Tax relief kept on childcare
vouchers

Parents of young children are celebrating a Government U-turn which preserved tax relief on childcare vouchers.

Gordon Brown gave in to pressure from Labour backbenchers and announced he was ditching his plan to scrap the relief, currently worth up to £2,392 to 340,000 families using Ofsted-approved nurseries across the UK.

Instead, the relief will be applied to all vouchers at the standard income tax rate of 20%, at a cost of hundreds of pounds a year to parents earning more than £43,000, who currently receive relief at the higher rate of 40%.

The move was welcomed by childcare campaigners but sparked Conservative allegations that the Government's policy was "in chaos".

Parents currently using the vouchers will not be affected by the change, which applies to new entrants to the scheme from 2011.

Mr Brown announced he was scrapping the relief at Labour's annual conference in September, in order to fund free nursery places for two-year-olds. He argued that the wealthiest 6% of voucher users gained 33% of the benefits from the tax relief.

But he faced a backlash from Labour backbenchers, including former ministers Patricia Hewitt, Estelle Morris and Caroline Flint who challenged him in a joint letter.

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