As many as 1.9 million working families could benefit from a tax-free childcare allowance worth up to £2,000 per child, the government has announced.
The online scheme, affecting children up to the age of 12, will come in from September next year.
Deputy Prime Minister Nick Clegg said the change, announced ahead of Wednesday's Budget, would help families and be "really simple" to join.
But Labour said the assistance would be "too little, too late".
The parties are making rival offers to help families deal with the cost of childcare, which the opposition says has risen by 30% since 2010.
How the scheme will work
- Parents paying 80% of childcare costs of up to £10,000 per child to a registered provider will get the remaining 20% tax-free
- So those whose annual bill is £10,000 would qualify for £2,000 in support
- Up to 1.9 million families with children under 12 will be eligible in year one
The Family Childcare Trust says the average weekly cost for 25 hours of care for a child under the age of two is £109.89.
At the moment, employees of participating companies can reduce their childcare costs through a tax-free voucher scheme. But only about 5% of UK employers and 450,000 families are signed up to it.
Ministers say the new scheme - which will come into force after the 2015 general election - will mean twice as many parents are eligible for support, including the self-employed.
When it was originally announced a year ago, the government said the maximum support available would be £1,200 per child and that it would be open to families where both parents work and earn less than £150,000 a year.
It also said the scheme would be phased in over seven years.
Following a public consultation, ministers have agreed to increase the value of the scheme to a maximum of £2,000 per child, and accelerate its implementation, extending it to all under-12s within the first year.
Parents will have to set up an online account, allowing them to get a 20% rebate, per child, on the annual cost of childcare of up to £10,000 a year.
For instance, if their annual childcare bill is £6,000, they would be entitled to £1,200 of tax-free support.
In addition, anyone working part-time and earning more than £50 a week, parents on maternity, paternity and adoption leave and those starting their own business will be entitled to support in the first year.
Deputy Prime Minister Nick Clegg told BBC Radio 4's Today programme that introducing different income cut-off points - rather than an earnings ceiling of £150,000 per parent - would have made it too complicated.
"This is really simple." Mr Clegg said, adding: "For every 80p you pay, the government will pay 20p. It's as simple as that."
Under the government's proposals, the current Employer Supported Childcare scheme will continue but will not be open to new members from August 2015. Existing participants will be able to transfer to the new scheme but will not be able to take advantage of both.
The Conservatives, Liberal Democrats and Labour are all seeking to promote family-friendly policies in the run-up to next year's election.
The government has increased the entitlement for three- and four-year-olds to free early years schooling from 12.5 to 15 hours a week while Labour has said this will go up to 25 hours if it wins power after 2015.
Average weekly childcare costs, 2014 (£) |
|||||
|---|---|---|---|---|---|
| Region/nation | Nursery 25 hours (under 2) | Nursery 25 hours (2 and over) | Childminder 25 hours (under 2) | Childminder (2 and over) | After-school club 15 hours |
|
Source: Family and Childcare Trust |
|||||
|
East of England |
111.90 |
105.02 |
121.28 |
120.45 |
51.13 |
|
East Midlands |
94.30 |
97.19 |
86.27 |
86.05 |
46.48 |
|
London |
140.12 |
136.93 |
136.40 |
138.77 |
49.04 |
|
North-east England |
108.24 |
102.66 |
90.88 |
90.09 |
49.52 |
|
North-west England |
98.00 |
97.58 |
84.81 |
89.27 |
49.27 |
|
South-east England |
130.08 |
121.58 |
110.32 |
115.86 |
47.68 |
|
South-west England |
109.70 |
104.96 |
100.48 |
99.54 |
50.75 |
|
West Midlands |
112.17 |
101.85 |
85.52 |
82.85 |
46.85 |
|
Yorkshire & Humberside |
94.03 |
87.94 |
90.68 |
90.75 |
44.84 |
|
England |
110.95 |
106.19 |
100.74 |
101.51 |
48.40 |
|
Scotland |
106.04 |
102.06 |
95.59 |
96.84 |
49.54 |
|
Wales |
103.17 |
102.28 |
94.24 |
94.24 |
45.98 |
|
Britain average |
109.89 |
105.52 |
99.77 |
100.52 |
48.19 |
Labour warned that parents were likely to be paying more of their disposable income towards childcare in 2018 than they are now as a result of the government's policies.
"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," said shadow children's minister Lucy Powell.
"[Prime Minister] David Cameron has cut support for children and families by £15bn since he came to office, And today he confirms that no help will arrive until after the election. This is too little, too late."
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