Ofsted has been ordered to stop intervening in cases where friends look after each other’s children after its inspectors banned two police officers from a shared childcare arrangement.

Ed Balls, the Children’s Secretary, told Ofsted’s chief inspector that reciprocal childcare arrangements should no longer be treated as childminding or be subject to inspections. He will also make changes to the law to “clarify” the situation for parents who share childcare.

“From now on and with immediate effect I would ask that Ofsted always treats such situations as beyond the scope of the childcare arrangements that you regulate,” he said.

Mr Balls made the ruling in direct response to the case of two policewomen, who had a job-share arrangement and took care of each other’s children on their days off.

Leanne Shepherd and Lucy Jarrett, both detective constables at Aylesbury, Buckinghamshire, were stopped from doing so by Ofsted who said that they were receiving “reward” for childcare and must register as childminders.

The women would have to take a childcare course, have criminal record checks, face inspections and meet targets for early years education if they wanted to carry on, Ofsted said. They are the first to have been accused of breaking the law in this way.

But the outcome of a review of their case and the Childcare Act 2006 ordered last month by ministers means that parents and friends who exchange childcare will not be scrutinised.

DC Jarrett told The Times she was “delighted” that “common sense” had prevailed. “It’s a shame that it has had to go through all this to get common sense,” she said.

The pair had been forced to find nursery places for their daughters, aged two and three, because Ofsted said what they were doing was illegal.

“We won’t go back to our former arrangements because our girls’ routines have been disrupted and to disrupt them again would not be the correct thing,” Ms Jarrett said. “But this will give us a bit more flexibility and we are really pleased that thousands of other families won’t need to worry that they are going to face prosecution.”

The Childcare Act states that parents who receive “reward” for looking after someone else’s children must be registered as childminders and inspected. Ofsted interpreted the word “reward” to include the benefit of reciprocal childcare.

But Mr Balls told the inspectors today that they were wrong to do so. “It has never been our intention to intervene in these kind of arrangements between parents and friends,” he said. But he admitted that the word “reward” in the Childcare Act “may be less precise than was necessary” to ensure arrangements between friends were not covered by the Act.

“To make this crystal clear and for the avoidance of any future doubt I am immediately setting in train the process required to clarify the relevant legislation.”

Sir Roger Singleton, the Government’s chief advisor on child safety, advised Mr Balls that such arrangements should not be regulated. “Government should not seek to regulate the sensible and responsible arrangements that parents make between themselves for the care of their children,” Sir Roger said.

“Provided the arrangements are freely entered into and are not complicated by the payment of one parent by anothr I consider that the Government should regard these arrangements as matters for parental discretion and decision,” he added.

Under existing rules, people who babysit for another person’s child for more than two hours at a time or on more than 14 days per year must be registered.

This applies to any case where the parent receives a “reward” for the childcare - which can include money or simply free babysitting in return.

A spokeswoman for the inspectors said: “Ofsted welcomes the moves to clarify these regulations.”

The changes come as the Government announced the start of toughened up checks for people looking after children and vulnerable adults. Internet chatroom moderators will now be subject to increased criminal checks and more employers will face prosecution if they knowingly employ a barred individual.

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