David Cameron is announcing an increase in childcare grants, handing parents of under-twelves up to £2,000 per year – an £800 increase on the current system.

The news, delivered today by the prime minister as a pre-Budget taster, will be welcomed by busy small business owners with young children.

Under the new scheme the government will provide 20 per cent of funding costs per child. Previously this was capped at £6,000, meaning parents were entitled to £1,200 per child, now this limit is pushed back to £10,000 per year.

The new scheme is aimed at a wider net of employed people, including part-time workers and the self-employed.

People earning more than £50 a week, those on maternity and paternity leave and those starting a business but not meeting the minimum earning requirement are also covered.

Mr Cameron said: “Tax free childcare is an important part of our long-term economic plan. It will help millions of hard-pressed families with their childcare costs and provide financial security for the future.”