New laws doubling the amount of free childcare parents can get for three and four-year-olds could lead to many nurseries having to reduce the number of children they can take unless they receive further funding, a report has warned.
The National Association of Head Teachers (NAHT) said that many of its members are already running their nurseries at a loss and are having to subsidise them from their mainstream budget.
The Government's Childcare Bill, which will double free hours from 15 to 30 hours for 38 weeks a year, could put them under further strain, with the union warning that it might mean schools move away from providing nursery education altogether.
Two thirds (66%) of its members who answered a survey said they believed that increasing the provision of free childcare to 30 hours per week could mean they will end up reducing the total number of children they can take.
Of these, three in five (64%) said they might reduce the amount of children they could accommodate by as much as half (25-50%).
Just one in seven (15%) school-based Early Years providers believed increasing the number of free childcare hours was sustainable under the current plans.
The survey of nearly 800 members - most of whom were head teachers - found the majority (58%) felt the funding they currently receive for three and four-year-olds does not cover their costs.
Two fifths (40%) receive less than £4 per hour, while 32% get £4-£5 an hour, the report found.
Most (80%) were cross-subsidising their funding from the rest of the school budget, which the NAHT said is not sustainable in the long-term and will become increasingly difficult with the other growing pressures on school budgets.
More than half of respondents (54%) said that they simply did not have the capacity to increase the number of nursery education hours they offered.
Most (53%) said the parents of children who receive free childcare hours do not also extend this with paid-for care.
NAHT general secretary Russell Hobby said the union welcomed the principle of offering extended free childcare to working families, but has made four key recommendations for the Department for Education.
These are to develop a national fair funding formula for nursery education and also to work with the sector to understand the issue of capacity and consider how to make sure that there is enough provision to meet demand.
It also wants to ensure that schools have time to implement the policy, particularly if it means that they will have to reduce the number of children that they currently support, and for the Government to understand that the provision of capital funding is key to the success of the policy.
"We support the aspiration to offer extra free childcare to working families and we believe the plan can work but the Government now needs to keep to the commitments it has made about looking at funding and consulting with providers – otherwise some families could lose out," Mr Hobby said.
"The Government has to work with us to make sure that the policy becomes one that schools can actually deliver.
"NAHT has repeatedly championed the importance of Early Years care. Now we need to see proper planning and funding so that this policy doesn't fall short of its excellent intentions. Taking the first steps into a school environment is the most important stage of a child's education."
Extending free childcare was promised by the Conservatives in their manifesto, but questions have been raised about how it would be delivered.
The scheme is planned to start from September 2016 and be fully implemented by September 2017.
The Tories originally said the plan would cost £350 million a year, but Employment Minister Priti Patel has been appointed to chair a review of childcare funding, which she expects to deliver an ''uplift'' to the hourly rate paid by the Government.
The Pre-School Learning Alliance, which represents 14,000 private, voluntary and independent groups, has previously warned the existing 15 hours a week of free childcare is ''grossly underfunded'' by the Government.
Responding to the report, its chief executive Neil Leitch said: "These findings clearly reinforce the concerns raised by the private and voluntary childcare sector about the potential impact of the 30 hours offer.
"The early years sector has been significantly underfunded for many years, forcing providers to find other ways to cover the cost of providing places.
"It's vital that government resists the temptation to rush out a policy that, while attractive on the surface, is simply unworkable in its current form."
A Department for Education spokeswoman said: "We know that childcare is one of the biggest issues affecting parents. This is why we are working closely with the sector to deliver 30 hours of free childcare, and innovative childcare providers are being asked to come forward as the first in the country to deliver it from September 2016.
"We have already committed to raising the average hourly rate providers receive, and are also undertaking a review of childcare costs to inform a new rate that is fair for providers and delivers value for money for the taxpayer."