Despite pledging to protect funding for the popular Sure Start programme for pre-school children, David Cameron is, to the anger of many parents, slashing it. He should be pouring far more money in – but only after radically changing what Sure Start is.

The initiative was originally intended to emulate an American scheme called Headstart. Massive resources were thrown at helping low-income US parents relate better to their children (parenting skills, psychological help, support to reduce isolation) and when they were over three, providing cognitively-enriching environments. Evaluated 30 years later, for every dollar spent, seven had been saved down the line. Better education results meant higher levels of employment, reduced criminality and less substance abuse.

Norman Glaser, Sure Start's first director, intended to repeat the formula in Britain. Within two years he had resigned, because the Government refused to let him. Instead, the shiny new children's centres were increasingly given over to providing group daycare so that low-income mothers of under-threes could work. Never mind that these jobs were low paid and often part-time. Initially, there was a problem of low take-up. Filling the gap, some middle class mothers – never the group targeted by Sure Start – were very happy to avail themselves of this subsidised facility.

While daycare is not proven to be harmful for all children, there is strong evidence that it is less good for under-threes than one-on-one care. Aged four and a half, a child who has been in daycare for more than 45 hours a week when under three, is six times more likely to be aggressive and disobedient than one cared for at home exclusively by one parent. Unsurpisingly, when the evaluation of Sure Start was published, it was shown not to have worked – in fact, children from the most disadvantaged homes actually did worse than those with no intervention. It is true that not all Sure Start provision is daycare (perhaps two thirds of the budget goes on daycare). And undoubtedly some excellent attempts have been made to do more than warehousing. If only they had stuck to the original idea which was to help parents meet the needs of their children.

Twenty years ago for an article in this newspaper, I asked the right wing scientist Richard Herrnstein a question. If 10,000 children from low-income homes were swapped at birth with ones from rich homes, when they grew up, would there be greater criminality among the originally low income ones? He was emphatic that genes meant there would be, largely because of inherited low intelligence.

It now looks almost certain that he was wrong and that 90-95 per cent of differences in our psychology are not caused by genes. The case then, for early intervention has never been stronger. But insofar as that entails substitute care, it should be a national network of nannies, not daycare. I would retort to those who object on cost grounds that Gordon Brown famously told us he would "do whatever it takes" to save the banks. How about doing "whatever it takes" to create a mentally healthy population?

Few if any of the New Labour luminaries used daycare for their children – only nannies were good enough. It's the same for the Cameroons. If he is serious about general well-being, the Prime Minister should transform Sure Start into a parent-support programme, including a national nanny service. Under-threes need the undivided attention of a loving adult, responsive to their needs. Where substitute care is used, most parents would prefer a blood relative. But failing that, nannies are the most likely to meet small children's needs.

Oliver James' book for parents of under-threes, How Not To F*** Them Up, is out in paperback.