How to help women make it to the top

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.

  • dr ray

    Its a good idea Merryn and I think your analysis is correct that it is babies, not discrimination or innate ability, which holds women back.
    If anything however taxation changes with reduction in value of tax relief on childcare vouchers and loss of child benefit is moving the other way.
    In the final analysis having a child is a lifestyle choice. My lifestyle choice is to have a large lawn. I either can’t work at weekends or I have to employ someone to cut it while I go to work. Should I get tax relief on lawn care?

    The pragmatic approach is to employ an illegal immigrant and pay cash out of any untaxed income you might have. Taxation is ruining enterprise in the UK and supporting all sorts of lunatic spending. The only option left to us is to starve the beast and make our free spending politicians realise that there is a limit. Its the moral thing to do.

  • Romford Dave

    Merryn, your article sounds identical to a million and one other bleeding heart stories who think their situation is different, thus justifying tax payer support.

    What happend to less taxation, less state intrusion, less benefit dependency?

    Do you want to encourage pragmatic approaches such as that the good doctor suggests?

    Hardly the sort of society we should want to bring children up in.

  • MichaelL

    >Beginning to wonder why she would bother, particularly if >she had a husband earning enough to support them all?

    The temptation for stay at home mums is to sit at home all day on Facebook, hammering husband’s credit card by ordering useless s–t off the internet. Its worth mums getting a job (any job): the alternative is financially painful.

  • GFL

    There are millions of households across the country that have very little left at the end of each month after all the essentials have been paid for, why not allow these people to pay their bills before tax? Surely heating the house is considered more essential then some middle class women bitter about not being able to climb the career ladder fast enough.

    The real irony is, the reason the person in the article cannot comfortably afford a nanny is because taxes are way too high, the reason they are too is high is precisely because of what this article is asking for; government subsidies for anything and everything (which inevitably includes the gazillions of civil servants that administer such schemes).

  • Merryn

    @GFL, @RomfordDAve. I think you miss the point. The vast majority of workers in the UK are paid out of pre tax income. Nannies are an odd exception. The change would merely bring them into line with everything else. A simplification in a good way.

  • Romford Dave

    I appreciate the idiosyncrasy of it Merryn and I’m sure you’re probably aware that it is actually possibe to obtain relief under certain income conditions given the vaguaries of our schedular system of taxation, just not in a PAYE environment.

    But many a relief isn’t available under such systems, particularly PAYE regardless of the validity of reason, are they no less deserving of a change?

    Already you can see others putting forward a case for similar treatment, just as it was with bank bailouts and no doubt to any future tinkering by well intentioned tinkerers.

    I’m looking forward to the day when the tax regime lives up to Moira Stewart’s claim.

  • GFL

    Merryn, you are comparing companies with individuals – If you’re allowed to deduct the cost of a nanny from your gross salary, then why not other expenses like heating, telephone, etc? Both costs are deducted from a company’s turnover in a similar(ish) way.
    Also where do you draw the line? Are you advocating personal chefs should be deducted from gross pay? What about maids or cleaners? Mechanics? If I could have paid for the ‘handy man’ that did a lot of work on my house from my gross salary 2 years ago, I would have been a very happy bunny!
    I’m failing to understand what is so special about nannies.
    Treating individuals more like companies is a different and more interesting argument all together.

  • Ellen

    The justification for making childcare a tax deductible expense is that a parent is unable to work without having this childcare in place. Uniform that are specifically for work and professional subscriptions are both tax deductible expenses. It is completely different to expenses relating to the maintenance of your home.

  • JT

    Very interesting article Merryn. I have direct experience of this with family members having to make the decision between taking time out at risk to their careers, or trying to juggle both. It is incredibly tough and something like this which might enhance career prospects for women is to my mind a very good idea.

  • Romford Dave

    Cost of travelling to work isn’t tax deductible Ellen, some would consider that unfair, particularly as it represents such a large percentage of costs associated with work with the biggest burden falling on those least paid.

    Then there’s the distance to consider. The further away you live the higher the cost, how will the tax treatment of those living outermost compare to those living local?

    Should we actually be giving tax incentives to those making a life choice, if the life choice is of their own choosing?

    One of the ironies of state involvement is once it pokes it’s nose in and offers financial assistance, the cost of such services goes up in proportion to the assistance offered. Child care vouchers are living proof.

  • Ellen

    @ Dave. Travel expenses are a deductibe when they take place in the course doing company business and that is where child care fails the test. Getting to work is something everyone just has to do.. However, I feel Merryn makes a valid point especially in the case of parents with pre school children as this is the time when young parents dont get paid a lot and have huge financial commitments. I dont think it unreasonable to pay gross child care costs from gross salary.

  • dr ray

    The test for a work expense being tax deductable is that it is “wholly, exclusively and necessarily in the performance of the duties of the employment.” Childcare is not, since people without children or people with relatives to look after the children are still able to work.

    There is no getting away from it, children are a lifestyle choice and the choice should be made with a full understanding of costs and benefit. If I choose to go windsurfing during the week I wouldn’t expect my career to progress as much as someone who doesn’t and I wouldn’t expect the taxpayer to fund my hobby

  • Boris MacDonut

    Good idea, but you allow the article to be a tad sexist. What if the husband is in the same position? Especially if his wife could support them both? It is also a bit an indulgence to look at those on twice the average wage and spending money on “smart clothes” etc. It is also open to abuse, supposedly employing family members like neices or nephews as “nannies” when your own kids are say 10,11 or 12, so it would need an age limit on the children, probably pre school.