Cash-strapped nurseries are struggling with growing deficits following the introduction of the 30-hour free childcare policy, a survey has suggested.
Under a Government scheme rolled out last autumn, three and four-year-olds in England with working parents are entitled to this amount of free care.
But a report by the National Day Nurseries Association (NDNA) said the scheme is causing a "huge challenge" for nurseries, leaving them with rising business costs.
The organisation surveyed 709 nurseries in England, and found nearly one in five (19%) expected to make a loss.
Figures also showed that nursery closures had increased by 47% since the scheme began, the report said.
Purnima Tanuku, chief executive of the NDNA, said: "It's about time Government woke up to the full cost of delivering their 30 hours 'free' childcare policy.
"Nurseries are forced to alter the way they deliver funded hours, by restricting the amount of places they offer, holding back from hiring highly qualified staff or charging parents for extras to make up the funding shortfall. Neither parents nor nurseries want this to happen.
"Doubling the amount of funded childcare from 15 hours to 30 has more than doubled nurseries' average annual shortfall which, coupled with late payments from local authorities, is seriously undermining their cash flows."
The Department for Education noted that the poll was based on a small number of the 45,000 childcare providers in England, and said its own research showed 80% were willing and able to offer places under the scheme.
According to the NDNA, the gap between the cost of delivering the free childcare and the funding nurseries receive from local authorities has risen to an average of £2,166 per year per child.
A third of respondents said they were having to limit the number of funded places, the report added, while 71% planned to increase their fees to reduce the shortfall.
Describing it as a "terrible state of affairs", Ms Tanuku added: "By not adequately funding this policy, Government is putting children's life chances at risk.
"The Government must act now."
Children and Families Minister Nadhim Zahawi said the 30-hour free childcare policy was benefiting almost 300,000 children.
He said: "That means thousands of hard-working parents are saving an average of £5,000 a year on childcare.
"Our research has shown that more than 80% of providers are willing and able to offer places under this programme, with a third saying that had managed to increase the number of places available and 40% able to increase staffing hours."
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