It is the sixth year running that the NDNA’s survey has reported on the underfunding issue, which it says the majority of nurseries face on three-and four-year-olds places, while nearly half make losses on the two-year-old offer.
Funding shortfalls are also putting nurseries off from offering more funded places for twos, the report warns.
On average nurseries in England taking part in the Government-funded scheme are losing £712 a year for every two-year-old place.
Currently, 86 per cent of nurseries offer some funded places for twos, but the number of places on offer remains unchanged from last year’s survey, at an average of 11 places at each setting. The average hourly rate for twos is £4.92 in England. Ninety-six per cent of nurseries in England offer places for three- and four-years-olds, receiving an average hourly rate of £3.80.
Just 19 per cent of nurseries said they were planning to expand their provision for funded twos, with 65 per cent saying they had no plans to increase these places.
In addition to this, 37 per cent of nurseries responding to the survey say that they have to wait for four weeks or more from the start of term to receive payment from local authorities.
Separate reports have been published for Scotland and Wales.
The report also highlights that business rates and VAT are pushing up the cost of childcare and preventing nurseries from offering more places.
Nurseries will also face more financial pressure this year when pension auto-enrolment comes in, which will affect many small and medium-sized nurseries.
Most nurseries are unable to benefit from small business rate relief, as their rateable value at an average of £30,000 is well above the threshold.
The report says that the community benefit that nurseries provide should be recognised and calls on the next Government to make them exempt, by giving all childcare provision, including the private sector, 100 per cent relief on business rates and make VAT on childcare zero-rated.
These pressures could lead to many nurseries putting up their fees, with 85 per cent of nurseries in the survey considering doing so in the next year, with increases most likely to be between 2 and 3 per cent.
The survey also asked nurseries about their partnership with schools. Forty-three per cent of nurseries are working with schools to provide childcare, mainly through providing early education, including two-year-old places, off the school site.
The majority of nurseries surveyed report that they will increase pay in the next 12 months at around 1-3 per cent.
The NDNA also asked nurseries whether they paid their staff the Living Wage. Only 12 per cent pay all their staff the Living Wage, with 15 per cent saying that they pay it to most of their staff, and the majority paying it to some staff.
Nurseries say they want to pay their staff the Living Wage, but are limited by the level of funding they receive from the local authority and affordability for parents.
NDNA chief executive Purnima Tanuku said, ‘Four months from the general election, childcare is at the top of the political agenda and politicians must balance the conflicting priorities of cost, quality and choice for parents.
‘The sector is facing unprecedented challenges – funding does not cover the cost of free places and costs are increasing. Nurseries have great expertise and commitment to high quality childcare and early education that makes a real difference to children and families. If these issues are resolved they could do even more to support parents.
‘Underfunding of “free” places is chronic, having been reported in NDNA’s last six nursery surveys, with rising business costs compounding the problem and pushing up fees for parents.’
Last week, a survey from 4Children said that the cost of childcare was forcing one in five parents to consider giving up work.
4Children chief executive Anne Longfield said, ‘While we have seen progress on childcare in recent years, we now need all political parties to put high quality, affordable childcare at the top of their agenda as we approach the general election – answering the call from thousands of families across the country for more support.’
A DfE spokesperson said, 'Thanks to our plan for education the childcare market is thriving. We have done a huge amount to expand the amount of childcare on offer, with more families than ever having the option to take it up.
'Our funding has been increased to £2.9bn to provide 15 hours a week of free childcare for all three- and four-year-olds, as well as for the most disadvantaged two-year-olds.
'We have made clear to local authorities they should pass on as much of this funding as possible to nurseries. The money we give to local authorities is more than the average hourly rate for free childcare places.'