The consultation sets out the suggested eligibility criteria for the second phase of the scheme, which will be extended to 40 per cent of two-year-olds from September 2014.
The DfE is proposing that, in addition to families on low-incomes, two-year-olds should also be entitled to a free nursery place if they have special educational needs or a disability, or if they have been in care and been adopted.
Currently in the first phase of the scheme, local authorities will apply the same eligibility criteria as that used for school-age children's access to free school meals, which is based on whether families are on benefits or have a household income of less than £16,190 a year and do not receive Working Tax Credits. Children in care will also be entitled to places.
In the second phase of the scheme, economic disadvantage will continue to be the primary focus, but the criteria will be extended to children in families who receive Working Tax Credit, and under the new benefits system families that are eligible for Universal Credit and have annual gross earnings of no more than £16,190. The consultation said this would mean that 'almost all two-year-olds classed as being in poverty would be entitled to free early education'.
According to Government figures using the economic basis, around 260,000 to 296,000 two-year-olds would be eligible for free early education in 2014.
Based on an estimated take-up of 80 per cent for the first years of the entitlement, this would mean that around 210,000 to 240,000 children would use the two-year-old places.
For the first phase of the scheme, from September 2013, the Government has suggested that local authorities prioritise children with SEN and disabilities for any free places that are able to offer.
For the second phase the consultation proposes extending the criteria to include by law those children who have been identified as having 'high-level' special educational needs and disabilities. This would extend eligibility to children with a statement or, from 2014, an education, health and care plan (which will replace statements), and children on Disability Living Allowance.
According to the Government, the number of two-year-olds eligible for DLA is around 8,000 and around 250 children in this age group have a statement.
However, the Government does not propose extending the legal right to an early education place to two-year-olds with 'emerging' SEN, but asks for views on the feasibility of extending the free entitlement to more children with SEN and disabilities.
The consultation also asks for views on how funding for early education for two-year-olds, which will be included in the Dedicated Schools Grant, should be allocated to local authorities.
Alongside the consultation, the DfE has also published a breakdown by local authority area, setting out the estimated number of two-year-olds that would be eligible based on the consultation's proposals.
From September 2013, 20 per cent of two-year-olds will be able to access 15 hours a week of early education.
A pilot will take place in ten areas of England later this year.