Gordon Brown has officially shelved his plans to scrap tax relief on childcare vouchers, following protest from Labour backbenchers.
At the Labour Party Conference in September Brown revealed he would remove the tax exemption on childcare vouchers from 2011 and use the money saved to fund free nursery places for 250,000 two-year olds.
The Prime Minister has now announced that tax relief on the vouchers will remain but it will all be applied at the basic rate of 20%. All existing users of childcare vouchers will continue to receive their tax exemptions.
Currently higher-rate taxpayers receive tax exemptions at 40% meaning the richest 6% of eligible parents enjoy 33% of the benefits, the Metro reported.
The current exemptions, which cost the UK £500m per year, are worth up to £900 for a basic rate taxpayer and £1,200 for a higher rate taxpayer. For every employee who joins a childcare voucher scheme, employers save up to £373 a year.
Brown’s u-turn now means he will not be able to deliver his pledge to offer 250,000 free nursery places for two-year olds but the government will instead triple the number of nursery places available.
Maria Miller, the Conservative’s families spokeswoman, said: “The government’s childcare policies are in chaos.”
More than 92,000 people have now signed a Number 10 petition calling on the government to re-think their plans for childcare vouchers.