Gordon Brown has ditched plans to scrap tax relief on childcare vouchers after coming under pressure from Labour backbenchers, Downing Street has said.
Mr Brown 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 the concession, the vouchers will not be scrapped but the tax relief on all of them will be applied at the basic rate of 20%.
At present, higher-rate taxpayers receive relief at 40%, with the result that the richest 6% of eligible parents enjoy 33% of the benefits.
A Downing Street source said that the Prime Minister made clear he was in "listening mode" on the issue and decided to make the concession after Labour backbenchers raised concerns over the plan.
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, said the source.
