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 a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

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Is defeat in Stoke the beginning of the end for Paul Nuttall?

The Ukip leader was his party's unity candidate. But after his defeat in Stoke, the old divisions are beginning to show again

In a speech to Ukip’s spring conference in Bolton on February 17, the party’s once and probably future leader Nigel Farage laid down the gauntlet for his successor, Paul Nuttall. Stoke’s by-election was “fundamental” to the future of the party – and Nuttall had to win.
 
One week on, Nuttall has failed that test miserably and thrown the fundamental questions hanging over Ukip’s future into harsh relief. 

For all his bullish talk of supplanting Labour in its industrial heartlands, the Ukip leader only managed to increase the party’s vote share by 2.2 percentage points on 2015. This paltry increase came despite Stoke’s 70 per cent Brexit majority, and a media narrative that was, until the revelations around Nuttall and Hillsborough, talking the party’s chances up.
 
So what now for Nuttall? There is, for the time being, little chance of him resigning – and, in truth, few inside Ukip expected him to win. Nuttall was relying on two well-rehearsed lines as get-out-of-jail free cards very early on in the campaign. 

The first was that the seat was a lowly 72 on Ukip’s target list. The second was that he had been leader of party whose image had been tarnished by infighting both figurative and literal for all of 12 weeks – the real work of his project had yet to begin. 

The chances of that project ever succeeding were modest at the very best. After yesterday’s defeat, it looks even more unlikely. Nuttall had originally stated his intention to run in the likely by-election in Leigh, Greater Manchester, when Andy Burnham wins the Greater Manchester metro mayoralty as is expected in May (Wigan, the borough of which Leigh is part, voted 64 per cent for Brexit).

If he goes ahead and stands – which he may well do – he will have to overturn a Labour majority of over 14,000. That, even before the unedifying row over the veracity of his Hillsborough recollections, was always going to be a big challenge. If he goes for it and loses, his leadership – predicated as it is on his supposed ability to win votes in the north - will be dead in the water. 

Nuttall is not entirely to blame, but he is a big part of Ukip’s problem. I visited Stoke the day before The Guardian published its initial report on Nuttall’s Hillsborough claims, and even then Nuttall’s campaign manager admitted that he was unlikely to convince the “hard core” of Conservative voters to back him. 

There are manifold reasons for this, but chief among them is that Nuttall, despite his newfound love of tweed, is no Nigel Farage. Not only does he lack his name recognition and box office appeal, but the sad truth is that the Tory voters Ukip need to attract are much less likely to vote for a party led by a Scouser whose platform consists of reassuring working-class voters their NHS and benefits are safe.
 
It is Farage and his allies – most notably the party’s main donor Arron Banks – who hold the most power over Nuttall’s future. Banks, who Nuttall publicly disowned as a non-member after he said he was “sick to death” of people “milking” the Hillsborough disaster, said on the eve of the Stoke poll that Ukip had to “remain radical” if it wanted to keep receiving his money. Farage himself has said the party’s campaign ought to have been “clearer” on immigration. 

Senior party figures are already briefing against Nuttall and his team in the Telegraph, whose proprietors are chummy with the beer-swilling Farage-Banks axis. They deride him for his efforts to turn Ukip into “NiceKip” or “Nukip” in order to appeal to more women voters, and for the heavy-handedness of his pitch to Labour voters (“There were times when I wondered whether I’ve got a purple rosette or a red one on”, one told the paper). 

It is Nuttall’s policy advisers - the anti-Farage awkward squad of Suzanne Evans, MEP Patrick O’Flynn (who famously branded Farage "snarling, thin-skinned and aggressive") and former leadership candidate Lisa Duffy – come in for the harshest criticism. Herein lies the leader's almost impossible task. Despite having pitched to members as a unity candidate, the two sides’ visions for Ukip are irreconcilable – one urges him to emulate Trump (who Nuttall says he would not have voted for), and the other urges a more moderate tack. 

Endorsing his leader on Question Time last night, Ukip’s sole MP Douglas Carswell blamed the legacy of the party’s Tea Party-inspired 2015 general election campaign, which saw Farage complain about foreigners with HIV using the NHS in ITV’s leaders debate, for the party’s poor performance in Stoke. Others, such as MEP Bill Etheridge, say precisely the opposite – that Nuttall must be more like Farage. 

Neither side has yet called for Nuttall’s head. He insists he is “not going anywhere”. With his febrile party no stranger to abortive coup and counter-coup, he is unlikely to be the one who has the final say.