According to Karen Walker, national secretary of the National Private Day Nurseries Association (NPDNA), some schools are taking advantage of the situation by putting children as young as two in classrooms with too few teachers.
"When the Act was implemented, independent schools did not take children under five so they did not need to come under the Act's jurisdiction," she explains.
"However, many schools have realised there's a market for nursery education and are developing nursery units attached to the main building. They're springing up all over the country.
"Because social services can't go near these schools, they can have any number of children in a class, and there are no guidelines about teacher qualifications. What's happening in some areas is quite horrendous. I've even heard of babies of eight months being put in uniforms of navy and white romper suits."
Ms Walker is also concerned about the quality of some individual nursery providers. The NPDNA recently refused to renew the membership of one businessman who bought the equipment for his new, private day nursery from car boot sales.
"If you're running a nursery and want to stay afloat, you need a business mind," Ms Walker says. "But I'm afraid some people have appalling standards and levels of cleanliness. There are nursery providers who have registered under the Children Act whom we wouldn't want in our association."
The NPDNA is currently developing a quality assurance scheme to try to raise standards, she says. And she would like to see similar accreditation programmes developed around the country. "The Children Act concentrates on registration and inspection, which is very important, but it's not enough.Some people flout the Act and try to work around it.
"Social services departments try to ensure bad apples don't set up, but they don't tell
people how to do their market research. When people set up in areas where there are already several nurseries, they can't get enough children and standards drop. It's time we addressed the problem."
Peter Elfer, senior development officer at the Early Childhood Unit of the National Children's Bureau, echoes Karen Walker's worries about independent schools.
"If these schools have at least five over-fives they can register with the Department for Education and Employment, which tends to inspect only once in four years. Social services inspectors have a much tighter inspection regime," he says.
Mr Elfer is concerned that registration is not effective enough. He says regulation appears to ensure that most children are protected from danger arising from lack of physical safety or abuse. But they are not safe from providers seeking to evade or dilute standards.
A small number of services in almost all authorities fall seriously below what could be considered the minimum acceptable level.
Where provision is inadequate, the law allows it to continue to operate until the appeal procedure has been completed, unless there is a risk to children. The appeals procedure can take more than a year.
Mr Elfer is keen to see a unified legal framework for young children's services. "At the moment, provision is split between care and education, with different sets of standards applying to children of the same age in different settings, which results in all sorts of inconsistencies.
The real task is to develop a single system of inspection and development, not to try to make two different ones fit together."
His views are shared by Peter Moss, a researcher at the Thomas Coram Research Unit, part of the Institute of Education, London, who says: "Nobody in their right mind would create the system we have now if they were starting from scratch. The idea that you can separate education and care is quite wrong."
But Ann Beaumont, registration and inspection manager for Kirklees's early years service, says that "in general the Children Act is working".
She adds: "There's a grey area around independent schools with nursery units attached, because we have no authority to inspect that provision. This creates a loophole. But Children Act inspection isn't simply regulatory. It can be a useful tool which allows providers to evaluate and further develop their practice."
Karen Walker says nursery voucher inspection will not protect babies and toddlers in independent schools because inspectors are required to look only at provision for voucher-carrying four-year-olds.
"These inspectors will be looking at educational content and curriculum planning for four-year-olds, not the number of toilets or the staff ratio in baby and toddler units," she says.
"Some independent schools take children almost from birth. These crches don't have any regulations imposed on them. The only time anyone is likely to look at them is if there is some sort of incident."
However, John Morris, general secretary of the Incorporated Association of Preparatory Schools (IAPS), does not see a problem where his members are concerned. He says that although there is an inspection gap in independent schools, he is not aware of any IAPS schools exploiting the situation.
"We believe that schools in our association offer high standards of education no matter what age their children are, " he says. However, he is holding talks with the Independent Schools Joint Council Accreditation Service (ISJCAS) about extending inspection of IAPS schools from three-year-olds to two-year-olds.
"Over the last three to five years there has been a significant increase in the number of prep schools taking children from two, which is where the majority of our schools begin," he explains.
"Of the 500 IAPS schools, about 400 now take children from this age. We are trying to respond to that by extending inspection to the younger age group. Until recently, there was simply no need for it because our schools didn't take children so young."