Brown in U-turn over tax relief for childcare

Gordon Brown has ditched plans to scrap tax relief on childcare vouchers after coming under pressure from Labour backbenchers.

The Prime Minister announced at Labour's annual conference that the relief would be phased out from 2011 to fund the expansion of free nursery places for two-year-olds.

After yesterday's concession, the vouchers will not be scrapped, but the tax relief on all of them will be applied at the basic rate of 20 per cent. At present, higher-rate taxpayers receive relief at 40 per cent, with the result that the richest 6 per cent of eligible parents enjoy 33 per cent of the benefits. All existing users of the scheme will continue to receive tax relief on their childcare.

The new policy will apply to new entrants to the scheme from 2011. The change will mean Mr Brown cannot achieve his ambition of providing free nursery places for 250,000 two-year-olds by 2015, but the number of places will still be tripled.