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Grandparents of working age who provide free childcare so their children can go out to work will be rewarded for the first time with a tax break.

They will be able to earn credits towards their state pension for each year that they take out of the labour market to look after their grandchildren.

One in four of all families, and half of all single parents, rely on grandparents to provide many hours of free childcare each week.

The value of the work is estimated at £3.9 billion a year.

The recession means that this figure is expected to grow as working parents cut back on nursery hours, nannies and childminders.

A recent poll found that almost half (44 per cent) of parents said that they were likely to seek more grandparental help with childcare over the next 12 months.

To qualify for the new tax break, grandparents will have to look after their charges for 20 hours a week and the children must be 12 or under.

More details will be contained in the social care Green Paper due in June. The scheme will begin in April 2011.

Campaign groups for the elderly have been asking the Government for some time to reward the work of grandparents, including a credit towards the pension. They welcomed the move. Sam Smethers, chief executive of Grandparents Plus, said that it could be the start of far more benefits coming the way of grandparents.

“We warmly welcome the introduction of the grandparent national insurance credit. We know that working age grandmothers on low incomes are the ones who are most likely to be providing that childcare.

“Until now they have done so with the risk that they could miss out on a full basic state pension.

“This is also an important victory for the principle that the care grandparents provide does count and should be recognised. We believe this has implications for other areas of government policy.”

But Toby Ryland, partner at the London chartered accountant Blick Rothenberg, said: “The token gesture allowing grandparents of working age who look after their grandchildren to ‘earn’ credit towards a state pension is welcome but falls far short of the immediate financial help that this important support network desperately needs.” The Government estimates that 45,000 grandparents will benefit immediately from 2011.

Research from Grandparents Plus suggests that it is usually women of working age who have been on a low income who are most likely to be providing the free childcare, often because they had their own children at a younger age and became grandparents younger.

They are also likely to need to add national insurance contributions to make sure they are eligible for the state pension.

In his speech Alistair Darling said: “Increasingly grandparents play a big role in family life and in looking after their grandchildren. To reflect this, we will, for the first time, ensure these caring responsibilities for grandparents of working age will count towards their entitlement for the basic state pension.”

But calls for parents to be able to use the children’s tax credit to pay for this sort of informal care have not been taken up by ministers. Tax credits will still only be used for formal care such as a nursery or childminder.

Recent research has also cast doubt on whether care from grandparents gives children the best start in life.

Data from the Millennium Cohort study of children born in 2000 found that those in the care of grandparents struggled to socialise with their peers by the age of 3 had significantly more behavioural problems and were behind at key developmental stages compared with those in nurseries, with nannies, childminders or even other family members. The only clear benefit was their good vocabulary.

There may be more perks for grandparents. The Conservatives said that they were looking at proposals to give working grandmothers who want to help care for their grandchildren the right to request flexible work in the same way that parents can.

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