The plan, outlined by Gordon Brown in his speech to the Labour conference, is intended to give more than one in three two-year-olds access to free childcare for ten hours a week by the end of the next Parliament.
The Government said that the aim was to re-direct money to where it is needed most, to help disadvantaged children access high quality childcare.
Tax relief and National Insurance contribution exemptions on childcare vouchers will be scrapped to pay for the expansion of free childcare for poorer families but this will not affect those currently using vouchers to pay for nursery care, as the move does not come into effect until April 2015.
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