Parents face £1,000 ‘nanny tax’ hit

Raid could drive families out of the workforce, experts warn

The cost of hiring a nanny is forecast to soar by almost £1,100 from next April, thanks to Rachel Reeves’s National Insurance raid.
The Chancellor’s decision to increase employer National Insurance contributions (NICs) from 13.8pc to 15pc while lowering the threshold at which they start paying from £9,100 to £5,000 will see parents hit with a 21pc increase to their tax bill.
Experts have warned the nanny tax will “hit working parents hardest” and could backfire on the Treasury as parents decide to leave the workforce to look after their children.
Joeli Brearley, head of charity Pregnant Then Screwed which campaigns for the rights of pregnant women and mothers, said: “[It will] hit working parents hard, particularly mothers, who still bear the brunt of childcare costs.
“For many, employing a nanny isn’t a luxury but a necessity to keep their careers going. With this added expense, we risk pushing more parents, especially single parents and mothers, out of the workforce.”
Although Ms Reeves extended the Employment Allowance – the amount employers can claim back from their National Insurance bill, from £5,000 to £10,500 – the relief cannot be used by parents employing nannies.
The rules exclude domestic staff such as nannies, cleaners or gardeners who are employed to support the running of a household.
The cost of hiring a nanny has soared in recent years and stands at £46,228 for families hiring a nanny in London, according to Nannytax, a payroll service. Those families pay 13.8pc NICs on their salary above the £9,100 threshold meaning they pay £5,124.
However, the lowering of the threshold at which parents begin paying to £5,000 and increasing the rate by 1.2pc means their National Insurance bill will rise to £6,184.
The cost of hiring a nanny outside London is not much cheaper. It rose by 12pc year on year in 2023-24 according to Nannytax’s annual salary index report to £40,326. Families outside of London would therefore be paying NICs of £4,309. However, this is expected to rise by £990 to £5,299.
Jennie Bond, managing director of Nannytax said: “It’s very, very difficult for families. For many families, having a nanny is a necessity because they are shift workers.
“They are NHS doctors and nurses and if they work on a shift rotation, there’s childcare out there but it’s not always suitable for the hours that they work.
“For shift workers, this is a real challenge because having a nanny is one of the only options for them.”
Nanny costs have soared in recent years as demand has been pushed up by parents returning to the office after the pandemic and a lack of nursery availability.
The average nanny outside London earned £27,274 per year in 2019-20. In the five years since, it has increased by £13,000, a rise of almost 50pc.
The Chancellor was this week criticised for her decision to scrap plans to assess child benefit on household income, a pledge initiated by the Tories.
Child benefit – worth up to £1,248 a year – starts to be withdrawn when one parent earns more than £60,000 a year. The policy means parents who earn £59,000 each are exempt but a single parent on £65,000 will lose some of the benefit.
Jeremy Hunt, the former chancellor, pledged to address this by moving to a system of household income from April 2026. However, Budget documents said the Government would not proceed with the measures due to the “significant fiscal cost”. It was estimated that it would cost the Treasury £1.4bn by 2029-30.
Rachael Griffin, at wealth manager Quilter, said the decision unfairly penalised modern families. She said: “Seeing through this reform, while complex, would have better reflected the financial realities of modern families, ensuring those most in need are not unfairly penalised.”
The Treasury was approached for comment.