What does the childcare announcement really tell us?

By prioritising support for dual-earner couples, the coalition is shunning backbench Tory calls to favour the 'traditional' family.

Before we rush to dissect the government’s new childcare policy it is worth pausing to reflect on the very fact that in an unprecedented time of austerity a Conservative-led administration is proposing to spend near on £1bn on childcare. There are all sorts of caveats and problems with the policy, when it will be introduced and how it will be paid for. But before we rush into all that we should note that today’s announcement confirms that the issue of childcare will remain at the centre of the political arena.

There has already been plenty of unpicking of the proposals. But there are several aspects of what has been announced that say something significant about the policy and politics of the coalition that need to be drawn out.

First, there is the issue of who benefits. When highly constrained governments decide to spend new money, the issue of who gains the most provides an unusual moment of clarity about its distributional priorities. Choosing to spend the bulk of the new resource (£750m out of £950m) on a policy that excludes those on tax credits is very significant (bear in those on tax credits do already get support – see below). It rules out a lot people from the headline announcement. Indeed not many commentators are aware of how many people won’t access the new voucher policy because not many people realise how far up the income ladder universal credit reaches for working families relying on childcare (there is a hazy notion that UC is about the 'poor' when it actually reaches many households on middle incomes relying on childcare). A couple with two children in childcare would have to be on more than £40k of post-tax income before they come off universal credit (the figure is significantly higher if they are renting rather than home-owners). That is above the middle of the working-age income distribution. Those who have highly misleadingly referred to the vouchers policy as being ‘universal’ need to change their language.

Second, the announcement confirms something important about the type of family that the coalition is prioritising. As with all governments, it’s best to ignore the words that ministers are using and instead focus on the deeds. Child Benefit was means-tested in a way that helped dual earning families far more than single earning couples – much to the chagrin of Conservative backbenchers. The childcare announcement further ups the ante: not a penny of the £1bn of extra spending will benefit a couple where one parent stays at home. What’s more, some of the future spending will be paid for by ending the eligibility of single earner couples to vouchers (though existing claimants will be protected): to the extent there is a clear group of ‘losers’ it is single earner families wanting to claim vouchers in 2015 and beyond. And bear in mind this is happening at a time when the revealed preference of the Conservative leadership is to determinedly ignore its manifesto commitment to a married couples’ allowance, shunning calls to support the ‘traditional’ family. Whether you like or loathe this direction of travel (and I’ve long called for new support to be geared towards dual earners) it is pretty stark and reveals a willingness to ignore the sentiment of a large swathe of influential backbench support who feel ideologically disoriented (to put it politely) by these choices. This strategy on the family also hardly fits with the characterisation - popular among some centre-left critics of the Conservative leadership – that it is now largely captured by backbencher sentiment.

Third, today’s announcement included a significant, highly welcome, and largely unnoticed U-turn. One of the first cuts the coalition made was to the support on offer to low and middle income families for childcare via working tax credit. It was reduced from 80% to 70%. Privately some senior Lib Dems bitterly regret this decision (and their lack of scrutiny of it at the time). Following today’s announcement some of those on Universal Credit will be eligible for 85% of their childcare costs. This is a partial correction of an early mistake and should be welcomed as such.

It is, however, only a partial correction as from 2015 there will be a two-tier system of support for childcare within Universal Credit (bear with me). Depending on the level of family earnings, support for childcare costs will either be set at 85% or 70% - to be eligible for the higher rate both adults need to earn more than the (rapidly rising) personal tax allowance. This means a couple or lone parent with someone on the minimum wage working fewer than roughly 30 hours will miss out on the more generous level of support. ( It’s also striking that the new policy re-introduces cliff-edges to the tax credit system of the type that existed during the Labour years that Universal Credit was supposed to be getting rid of). I’ve yet to hear anyone even begin to justify how excluding these struggling part-time workers can be right when families with two children on a household income of up to £300k are set to receive a generous payment of £2.4k per year.

Fourth, this is a very fiddly announcement – and the fiddliness has important consequences. At a time when there is a lot of interest and potential support for simplifying childcare funding, today’s announcement - should it become policy beyond 2015 – cements three different childcare funding regimes: more generous tax-break vouchers for middle and higher income parents; and (for some) more generous tax-credits; as well as an entitlement to free childcare hours for 2, 3 and 4 year olds. As a result, the future politics of trying to pool spending on childcare in order to move towards a single, universal, supply-side funded system of childcare provision has just got harder.

Fifth, and related to this complexity, the announcement continues the awkward evolution of our tax system from one based solely around individuals to one which increasingly takes into account the earnings of partners. In addition to the highly clumsy system of means-testing introduced via the child benefit reforms, we will now need new systems for assessing childcare support entailing a joint assessment of earners in a household. Do they both earn enough to pay income tax in the case of universal credit? And do either of them earn enough to pay the 45% rate of tax in the case of the childcare voucher? Our tax and benefit systems continue to bump into each other.

Whatever you make of today’s announcement we can be sure that childcare is an issue which will run all the way to the next election (and quite possibly beyond). Labour’s response will be keenly awaited. It will certainly need one. The government’s announcement has in no way settled the childcare problem but it has signalled the start of the argument about how to solve it.

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

Gavin Kelly is chief executive of the Resolution Foundation 

Photo: Getty Images
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What's to be done about racial inequality?

David Cameron's words on equal opportunities are to be welcomed - now for some action, says Sunder Katwala.

David Cameron made the strongest, clearest and most high profile statement about ethnic inequalities and the need to tackle discrimination ever yet offered by a British Prime Minister in his leader’s speech to the Conservative Party conference in Manchester.
“Picture this. You’ve graduated with a good degree. You send out your CV far and wide. But you get rejection after rejection. What’s wrong? It’s not the qualifications or the previous experience. It’s just two words at the top: first name, surname. Do you know that in our country today: even if they have exactly the same qualifications, people with white-sounding names are nearly twice as likely to get call backs for jobs than people with ethnic-sounding names? … That, in 21st century Britain, is disgraceful. We can talk all we want about opportunity, but it’s meaningless unless people are really judged equally”, said Cameron.
While the proof of the pudding will be in the eating, this was a powerfully argued Prime Ministerial intervention – and a particularly well-timed one, for three reasons.

Firstly, the Prime Minister was able to root his case in an all-but-universally accepted appeal for equal opportunities. It will always prove more difficult in practice to put political energy and resources behind efforts to remedy discrimination against a minority of the population unless a convincing fairness case is made that values cherished across our whole society are at stake. Cameron’s argument, that any party which tells itself that it is the party of the ‘fair chance’ and ‘the equal shot’ must have a response when there is such clear evidence of discrimination, should prove persuasive to a Conservative Party that has not seen race inequalities as its natural territory. Cameron argued that the same principles should animate responses to discrimination when it comes to race, gender and social class. Put like that, wanting job interviews to be fair – by eradicating conscious and unconscious patterns of bias wherever possible – would strike most Britons as offering as clear a case of the values of fair play as wanting the best baker to win the Great British Bake-Off on television.
Secondly, Cameron’s intervention comes at a potential "tipping point" moment for fair opportunities across ethnic groups. Traditionally, ethnic discrimination has been discussed primarily through the lens of its impact on the most marginalised. Certainly, persistent gaps in the criminal justice system, mental health provision and unemployment rates remain stark for some minority groups. What has been less noticed is the emergence of a much more complex pattern of opportunity and disadvantage – not least as a consequence of significant ethnic minority progress.

Most strikingly of all, in educational outcomes, historic attainment gaps between ethnic minorities and their white British peers have disappeared over the last decade. In the aggregate, ethnic minorities get better GCSE results on average. Ethnic minority Britons are more likely, not less likely, to be university graduates than their fellow citizens. 

As a result of that progress, Cameron’s intervention comes at a moment of significant potential – but significant risk too. Britain’s ethnic minorities are the youngest and fastest-growing sections of British society. If that educational progress translates into economic success, it will make a significant contribution to the "Great British Take-Off" that the Prime Minister envisions. But if that does not happen, with educational convergence combined with current ‘ethnic penalties’ in employment and income persisting, then that potential could well curdle into frustration that the British promise of equal opportunities is not being kept.  Cameron also mirrored his own language in committing himself to both a ‘fight against extremism’ and a ‘fight against discrimination’: while those are distinct challenges and causes, actively pursuing both tracks simultaneously has the potential, at least, depolarise some debates about responses to extremism  - and so to help deepen the broad social coalitions we need for a more cohesive society too.

Thirdly, Cameron’s challenge could mark an important deepening in the political competition between the major parties on race issues. Many have been struck by the increase in political attention on the centre-right to race issues over the last five to ten years. The focus has been on the politics of representation. By increasing the number of non-white Conservative MPs from two to seventeen since 2005, Cameron has sent a powerful signal that Labour’s traditional claim to be ‘the party of ethnic minorities’ would now be contested. Cameron was again able to celebrate in Manchester several ways in which his Cabinet and Parliamentary benches demonstrate many successful journeys of migrant and minority integration in British society. That might perhaps help to ease the fears, about integration being impossible in an era of higher immigration, which the Home Secretary had articulated the previous day.

So symbolism can matter. But facial diversity is not enough. The politics of ethnic minority opportunity needs to be about more than visits to gurdwaras, diversity nights at the party conference fringes and unveiling statues of Mahatma Gandhi in Parliament Square. Jeremy Corbyn’s first speech as Labour leader did include one brief celebratory reference to Britain’s ethnic diversity – “as I travelled the country during the leadership campaign it was wonderful to see the diversity of all the people in our country” – and to Labour bringing in more black, Asian and ethnic minority members - but it did not include any substantial content on discrimination. Tim Farron acknowledged during his leadership campaign that the Liberal Democrats have struggled to get to the starting-line on race and diversity at all. The opposition parties too will no doubt now be challenged to match not just the Prime Minister’s rhetorical commitment to challenging inequalities but also to propose how it could be done in practice.

Non-white Britons expect substance, not just symbolism from all of the parties on race inequalites.  Survation’s large survey of ethnic minority voters for British Future showed the Conservatives winning more ethnic minority support than ever before – but just 29 per cent of non-white respondents were confident that the Conservatives are committed to treating people of every ethnic background equally, while 54 per cent said this of Labour. Respondents were twice as likely to say that the Conservatives needto do more to reach out – and the Prime Minister would seem to be committed to showing that he has got that message.  Moreover, there is evidence that ethnic inclusion could be important in broadening a party’s appeal to other younger, urban and more liberal white voters too – which is why it made sense for this issue to form part of a broader attempt by David Cameron to colonise the broad centre of British politics in his Manchester speech.

But the case for caution is that there has been limited policy attention to ethnic inequalities under the last two governments. Restaurateur Iqbal Wahhab decided to give up his role chairing an ethnic minority taskforce for successive governments, unconvinced there was a political commitment to do much more than convene a talking shop. Lib Dem equalities minister Lynne Featherstone did push the CV discrimination issue – but many Conservatives were sceptical. Cameron’s new commitment may face similar challenges from those whose instinct is to worry that more attention to discrimination or bias in the jobs market will mean more red tape for business.

Labour had a separate race inequalities manifesto in 2015, outside of its main election manifesto, while the Conservative manifesto did not contain significant commitments to racial inequality. The mid-campaign launch in Croydon of a series of race equality pledges showed an increasing awareness of the growing importance of ethnic minority votes - though the fact that they all involved aiming for increases of 20 per cent by 2020 gave them a slightly back-of-the-envelope feel. 

Prime Ministerial commitments have an important agenda-setting function. A generation ago the Stephen Lawrence case opened the eyes of middle England to racist violence and police failures, particularly through the Daily Mail’s persistent challenging of those injustices. A Conservative Prime Minister’s words could similarly make a big difference in the mainstreaming of the issue of inequalities of opportunity. What action should follow words? Between now and next year’s party conference season, that must will now be the test for this Conservative government – and for their political opponents too. 

Sunder Katwala is director of British Future and former general secretary of the Fabian Society.