Ministers have accepted that the increasing demand for childcare must be considered in the planned expansion of places for three-year-olds in playgroups and pre-schools.

Margaret Hodge, minister for employment and equal opportunities, has announced pound;100 million to fund another 83,000 places for three-year-olds for the next two years. By 2001 around half of three-year-olds should have a free playgroup or pre-school place.

Ministers have also signalled that work is being done to bring together the funding of services for young children. In her response to the independent panel that has been reviewing the future role of pre-schools and playgroups, Mrs Hodge says the Government is willing to consider new arrangements for managing grants for pre-school places and childcare grants for facilities.

The report from the panel points out that the number of pre-schools and playgroups, often run by the voluntary sector, has declined from 18,000 groups in 1991 to 15,700 today. In some cases, the growth of state provision has removed the need for informally-run groups. However, some good-quality pre-schools and playgroups have closed, leading to a reduction in choice for parents, says the review.

The panel is asking ministers to remove from schools the financial incentives to recruit children below the statutory starting age. It also wants education authorities to return to allowing primary schools to admit children in the autumn and the spring term.