The Treasury today announced that working families will be able to access 20 per cent of their childcare costs from the government - the equivalent of the basic rate of tax.
Under the plan, the government will cover 20 per cent of the childcare bills of parents on annual salaries of £150,000 or less, up to a maximum of £1,200 a year for each child aged 12 or younger.
Administered via an online voucher account, the Tax-Free Childcare Scheme will largely replace the current Employer Supported Childcare voucher system.
But the scheme will not come into force until autumn 2015, after the next general election, and will be phased-in over time, beginning with under-fives in the first year.
Anne Longfield, chief executive of the charity 4Children, said the broad reach of the scheme was “good news”, but questioned eligibility criteria that require both of the child’s parents to be in work and earning a salary of up to £150,000 a year.
“The expansion of childcare vouchers to parents whose employers don’t currently take part in the scheme is hugely positive,” said Longfield.
“However, to benefit from the scheme, both parents will need to be in work, which will exclude families with a single earner, a blow to some families who have already lost their child benefit.”
Families who are unemployed and eligible for childcare support through tax credits, or its forthcoming replacement Universal Credit, are to receive greater support from an extra £200m of government funding.
This is expected to cover 85 per cent of childcare costs for households that qualify for the Universal Credit childcare element, where a lone parent or both earners in a couple pay income tax.
“Increased support for some of the lowest income families – up from 70 per cent of childcare costs to 85 per cent – will make a big difference and will mean that these families will get more of the money they earn as long as they reach the threshold for paying income tax,” said Longfield.
“It is a missed opportunity, however, that this is not being extended to some of the lowest-paid workers – earning less than £10,000 per year."
David Holmes, chief executive of Family Action, called for more urgent support to families, particularly lower earners.
“While this extra support with childcare will be welcomed by many parents, many families need help with working and earning now, not in more than two years’ time,” said Holmes.
“It is vital to support lower-income households who often face significant challenges in accessing childcare because of smaller and more precarious incomes.”
Shadow education secretary Stephen Twigg said the scheme was “deeply unfair”.
“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,” he said.
“While working parents won’t get any help before the next election, David Cameron is happy to help millionaires with a tax cut now.”
Prime Minister David Cameron said the announcement was necessary to help parents who wanted to return to work.
"Too many families find paying for childcare tough and are often stopped from working the hours they'd like,” he said.
"This is a boost direct to the pockets of hard-working families in what will be one of the biggest measures ever introduced to help parents with childcare costs.”
The Treasury said the current Employer Supported Childcare scheme is offered by less than five per cent of employers and used by about 450,000 families.
It said 2.5 million families will be helped by the new scheme, which will be partly funded by the phasing out of Employer Supported Childcare.
The government said it will launch a consultation on the plan shortly.