Until now it has been customary for providers to receive money from parents to cover the cost of a place and then to reimburse them when the local authority funding came through. But, according to Clause 90 of the code produced by the Sure Start Unit, from 1 April, 'parents of eligible children should pay no charge in respect of their child's minimum free entitlement'.
Sylvia Archer, who runs a neighbourhood nursery at the Children's House in Stallingborough, Lincolnshire, said that while some local authorities were prompt and supplied funding at the start of each term, others might not provide it for several weeks, leaving the private provider to cover the costs in the interim.
Clause 91 suggested that local authorities could pay settings in stages - 50 per cent at the start of term and 'a balancing payment in the second half of the term following a headcount of eligible children attending the setting'.
But Mrs Archer said, 'For sustainability purposes our invoices are issued at the beginning of the month. If they are imposing this system on private providers running Neighbourhood Nurseries in areas of deprivation, they are just not going to be sustainable.'
Early years consultant Nathan Archer said that while he understood the principle behind parents not paying any money for free places, in practice it would create cash-flow difficulties, most acutely for Neighbourhood Nurseries and childminders accredited to provide free early education sessions.
Rosemary Murphy, chief executive of the National Day Nurseries Association, described the code as a 'disappointment' that would lead to a 'hotch-potch'
of funding arrangements across different local authorities. She said, 'Most worrying of all is that the funding for early education will no longer be ring-fenced within the education budget given to local authorities. This can only lead to more erosion of funding for providers of free places.'
Mrs Murphy pointed out that the code of practice said local authorities should encourage a diverse mix of providers to allow maximum parental choice - 'but it then goes on to give local authorities flexibility to fund private, voluntary and independent providers at different levels'.
She added, 'There will be a clear temptation for local authorities to reduce funding for non-maintained providers.
'With providers in many areas near breaking point as their early education funding is eroded by top-slicing and years of below-inflation increases, this flies in the face of parental choice and will threaten the Government's plans for universal provision.'