Government does U-turn on childcare voucher tax plans

The government was considering plans to end tax relief from 2011 and divert money into offering more free childcare places for two-year-olds.

But in a letter to Parliamentary Labour Party’s Women’s Committee joint chairs, Fiona Mactaggart MP and Roberta Blackman-Woods MP, Prime Minister Gordon Brown has confirmed the plans have been scaled down.

He said that tax relief for basic rate taxpayers will continue, but higher rate taxpayers will see their tax relief halved from 40 per cent to 20 per cent from 2011.

The original proposals to phase out the childcare vouchers had been widely criticised by childcare groups and Labour politicians.

The Pre-school Learning Alliance is among those to welcome the U-turn. A spokesman said: "This was a very unpopular proposal, as highlighted by the resulting swell of protest from all quarters, including some of his own ministers."

Anne Longfield, chief executive of 4 Children, said: "Shifting funding from vouchers to free nursery places for two-year-olds was the wrong trade-off, and this is a great result."

The Save Childcare Vouchers campaign estimates that childcare vouchers save families around £900 on their childcare costs.

A spokesman for the campaign said: "Parents, employers and childcare providers across the UK will be delighted that the government has listened to their concerns. Keeping the tax relief for childcare vouchers at the basic rate of tax will mean that the vast majority of parents will continue to receive the support they need to pay for quality childcare."