It is understood that there is already likely to be a shortage of 40,000 places for the initial rollout of the scheme from September 2013.
The chancellor's announcement in his Autumn Statement to extend the number of nursery places for two-year-olds to 40 per cent of children, from 2014-15, means thousands more places will need to be found.
The Government says that it will be investing an extra £380m a year in the scheme, so that up to 260,000 two-year-olds will be able to access 15 hours of nursery education a week. However, it is understood that officials at the Department for Education have estimated that there could already be a shortfall of 40,000 places for the initial rollout, which will entitle 20 per cent of two-year-olds to a free place for 15 hours a week from 2013.
The DfE is currently consulting on the eligibility criteria for providers that wish to offer two-year-old places and has indicated that only providers that are judged 'outstanding' or 'good' by Ofsted will be eligible for the two-year-old funding.
Based on the number of providers that currently meet this standard, it is understood that there is likely to be a shortage of 40,000 places. Now that the Government is planning to extend the scheme, a further 130,000 places need to be found.
It is also understood that although providers are willing to offer two-year-old places in settings where capacity is available, they are not considering investing in providing more places - by extending premises and taking on more staff, for example - without more Government investment.
A number of the large nursery groups have told Neil Leitch, chief executive of the Pre-School Learning Alliance, which chairs the Major Providers group, that they welcome the proposal to extend the scheme for disadvantaged two-year-olds and will use their spare capacity, but they are not prepared to invest further to create additional places. It is understood that nursery groups believe it is unreasonable of the Government to expect them to subsidise the two-year-old offer.
Mr Leitch said there was 'a massive question mark' about whether the number of childcare places could be accommodated by the sector.
As the two-year-old entitlement is being offered to the most disadvantaged children, there is likely to be a shortage of places particularly in deprived areas, where childcare quality tends to be lower, or in rural areas.
Mr Leitch warned that a policy to allow only 'good' or 'outstanding' nurseries to offer two-year-old places would 'eliminate a significant proportion of settings'.
He claimed that there could be an overall shortfall of at least 170,000 places, in the 'worst case scenario', and that if the Government adhered to this policy 'a fair chunk of the sector' would be excluded from offering the scheme.
Mr Leitch said, 'Something has to happen to accommodate those places. If funding is only going to "good" or "outstanding" settings, you could be a "satisfactory" setting and not have an inspection for three or four years, which puts you at a disadvantage.'
To counter this, the Alliance is proposing that 'satisfactory' settings should be able to ask Ofsted to re-inspect them after six months, so that they have a chance to show that they have successfully acted on Ofsted's actions and recommendations and believe that their provision has improved sufficiently to move up a grade from 'satisfactory'.
Mr Leitch suggested that Ofsted's costs would be covered by settings paying for the re-inspection themselves.
He said that such a move would drive improvement to the quality of early years settings, as well as leading to an increase in the number of available places for two-year-olds.
- Meanwhile, Early Years Childcare, which runs nine nurseries in Sussex, is running a survey about the experiences of nurseries offering the pilot scheme for two-year-olds.
The group says that a number of providers say they are struggling to stay sustainable and that the situation is compounded by underfunding for threeand four-year-olds.
Business development manager Adeline Garman said, 'Most have expressed concern that they will be put under further pressure once the scheme is rolled out to eligible two-year-olds.'
To take part in the online survey visit: www.freechildcare.org.uk/ 2011/12/two-year-old-funding-take-part-in-our-survey/