounds a year differently to someone who's on £100,000.'
It comes as the number of people earning more than £100,000 a year is set to rise from 1.8m to 2.2m by the end of this parliament, according to the IFS.
However, more tax rises could be coming down the tracks for high-earners who already feel squeezed.
Rachel Reeves is widely expected to raise taxes in autumn if she falls short of her fiscal rules, with only a razor-thin £9.9bn margin of error if the economy deteriorates.
There were rumours Ms Reeves had planned to extend the freeze on income tax thresholds beyond 2028 at her maiden Budget in October last year, but that she stopped short of it.
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