The coalition's new childcare policy: three problems

High-earners gain the most, 860,000 single-earner families lose out and the system won't be introduced until 2015.

After months of negotiations, David Cameron and Nick Clegg will announce the coalition's childcare plans today. Under the new system, parents on joint incomes of up to £300,000 (or £150,000 for a one-parent family) will be able to claim £1,200 a year for each child - or 20 per cent of childcare costs. The £750m scheme will initially cover children under the age of five and will be gradually extended to include all children under 12. Half of the funding will come from the abolition of the existing system of childcare vouchers, with the reminder switched from other Whitehall departments. An additional £200m of support will be provided through Universal Credit. 

The chief benefit of the new policy is that will offer support to those parents who do not currently benefit from the employer-funded voucher scheme, which is provided by only five per cent of employers. Around 1.3 million families will qualify for the scheme, rising to 2.5 million as it is gradually extended. In a joint appearance with Clegg later today, Cameron will hail it as "one of the biggest measures ever introduced to help parents with childcare costs" but here are three problems with the policy that the government won't be so keen to draw attention to. 

1. High-earners will gain the most from the policy, with less support provided those on low and middle incomes. In order to be eligible for support, both parents must be earning over the personal allowance (which will rise to £9,440 this April) and 82 per cent of those families likely to gain from tax relief are in the top half of the income distribution. 

While low earners will benefit from increased support through Universal Credit, with 88 per cent of recipients in the bottom half of earners, the lion's share of funding is devoted to tax relief (£750m against £200m for UC), meaning that the system is regressive overall. 

2. To qualify for the scheme, both parents in a two-earner family and one parent in a single-earner family must be in work. As a result, around 860,000 single-earner families with a child under five will receive no support. Following the withdrawal of child benefit from those earning £50,000 (but not two-earners on £49,000 each), this is another blow to stay-at-home parents. 

3. The new system won't be introduced until autumn 2015 at the earliest. The coalition had originally intended to implement it before the next election but the anaemic state of the economy meant it was ruled unaffordable by the Treasury. However, as shadow education secretary Stephen Twigg notes, the government has found £1.1bn to reduce the top rate of income tax from 50p to 45p this April.

"Parents will be disappointed that three years into this government, they will not get any help with childcare costs for another two and a half years. While working parents are promised help tomorrow, this government is only helping millionaires today."

David Cameron is pictured during a visit to a London Early Years Foundation nursery in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Should London leave the UK?

Almost 60 per cent of Londoners voted to stay in the EU. Is it time for the city to say good by to Brexit Britain and go it alone?

Amid the shocked dismay of Brexit on Friday morning, there was some small, vindictive consolation to be had from the discomfort of Boris Johnson as he left his handsome home in EU-loving Islington to cat-calls from inflamed north London europhiles. They weren’t alone in their displeasure at the result. Soon, a petition calling for “Londependence” had gathered tens of thousands of names and Sadiq Khan, Johnson’s successor as London mayor, was being urged to declare the capital a separate city-state that would defiantly remain in the EU.

Well, he did have a mandate of a kind: almost 60 per cent of Londoners thought the UK would be Stronger In. It was the largest Remain margin in England – even larger than the hefty one of 14 per cent by which Khan defeated Tory eurosceptic Zac Goldsmith to become mayor in May – and not much smaller than Scotland’s. Khan’s response was to stress the importance of retaining access to the single market and to describe as “crucial” London having an input into the renegotiation of the UK’s relationship with the EU, alongside Scotland and Northern Ireland.

It’s possible to take a dim view of all this. Why should London have a special say in the terms on which the UK withdraws from the EU when it ended up on the wrong side of the people’s will? Calling for London to formally uncouple from the rest of the UK, even as a joke to cheer gloomy Inners up, might be seen as vindicating small-town Outer resentment of the metropolis and its smug elites. In any case, it isn’t going to happen. No, really. There will be no sovereign Greater London nation with its own passport, flag and wraparound border with Home Counties England any time soon.

Imagine the practicalities. Currency wouldn’t be a problem, as the newborn city-state would convert to the euro in a trice, but there would be immediate secessionist agitation in the five London boroughs of 32 that wanted Out: Cheam would assert its historic links with Surrey; stallholders in Romford market would raise the flag of Essex County Council. Then there is the Queen to think about. Plainly, Buckingham Palace could no longer be the HQ of a foreign head of state, but given the monarch’s age would it be fair to turf her out?

Step away from the fun-filled fantasy though, and see that Brexit has underlined just how dependent the UK is on London’s economic power and the case for that power to be protected and even enhanced. Greater London contains 13 per cent of the UK’s population, yet generates 23 per cent of its economic output. Much of the tax raised in London is spent on the rest of the country – 20 per cent by some calculations – largely because it contains more business and higher earners. The capital has long subsidised the rest the UK, just as the EU has funded attempts to regenerate its poorer regions.

Like it or not, foreign capital and foreign labour have been integral to the burgeoning of the “world city” from which even the most europhobic corners of the island nation benefit in terms of public spending. If Leaver mentality outside the capital was partly about resentment of “rich London”, with its bankers and big businesses – handy targets for Nigel Farage – and fuelled by a fear of an alien internationalism London might symbolise, then it may prove to have been sadly self-defeating.

Ensuring that London maintains the economic resilience it has shown since the mid-Nineties must now be a priority for national government, (once it decides to reappear). Pessimists predict a loss of jobs, disinvestment and a decrease in cultural energy. Some have mooted a special post-Brexit deal for the capital that might suit the interests of EU member states too – London’s economy is, after all, larger than that of Denmark, not to mention larger than that of Scotland, Wales and Northern Ireland combined – though what that might be and how that could happen remain obscure.

There is, though, no real barrier to greater devolution of powers to London other than the political will of central government. Allowing more decisions about how taxes raised in the capital are spent in the capital, both at mayoral and borough level, would strengthen the city in terms of managing its own growth, addressing its (often forgotten) poverty and enhancing the skills of its workforce.

Handing down control over the spending of property taxes, as set out in an influential 2013 report by the London Finance Commission set up by Mayor Johnson, would be a logical place to start. Mayor Khan’s manifesto pledged to campaign for strategic powers over further education and health service co-ordination, so that these can be better tailored to London’s needs. Since Brexit, he has underlined the value of London securing greater command of its own destiny.

This isn’t just a London thing, and neither should it be. Plans are already in place for other English cities and city regions to enjoy more autonomy under the auspices of directly elected “metro mayors”, notably for Greater Manchester and Liverpool and its environs. One of the lessons of Brexit for the UK is that many people have felt that decisions about their futures have been taken at too great a distance from them and with too little regard for what they want and how they feel.

That lesson holds for London too – 40 per cent is a large minority. Boris Johnson was an advocate of devolution to London when he was its mayor and secured some, thanks to the more progressive side of Tory localism. If he becomes prime minister, it would be good for London and for the country as a whole if he remembered that.  

Dave Hill writes the Guardian’s On London column. Find him on Twitter as @DaveHill.