Instead of withdrawing the tax relief to all new entrants from April 2011 as was previously set out in the prime minister's speech to the Labour Party conference, the Government proposes to retain it at the basic rate of tax only.
This means all users of the scheme would be able to continue to benefit from the tax advantages. This will allow them to save as much as £900 every year on their childcare bill.
The change in policy was confirmed in a letter sent to the joint chairs of the Parliamentary Labour Party's Women's Committee, Fiona Mactaggart MP and Roberta Blackman-Woods MP.
A spokesman for the Save Childcare Vouchers campaign said: "This is fantastic news. Parents, employers and childcare providers across the UK will be delighted that the Government has listened to their concerns. Keeping the tax relief for childcare vouchers at the basic rate of tax will mean that the vast majority of parents will continue to receive the support they need to pay for quality childcare."
This U-turn by the Government comes after a surge of public concern about the proposals. More than 92,000 people have signed a petition on the No 10 Downing Street website calling for childcare vouchers to be saved.
The campaign to save childcare vouchers attracted cross party political support and was endorsed by a range of campaigning organisations from across the work-life balance and children's sectors.
Sarah Jackson, chief executive of Working Families, added: "We are delighted that the Government has reconsidered the tax relief on childcare vouchers and has listened to the many concerns expressed by parents and employers. This is no time to be withdrawing any support for parents in work, and vouchers can make all the difference to parents struggling to make work pay."
