A survey by the National Day Nurseries Association (NDNA) found that just 45 per cent of nurseries plan to offer extended provision of 30 hours.
A quarter of settings said they are "unlikely" or "very unlikely" to increase from the 15 free hours they currently offer, and a third are "unsure" whether they will offer extended provision, according to NDNA’s Annual Nursery Survey, which contains data from 500 nurseries in England.
The main reasons nurseries said they won’t be extending provision is due to lack of space and funding.
Chancellor George Osborne promised an increase in funding of £300m to nurseries in his Spending Review last November in order to increase the number of places they offer, however nurseries are concerned this is not enough to cover the true cost.
Organisations in the sector fear that funding issues will be compounded by the introduction of the National Living Wage in April. This could push up nurseries’ payroll by as much as 10 per cent, according to NDNA.
NDNA's study found that nurseries are currently underfunded by £1.68 per hour, which they say is the highest ever funding gap. As a result, offering the existing 15 hours of free childcare has resulted in an average annual loss of £34,000 per nursery.
NDNA has called on government to ringfence the early years education funding block, within the dedicated schools grant, which is paid to local authorities to fund childcare provision.
The current arrangements, according to NDNA, mean that not necessarily all of the money allocated centrally for childcare is spent on provision, with some being used for other purposes.
They also want an increment to be added to funding allocations so settings can cope with the increased staffing costs they face one the National Living Wage comes into effect.
NDNA’s chief executive, Purnima Tanuku, said that, while nurseries support the idea of the childcare expansion, “serious funding shortfalls stand in the way”.
“The nursery sector is reluctant to commit to offering more free hours when they already make a significant annual loss on the funded places they currently provide,” she said.
“The nursery sector and the government want the same thing. We all want to make 30 free hours [of] childcare workable and sustainable.
“To achieve this, the sums have to add up. Urgent steps must now be taken to bring about the funding reform promised by the government, so an economically viable hourly rate for high-quality childcare reaches the frontline."
Earlier this month the government announced that eight councils across the country will pilot the expansion.
Tanuku said that the pilots should be used to test out "innovative funding solutions" so that when the expanded offer is fully launched in 2017, there will be enough provision for all families.
Roy Perry, chair of the Local Government Association’s children and young people board, said that £50m of funding to create additional nursery places, announced by Osborne in the Autumn Statement, as well as the £300m set to be given to providers to increase the average hourly rate in nurseries, will help nurseries deal with the cost of extended provision, but said councils have a role to play as well.
“The announcement of at least £50m of capital funding will help to create much-needed nursery places, and councils should have the freedom to invest in extending provision in maintained schools where it would benefit parents and children to do so.
"Councils currently have limited powers over providers, and limited scope to extend provision. For the new scheme to work, powers must be returned to councils to make sure early education offered is of the highest quality."
“An additional £300m to increase the average hourly rate for providers, along with the introduction of a national early years funding formula [announced by George Osborne last year], will address the underfunding of providers in some areas that was a consequence of the wide variation in rates paid by government.
"[The current] funding formula is no longer fit for purpose. The new formula must enable councils to persuade providers to come forward to meet the needs of working parents and provide high-quality places for every child that needs one.”