Government retreats from plan to help families with childcare

The Treasury is attempting to water down plans to give tax breaks and "free" state-funded hours of childcare to millions of working families.

The proposals were due to be announced as part of the Government's mid-term review and help off-set criticism of the decision to withdraw child benefit from taxpayers earning over £60,000 a year. At the same time Elizabeth Truss, the minister responsible for childcare, was due to announce new rules to allow nurseries to look after up to eight children for each member of staff. Currently the limit is four.

It was hoped that together the moves would substantially bring down the cost of childcare which currently sees parents spending more than a quarter of their income on looking after their children while they are at work. But the Treasury is understood to be concerned at the cost of the proposals – which could be worth around £2,000 a child – could lead to thousands of stay-at-home mums going back into the workplace.

This, officials fear, could create a funding black-hole at a time when budgets across all Government departments are under intense pressure.

At the same time the Liberal Democrats are worried that the plans to relax child/staff ratios could damage the standard of care provided. Nick Clegg has made it clear that he will refuse to sign off on any policy "which jeopardises standards."

So far the Coalition's ruling 'quad' of David Cameron, George Osborne, Mr Clegg and Danny Alexander have met twice in an attempt to iron out the differences between the Treasury and the Department of Education.

But sources said little progress had been made. Government sources last night expressed frustration at the delay.

"This was supposed to be announced at the same time as the child benefit cap was introduced and show that we doing something for hard-working families," said one.

"But now it looks like we may not be able to work through all the issues before the budget."