Let’s look at a middle ranking woman in a bank or a legal firm – or even a real company – in her 30s. She has a baby; she goes back to work after six months; she earns £60,000. She hires a live in nanny to look after her tiny piece of perfection. The nanny is paid £350 net a week (I have noidea why but nanny salaries are always quoted net by the week).
That makes the total cost to her, after the nanny’s income tax and NI and her employers NI are taken into account, £485. (Here’s a nice calculator you can use to amuse yourself figuring out the total cost of employing someone and its division between what the employee gets to spend and what the state gets to spend). That’s £25,220 a year. A lot isn’t it?
But it gets worse. Mostly when you hire full time staff – say at a company – you do it out of untaxed income. But if you hire a nanny you are doing so out of yourpost tax or net income.
If our working mother is making £60,000 her net income is about £41,500 a year. So employing a nanny is costing her 60% of her pay. If she is only earning £50,000 it is costing her 70%. She’ll have £10,000 left at £50,000 and £15,000-odd at £60,000, the vast majority of which will go on smart clothes, work shoes, networking costs and commuting (an annual travel card on the tube alone comes to near £2000).
Beginning to wonder why she would bother, particularly if she had a husband earning enough to support them all? Me too.
You might say that this is her choice. She could use a nursery instead. That would be cheaper. You’d be right, it would be: it would come to about £12,000 a year instead (a good one in London). But it wouldn’t do her career much good. She’d have to drop off and pick up at particular times (making the impromptu meetings and networking stuff that helps other people get ahead impossible). It would make her feel guilty given that she could, at a push, afford a nanny or just stay home with her own child (all studies show that one on one childcare in the home is marginally better for a child than daycare). And it would bemuch much more stressful.
There is much talk about why women don’t make it to the top. We blame culture. We blame prejudice. We blame lack of ambition. But I reckon a huge amount of it comes down to the fact that you have to pay your nanny out of net not gross income.
So why don’t we change that and allow nannies (like most other employees) to be paid out of gross income? So the £25,220 comes off the £60,000, and tax is paid only on the remaining £34,780. That way, our working mother gets to keep not 25% of her salary after tax and nanny costs, but 43%. Which would make the choice about whether to work or not just that little bit easier to make.
This makes sense in all sorts of ways. Keep a woman working, let her pay her nanny out of her gross income and, while the state coffers might not pull in so much direct tax from the mother as if she was paying out of net income, they’d certainly make more than if she wasn’t working at all. The Treasury will also get its cut of income tax and National Insurance from the nanny (who, remember, may well be unemployed otherwise). Finally it will get indirect taxes too: both the mother and the nanny will have more to spend – so the VAT take will climb.
But best of all for the government and its constant muttering about gender equality, would be the fact that it wouldn’t be long before the nation’s middle-flying women, freed from the time pressure and terror that comes with nurseries and backed up by well-paid nannies, become high-flying women. Targets met. Job done.
PS. I’ve done a quick Google and found that I am not the only one who thinks this is worth thinking about – there is a petition for this very change right here.