More than one in five nurseries and other early years childcare providers in Sunderland have closed since 2015, according to data published by Ofsted.
The Pre-school Learning Alliance has called for “urgent action” to address a funding crisis it says has left more than 40% of providers in England contemplating closure next year.
Any provider who cares for early years children - from birth up until the August following their fifth birthday – must be registered with Ofsted.
In Sunderland, there were 183 such providers on the register at the end of March 2018, 52 fewer than in March 2015.
This is one of the biggest drops in providers seen by any local authority in England.
All three and four-year-olds in England are entitled to 15 hours of free childcare per week during term time.
But since September 2017, parents can claim an additional 15 hours if both they and their partner earn less than £100,000 a year but more than the equivalent of 16 hours at the minimum wage.
The Pre-school Learning Alliance argues that the funding the Government provides for the scheme is not enough to cover the costs incurred by providers.
Almost three quarters of local authorities in England lost early years providers in the first seven months after the 30 hours scheme was introduced, while 98% have seen a drop since 2015.
In Sunderland, there were seven fewer providers at the end of March 2018 than there were before the policy changed in September.
Neil Leitch, chief executive of the Pre-School Learning Alliance, said the new scheme had “further exasperated” funding problems already experienced by providers under the 15 hours scheme.
He added: “There has never been any such thing as free childcare. It’s subsidised childcare.
“Early Years funding is frozen until 2020, and while our costs go up, we’re just told to make it work.”
Research undertaken by the organisation has found that more than four in ten providers are now charging parents for extras such as lunches or nappies to make up the shortfall in funding.
This means providers in poorer areas, where parents are not able to pay more, are struggling the most.
Since 2015, the number of available places in England has not been reducing at the same rate as providers, and in the most recent 12-month period, they increased by 3,800, despite a loss of more than 1,700 providers.
A similar picture can be seen in Sunderland, where there were 61 more places at the end of March compared to the previous year.
According to Mr Leitch, providers are being forced to take on more children to cope with the funding pressures.
“The providers have told us they can only operate at a higher level of capacity,” he said.
“Smaller nurseries, for example in rural areas where they operate out of a village hall, are having to close because they just don’t get the economies of scale that the larger ones do.”
The drop in childminders, who care for small numbers of children at a time, has been particularly sharp, accounting for 85% of the more than 9,000 providers lost in England since 2015.
It was a similar picture in Sunderland, where 43 of the 52 providers lost since 2015 were childminders.
Mr Leitch said: “It’s a difficult job. Why would anyone do it if you’re earning peanuts?
“You could work half the hours in Tesco and be better off financially.”
Nadhim Zahawi, Minister for Children and Families, said it was “normal in a private market” for providers to join and leave the Ofsted register.
He continued: “We want every child to have the best start in life, and it is great that more than 340,000 children have benefited from a 30 hours place in its first year.”
The Government is also supporting new childcare providers by providing grants to reimburse them for some of the costs of setting up their businesses, he added.