One in six providers of childcare has not applied to take part in the Government’s new pre-school scheme, which replaces an annual direct payment to parents of €1000 for each child under five, because they don’t feel the amount of money on offer is enough to cover their costs. The plan will cost €170m — just a third of the €480m spent last year on the previous scheme.

One-in-five pre-school children are looked after outside the home for part of each day (an average of 21 hours per week). The one-in-five are mainly in Montessori schools and playgroups.

Under the new plan, which begins in January, the Government provides payment for a set period of two hours and fifteen minutes each day, five days a week, for pre-school children. This replaces the Early Childcare Supplement, which is paid directly to parents.

Tens of thousands of children aged between three and four are entitled to the year’s free pre-school. But hundreds of pre-school providers have not signed up.

According to the report, more are threatening to pull out of the scheme, claiming that the payments will, in many cases, not even cover their costs.

Figures from the Department of Children reveal that 844 of the 4,900 care providers notified of the free pre-school scheme did not return applications before the deadline of July 10.

It means that some parents may end up paying for providers that opt out of the scheme, while others receive a free service. Childcare providers claim that pre-schools that take part in the scheme are banned from charging top-up fees, even if their overheads are higher.

They cite official Central Statistics Office data to show that hourly childcare costs are 50pc higher in Dublin than most areas, yet there is no provision for regional disparities.

And they claim services that invested heavily in facilities and staff fear being squeezed out as generic, while basic “yellowpack” services are set up just to avail of the new scheme.

The Department conceded that it was possible that “a shortage of pre-school year places may arise in a limited number of cases”. But it said 93,000 places were catered for, which more than met demand on a countrywide scale.