A childcare tax break for working parents will be more generous than expected and expanded to older children more quickly, the Government announced ahead of the Budget.
The new scheme – due to come into force from the autumn of 2015 – will be worth up to £2,000 per child, compared with the £1,200 originally proposed.
And it will apply to all children under 12 within its first year of operation rather than the seven-year programme envisaged when it was first announced by Chancellor George Osborne a year ago.
Around 1.9 million families could benefit, twice as many as under the present voucher scheme which is only available where adopted by an employer.
But the policy has faced criticism for excluding couples where one parent does not work and being available to high-earning households with a joint income of up to £300,000.
In a bid to counter criticism of a boost to better-off families, there will be a £50 million boost for nurseries looking after the most deprived three and four-year-olds.
And in what children’s charity Barnardo’s hailed as a “double victory” for the poorest families, it was confirmed that families claiming Universal Credit will have 85% of childcare costs met, up from 70%.
Details of how that would be funded “from within the Universal Credit programme” would be set out at the time of the Chancellor’s Autumn Statement, Number 10 said.
With one charity estimating that the average family will be spending two fifths of their income on childcare within a decade, childcare has become a political battleground.
Labour said support for children and families had been cut by £15 billion since 2010 and dismissed the promise of a tax break after the next general election as “too little too late”.
But Prime Minister David Cameron said it would ” help millions of hard-pressed families with their childcare costs and provide financial security for the future”.
Mr Cameron is due to make a joint appearance to highlight the package alongside Deputy Prime Minister Nick Clegg – who was expected to focus on the help for poorer families.
“As, together, we build a stronger economy for Britain, I’m committed to making sure that we create a fairer society too,” the Liberal Democrat leader said.
“We want to ensure that everyone can get on and succeed.”
The system will effectively allow parents to escape paying basic rate income tax of 20% on childcare costs of up to £10,000 – up from the proposed £6,000.
The self-employed and part-time workers would also now be covered by setting the lower earnings threshold at £50 per week and provision would also be made for those running fledging businesses.
The existing voucher scheme will continue for those already using it but be closed to new entrants.
Shadow minister for children Lucy Powell said: “David Cameron has cut support for children and families by £15 billion since he came to office.
“And today he confirms that no help will arrive until after the election. This is too little too late.
“Of course any childcare support is welcome but this Government has done nothing in this Parliament to help parents experiencing a cost-of-living crisis.
“Childcare costs have spiralled by 30% since 2010 and the Tories have rejected Labour’s plan for 25 hours’ free childcare for working parents of three and four year olds.”
Anand Shukla, chief executive of the Family and Childcare Trust said: ” Given that British parents pay more for childcare than in any other European country, today’s news of extra help for families with the cost of childcare is both important and timely.
“The recent Family and Childcare Trust report showed that even part-time childcare costs outstrip the average UK mortgage bill, clearly demonstrating that childcare affordability is a national priority.
“We’re delighted that the Prime Minister and the Deputy Prime Minister have today recognised that an investment in childcare is an investment both in our economy and in our future.”
Barnardo’s assistant director of policy and research, Jonathan Rallings, said research showed that poorer children could find themselves 15 months behind by the time they started school.
“Today marks a victory for the UK’s most disadvantaged children, on which the Government should be congratulated,” he said.
“We now look forward them boosting the nursery premium over time so that it eventually reaches the same level as the Pupil Premium.”
The 4Children charity said the package was “positive and welcome” but pointed out that parents still faced having to find up to £8,000 for childcare each year.
Ahead of Wednesday’s Budget, the Treasury made a fresh effort to counter claims that workers are not feeling the benefit of the economic recovery in their pockets.
Mr Osborne is expected to reveal dramatically upgraded growth forecasts but critics point to stagnation in average wages as evidence that the upturn is failing to ease a cost of living crisis.
Number 11 produced figures showing that people who had been in their job for at least a year – two thirds of the total – enjoyed above-inflation rises in all but one year – 2011 – since 2006.
Figures showing average pay packets being squeezed were skewed by some people being forced by the recession to switch to lower-paid roles, it suggested.
“Average wage growth has been dragged down by changes within the labour force, such as new entrants and those moving between jobs,” its analysis said.
Shadow chief secretary to the Treasury Chris Leslie said: “Once again the Tories are desperately trying to tell people facing a cost-of-living crisis that they’ve never had it so good.
“In fact the latest figures show that under David Cameron real wages have fallen by over £1,600 a year.
“This analysis is totally out of touch with the real world. It ignores the one third of full-time workers who have not stayed in continuous employment and the 27% who work part-time.”
Alison Garnham, chief executive of the Child Poverty Action Group, said: “The announcement that in future 85% of childcare costs will be met in Universal Credit is fantastic news and something we have been campaigning hard for.
“This is a vast improvement on what is currently on offer and it means for the first time in Universal Credit there will be positive work incentives for lone parents and second earners and this is unequivocally good news.
“It never made sense to give this level of support only to those earning above £10,000, so the Government has done the right thing and made it available to all.
“An Early Years Pupil Premium from 2015/16 for disadvantaged three and four-year-olds is a great move and will be crucial to changing the fact that childcare is often worse quality in poorer areas.
“This vital injection of funds could really begin to turn round the standard of provision for the most disadvantaged children and an additional £50 million makes an important move in this direction.”
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Childcare boost for working parents
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