Chancellor John Healey has been urged to fix the £100,000 childcare “cliff edge”, after the Centre for the Analysis of Taxation (CenTax) estimated that almost 12,000 families could be holding down their earnings to keep free childcare by the end of this parliament in 2030.

The report warns that the threshold pushes some higher-paid employees to reduce their hours or stop working to avoid losing their entitlement.

Since the latest expansion of taxpayer-funded childcare in 2024, families with young children in which both parents earn less than £100,000 a year can be entitled to 30 hours of care a week. If either parent crosses that threshold, the family receives none.

CenTax, a thinktank based at Warwick University, said that by 2030 the average parent crossing the cliff edge would have to earn £124,000 to be no worse off after losing their free childcare.

Arun Advani, director of CenTax, said: “Our analysis shows the childcare cliff edge stands to grow dramatically by the end of this parliament, but there are solutions available to the government.”

The researchers said “bunching” of incomes just below £100,000 suggested that, even in 2022, about 1,000 families were artificially suppressing their earnings to avoid falling foul of the threshold. That is the latest year for which data is available.

They estimated the number could rise to almost 12,000 by the end of the parliament.

The report also suggested the policy may be encouraging some mothers to leave work. Below the £100,000 threshold, 6 per cent of lower-paid partners, usually the mother, are out of work. Above the threshold, that rises to 9 per cent.

“The jump in non-working mothers at the point where their partner exceeds £100,000 income suggests the loss of childcare entitlement as a cause, with possible long-term consequences for those mothers’ earnings,” the report said.

CenTax also criticised the fact that the threshold is based on how much parents expect to earn in the year ahead. Families are not eligible, according to government guidance, if either parent’s expected adjusted net income is over £100,000 for the current tax year. The researchers pointed out that some families appear to be claiming despite eventually earning more than that.

The report proposes several potential solutions. Restricting families above the £100,000 threshold to 15 hours of free childcare, instead of withdrawing it altogether, would cost £210m by 2030, it said.

Gradually tapering away the entitlement at 28p for each £1 earned above the threshold would be revenue neutral, but less problematic for parents, the report added.

Healey is due to deliver his first budget on 28 October.

Analysts believe higher than expected interest rates on the Treasury’s debt are likely to have wiped out at least half of the £24bn headroom that his predecessor, Rachel Reeves, built up against the government’s fiscal rules.

In his first major speech, in Coventry on Monday, Healey promised to put growth at the heart of his approach. He also warned that Labour must “be honest” about the constraints on public spending in the years ahead.

Since Andy Burnham took over as Labour leader in July, he has announced a VAT cut on electricity bills and capped bus fares. Healey has also suggested the government is keen to do more to give consumers a “breathing space”.

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