MPs said that the Government should reduce the earnings cap for the 30 hours childcare and use the extra funding to provide early education for disadvantaged children.
The popularity of the 30 hours’ free childcare among affluent parents led to financial pressure on nurseries since the Government funding does not cover the full costs, the report said.
The policy also means that more nursery places are taken up by three and four-year-olds who are funded by the scheme, leaving less space for one and two-year-olds who are more likely to be from disadvantaged households, it added.
The 30 hours free childcare policy has previously come under fire, with critics warning that it will lead to nursery closures.
Leaders of the nursery school sector have argued that the rate the Government offers is below the actual hourly cost of childcare.
Under the previous 15 hours free childcare scheme, nurseries could make up for the shortfall in the Government rate by charging the parents more the rest of the time.
But when the number of free hours is doubled, nurseries who have signed up to the scheme will not be able to charge for additional hours since many families do not require more than 30 hours a week of childcare.
A report last year by the Family and Childcare Trust suggested that the policy has helped push up nursery costs for families to more than £6,300 a year.
“Where the prices providers are paid by local authorities are less than the prices they can charge parents, the providers may put prices up elsewhere to compensate,” the report said.
MPs said that despite ministers’ “good intentions” to improve early years education, there has a “lack of direction” in their approach so far.
Robert Halfon, a Tory MP and chair of the Education Committee, said: “Despite the good intentions and efforts made by the Government, there remain significant social injustices in children’s life chances in England which early years childcare and education is failing to address.
“Sadly, we know that disadvantaged children start school behind their peers and that the gap widens, unless tackled, by the time they get to secondary school. “It’s vital the Government reform the 30-hour childcare offer to focus it to help the most disadvantaged.”
Nadhim Zahawi, the Children and Families Minister, said: “We are investing more than £100 million in projects looking to improve disadvantaged children’s early outcomes, and are building a coalition of organisations – from businesses to voluntary organisations – that will help support parents with their child’s early language development.”