Presenting the spending review and the autumn statement in the House of Commons, George Osborne gave more detail on the policy.
In changes to the original proposals, there will also be an upper income limit per parent of £100,000 a year, which will also apply to tax-free childcare.
The Government claims this will mean savings of £215m by 2020-21.
Early years providers will receive an increase in the average hourly rate from 2017-18, which the Government says will be provided through a £300m a year investment.
There will also be at least £50m in capital investment for early years settings to provide the places.
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