The findings are from a survey of 135 childcare providers by the 4in10 network, set up to tackle the high levels of poverty in the capital.
Childcare in London is particularly difficult for low-income families, says the network of more than 300 voluntary and statutory organisations across the city.
According to its latest report, At what cost? The ‘free’ 30 hours childcare promise in London, 60 per cent of providers surveyed are planning to offer the 30 hours, but this falls to 44 per cent in inner London.
The survey also found that 40 per cent of settings are not sure or definitely not going to take part in offering the 30 free hours.
It warns that in addition to the 30 hours, London settings face pressures from rising costs including staffing, property, and business rates.
Families are likely to see a rise to the cost of childcare outside of the free hours, as well as extra charges, and some families eligible for the 30 hours may struggle to access them, while non-eligible families may in turn struggle to access the 15 hours.
There are also concerns that funding will affect the quality of provision in disadvantaged areas, where quality is key to children's outcomes, reducing the attainment gap and promoting social cohesion, the report says.
The network says that its findings show that not all providers will be able to afford to offer the 30 hours or increase the number of places available, meaning that some parents will miss out and there will be a shortfall in childcare places across London.
'Childcare is also critical for businesses to recruit and retain parents in the workforce, and while the 30-hour offer is clearly intended to encourage more parents back into work, without careful monitoring and intervention where needed the policy could threaten instead of enabling parental employment in the capital,' the report concludes.
Just 12 per cent of settings in inner London and 15 per cent in outer London said that the hourly rate they receive for three- and four-year-olds will cover the cost of provision in the next financial year. More than half said that remaining financially viable over the next two years would be very challenging.
A third of early years settings surveyed said that they were unlikely or very unlikely to be offering more 15-hour places for three- and four-year-olds in two years’ time.
The report also warns that 75 per cent of settings are likely to raise their fees in the next 12 months, with reports varying between 1 and 20 per cent. For those settings that are expecting a shortfall in funding for the 30 hours, 54 per cent said that they expect to increase or introduce charges for 'extras', for example for lunch or for wraparound care outside core hours. Settings with high numbers of children from disadvantaged backgrounds were least likely to raise fees.
Mismatch in demand and supply for 30 hours
Early years settings with the fewest children meeting the eligibility criteria are most likely to be planning to provide the 30 hours offer, which the report says suggests that there will be a mismatch in demand and supply of 30 hours places in London.
‘With four out of ten children in London living in poverty, a higher rate than any other region in the country, London cannot afford for the 30 hours rollout to destabilise its childcare market, reduce places, push up costs, or widen inequalities,’ the report warns.
The report has been released ahead of the Mayor of London’s childcare strategy, which is expected to be published shortly, and urges action to address the threat to the capital’s childcare by the 30-hour policy.
Laura Payne, 4in10 Network Manager said, ‘Responses from childcare providers in the capital paint a picture of an early years sector dominated by uncertainty; however, they are certain about one thing, the funding for this offer is not enough to provide quality care.
‘This change was meant to support working parents but if it goes ahead without intervention it could threaten the availability and quality of childcare in the capital, in particular in for children in low income families. If we don’t want the costs of this promise to fall on London’s parents, small childcare businesses and disadvantaged children we believe the Mayor should step in and use his upcoming childcare strategy to ensure that London’s children all receive the best early years provision possible.’
The report recommends that the impact on childcare sufficiency and affordability for three- and four-year-olds not eligible for the 30 hours be closely monitored and interventions put in place if the 30 hours has a negative impact on non-eligible families. Local authorities should include this as part of their annual sufficiency audits. It also claims that seven London boroughs have not carried out sufficiency assessments in recent years.
To ensure sufficiency and quality the Mayor should examine top-up payments to PVI providers in deprived areas, it adds.
A spokesperson for the Mayor's office confirmed that the childcare strategy would be published shortly.
In January the Mayor of London Sadiq Khan introduced interest-free childcare deposit loans of up to £1,500 for Greater London Authority employees, including the police and transport workers, and said he 'pledged to work with employers to make childcare more affordable and accessible, with a strategy that delivers for business and workers across London'.
Comments from London nurseries
'Being a small nursery, it is difficult with the 30 hours - pensions, increase in living wage, staff training, planning ahead - they're all problems for small businesses like childcare. The larger chains are buying up the smaller nurseries. I've heard there's funding for nurseries to expand but I can't find any info on that. The most helpful thing would be business support, which should include expanding your nursery to offer those additional hours to your existing clients who need them.'
Antoinette, manager, Lighthouse Nursery in Bromley
'This has a huge impact on small nurseries. We already lose money on the three- and four-year-old places at 15 hours which are heavily subsidised by the nursery. The nursery is small and if we do not receive enough funding, we cannot offer the places. If we did, they would block the places for fee-paying parents who work and can afford the fees - these parents need nursery places so they can work and are the parents that keep the nursery open. I do not think it will be financially viable for us to offer the 30 hours.'
Tower Hamlets nursery manager
'We cannot offer 30 hours because we hire a hall and that many hours are unavailable.'
Wandsworth early years provider
'The cost of staff training is difficult. Even the local authority training costs are going up - first aid went up to £75 per session.'
Hounslow pre-school manager
'Without additional charges for the consumables and meals we will be no longer viable. The 30 hours will impact on working conditions and pay for staff.'
Brent nursery manager
'We will only offer a small number of 30 hour spaces for parents already enrolled with us, then to others.'
'Due to a change in our operating hours to cover the 30 hours we will have additional staffing costs to cover longer opening hours.'
Deborah, Croydon nursery manager
'As a charity we can claim rate reduction, but the cost of rents for our LA building is increasing, this is not covered in the early years funding formula.'
Pauline, manager of Lloyd Park Centre and Higham Hill Daycare, Waltham Forest