A nursery firm with branches in Brighton and Hove said that the government’s policy of free nursery care for up to 30 hours a week was leaving providers out of pocket.
The government funding is not enough to recruit suitably qualified staff and there are “question marks over the sustainability” – with nurseries facing the risk of going bust.
Some had been making up the funding shortfall by charging for extras but the government has issued rules to stop the practice.
The operators of more than 5,000 nurseries have signed up to the Early Years Voice campaign which has threatened to take the government to court.
Hopscotch Nurseries managing director Philip Ford told BBC Sussex: “There are big question marks over the sustainability at the moment, particularly over the levels of funding for the older cohort.
“It comes in at around £5.50 per hour for the three and four-year-olds and we’ve broadly worked out we’re spending around £12.50 per hour so there’s a significant shortfall there.”
The nursery chain has seven branches, including four in Brighton and Hove as well as others in Peacehaven, Seaford and Worthing.
The umbrella group Early Years Voice said: “The government talk about a record investment of over £8 billion in childcare entitlements.
“Yet early years providers are being paid less to deliver funded hours than it costs to provide them, particularly with three and four-year-old funding. The system isn’t working.
“We fully support the notion of the government helping families with the cost of childcare.
“We vehemently oppose the fact that providers have to subsidise these manifesto promises and the overly restrictive legislation around how funding is delivered.”
The funded childcare scheme was extended at the start of last month – Monday 1 September – to provide working parents with 30 hours of free childcare during term-time for children from nine months to four years old.
But higher costs, including the price of food and electricity, mean that many independent nurseries have struggled to offer the pay rates required to recruit the right staff.
The government has said that it has invested about £8 million in the sector, training thousands of new nursery workers and offering new staff in disadvantaged areas a £4,500 tax-free bonus.
