Parents on low incomes who are working less than 16 hours a week will be eligible for childcare support from 2013, under new government plans.
Some £300m has been allocated for the move, worth up to £175 a week for one child and £300 for two or more.
Ministers say it will benefit 80,000 families receiving universal credit.
Charities had been calling on them to increase the amount they planned to spend on childcare support as part of sweeping welfare reforms.
Under the universal credit system, a single payment will replace child tax credit and working tax credit, as well as income-related jobseeker’s allowance, housing benefit, income support and income-related employment support allowance.
The switchover will begin in 2013 and continue into the next parliament.
The universal credit budget had been set at £2bn, but ministers say an additional £300 million has been found to extend childcare tax credits.
At present, families can get credits to cover up to 70% of their weekly childcare costs, but only if they work more than 16 hours a week. The exact amount given depends on income level, but couples with an income up to £41,000 can qualify.
Work and Pensions Secretary Iain Duncan Smith said: “We are determined to help more parents take their first steps into work, but under the current minimum hours rule parents are trapped in state dependency without the childcare support they badly need – providing yet another barrier to work.”
Deputy Prime Minister Nick Clegg said: “Childcare support is vitally important. It’s a lifeline for families up and down the country, particularly for mums who want to get back into work, maybe for just a few hours a week after they’ve had children.
“This will help an extra 80,000 families who have previously had no help at all with childcare costs.”
Childcare costs vary widely, but the government says the benefit would help low income families pay for an average of about 40 hours a week.
Labour said the government had already reduced support from 80% to 70% of weekly costs.
Liam Byrne, shadow work and pensions secretary, said: “Today’s announcement is frankly smoke and mirrors. It won’t mean a penny more help for parents already struggling on childcare tax credits.
“Universal credit is now set to lock in a ‘parents’ penalty’ that cuts back childcare payments so hard that many parents will be forced to give up work.
“With parents struggling to make ends meet, it beggars belief that the Tories are stopping parents working the hours and shifts they need by taking away their childcare.”
In a recent survey of 4,359 parents by the Daycare Trust and Save the Children, nearly a quarter said the cost of childcare had put them in debt.
A quarter of those on the lowest incomes said they had given up work and a third had turned down work because of childcare costs.
Are you pleased with the amount of support the Government has announced? Do you think this will help nurseries generate future business, with childcare becoming more affordable for some families? Join the discussion by leaving your comments below.