Three-year-olds whose nursery places are threatened by the voucher scheme have been thrown a life-line by the Audit Commission.
The commission says in a report published this week that councils should not allow three-year-olds to be harmed in the race to attract voucher-bearing four-year-olds.
It says: "If access objectives for three-year-olds seem to be endangered, it may be desirable for an authority to concentrate subsidies on settings that admit a certain proportion of children of this age."
Education authorities have been under pressure to open more nursery classes in order to admit more voucher-bearing four-year-olds. This has left three-year-olds isolated in nurseries and playgroups, scores of which will welcome the Audit Commission's recommendations as they battle against closure.
The commission's 112-page report, Under-fives count, is a handbook for managers based on an analysis of 12 education authorities. It builds on the widely publicised report, Counting to five, published by the local authority watchdog earlier this year.
The handbook recommends eight principles of good practice which include focusing on children's needs rather the existing services; designing policies to match resources; comparing the cost of developing existing nurseries with that of opening new ones; and maintaining good working relationships with all providers, including private and voluntary, to assess which ones are best placed to meet the needs of parents.
Local authorities, says the commission, will have to consider how the money from vouchers will influence their actions. "A playgroup in which educational quality has been an issue might undertake extra staff training," it says. "A high-quality private nursery with high fees might improve access by bringing fees down. If it can afford to, a local authority might enhance and encourage either of these actions by giving further support through subsidy."
But the commission also recognises that local authorities in England will want a substantial share of the voucher market - they stand to lose up to Pounds 565 million a year in grants clawed back by the Government to pay for the scheme.
The report is critical of authorities which regard existing spending as "cast in stone" and it is concerned that some managers have not sorted out their under-eights services and their policies for children in need.
It also says there is no single way to achieve a good under-fives service. Integrating education and social services departments is only one route to improving provision - the most important thing is a willingness to collaborate.
The report contains a case study from the London borough of Camden which shows how nursery schools, widely considered to provide a good education for young children, do not always provide value for money. The commission has calculated that playgroups cost 99p per child hour; compared to Pounds 1.91 for nursery classes; Pounds 1.04 for reception classes; and Pounds 24.04 for home-visiting schemes.
The commission stressed this week that it was not advocating that councils should necessarily opt for the cheapest service. It was important that education authorities understood and analysed all types of service.
The report devotes a chapter to home-visiting schemes which many authorities use to improve the quality of children's experiences. It concludes that managers need to collate information about all schemes, no matter who is running them, as part of an overall strategy for under-fives.
Under-fives count: A management handbook on the education of children under five is published by the Audit Commission, 1 Vincent Square, London SW1P 2PN and costs Pounds 15.