Private nurseries should have one adult to eight children, according to Department of Health guidelines. But Bill Dickinson, owner of the Rainbow Nursery School in Worstead, Norfolk, said this made it impossible to make ends meet. He wanted the county council to relax the ratio to one adult to 13 children, arguing that enforcement of the national guideline was unfair when state-run nurseries had no such restriction.

In their 29-page ruling the magistrates said: “We believe it is necessary to consider the welfare not only of children directly affected but all those who may be affected by our decision.”

Mr Dickinson, who also runs a business designing factory automation systems, said all the four-year-olds in his nursery - which was opened by former education secretary Gillian Shephard three years ago - had gone elsewhere because of unfair competition from the state sector after the introduction of the voucher scheme.

After the case at the Family Proceedings Court in Norwich, he said some private nurseries were being forced to run “sweatshops”, paying staff low wages. “We have been losing Pounds 1,000 a month for three years. Enough is enough and we will have to close it down. It won’t last 60 days now,” he said.

Mr Dickinson now faces a Pounds 30,000 bill for both sides’ legal costs.