A third of nurseries fear going bust because of the Government's new childcare scheme.
From today, most children aged three and four are entitled to 30 hours a week of free care.
But nurseries say that Whitehall funding does not cover the cost of providing the places. Increasing financial pressures – including higher business rates and the impact of the national living wage – have already forced 25 to shut in the past two months.
And a study shows that 38 per cent of nurseries expect to be driven out of business within a year under the strain of the new childcare scheme. Half say they will have to raise their fees and charges.
A third of nurseries fear going bust because of the Government's new childcare scheme
Councils pay nurseries to provide the free hours but often at a rate that does not cover their bills.
The average grant is £4.95 an hour – 18 per cent, roughly £1, less than nurseries say they need. They do not have to offer the 'free' places but risk losing too many customers if they do not.
'Those closing tend to be small but much-loved and long-established preschools,' said Purnima Tanuku, of the National Day Nurseries Association.
'We have warned that nurseries will be pushed out of business by low hourly rates for free places and it appears this is now starting to happen. Our fears are that more will follow.'
The study of 1,400 nurseries, pre-schools and childminders was carried out by the Pre-school Learning Alliance.
Seventy-four per cent said the funding rate from the Government was less than the cost of providing a place.
Half plan to increase their hourly charge and a similar number say they will introduce extra charges for meals and trips
From today, most children aged three and four are entitled to 30 hours a week of free care
Eve Wort ran Anchors Nursery School in Hampshire for almost 21 years before it closed this summer.
Trained at Norland College, Mrs Wort opened Anchors in 1996. Along with five other members of staff she cared for 18 children in each morning and afternoon session.
Mrs Wort, 56, who lives with her husband Jonathan, said: 'It was an extremely painful decision but we had to close.
Eve Wort ran Anchors Nursery School in Hampshire for almost 21 years before it closed this summer
The parents are devastated. There was not a dry eye in the room when I told them but there was no way forward.
Our funding was reduced to £4.36 per hour when our hourly costs are around £6 per hour. Without charging supplementary fees our traditional nursery school operation is not sustainable.
'I am not prepared to sacrifice quality of staff and staff ratios to achieve a cost target.
'If the Government just took out the word "free" from "free childcare" and called it subsidised, so that parents could be required to pay a small supplementary charge where necessary, the whole system would work and everyone would be happy.'
Neil Leitch, of the PLA, said: 'The Government's total refusal to tackle the fundamental problem of early-years underfunding has left providers across the country struggling to find ways of delivering the offer that won't force them out