A doubling of child benefit payments and tax breaks for creches and playschools are being considered by the Government as part of a package of measures on childcare to be announced in the Budget next December.
The childcare proposals being considered by the Cabinet would see the monthly payment to mothers being increased by £40 per child per month for children up to the age of five. The increase would affect over 300,000 children at an annual cost of almost £150 million.
The Government is understood to have moved away from the idea of introducing a tax allowance for childcare for working parents, opting instead to focus on increases in child benefit.
A senior Government source said last night that "tax allowances don't help those who are not in taxable employment".
The childcare package is also expected to include measures to increase the number of places in creches and playschools. The introduction of grants and targeted tax breaks for setting up such facilities are understood to be under consideration.
At present child benefit is paid each month in respect of all those up to the age of 19, with almost 1 1/2 million children currently qualifying, at an annual cost of £447 million to the Exchequer.
It is understood that to give the £40 a month increase to everyone up to the age of 19 would cost an additional £500 million this year.
Increases in child benefit - introduced in the last Budget but coming into effect for the first time only this month - bring the payment to £34.50 a month for the first two children and £46 a month for subsequent children.
The Government is also understood to be re-examining the 1996 regulations on creches, which are blamed for a decrease in available places. A source said: "There is an acknowledgment of the problems these regulations are causing."