Downing Street has confirmed prime minister Gordon Brown has been forced into retreat over tax relief for child care following a "petticoat revolution" on Labour's back benches.

He was said to be "listening" to warnings the proposal to scrap the relief in favour of free places for some over twos could turn into as big a fiasco as scrapping the 10p tax rate.

A spokesman said formal proposals will be announced in the Pre Budget Report, seeking to square the circle between Mr Brown's Labour Conference announcement that the existing relief attached to company provision of vouchers is poorly targeted and a decision since to allow the care voucher system to continue.

There is speculation this could mean restricting the relief to the standard rate of income tax.

Since such a climb-down will severely limit the funds available for providing more free places.