John Major’s much-trumpeted nursery voucher scheme is unlikely significantly to increase pre-school choice, a leaked government paper has revealed.

To increase the number of places in private nurseries - and thereby create diversity - the Department for Education and Employment may have to raise the value of the Pounds 1,100 vouchers in certain regions, it suggests.

According to the memorandum, written by civil servants at the DFEE, more than 630 private and voluntary-sector providers have applied to join the pilot schemes in Kensington and Chelsea, Wandsworth, Westminster and Norfolk.

Although it is not yet known how parents in these four authorities have chosen to spend the vouchers they were given in April, the memo admits that “given the overall shortage of places, the department is not expecting wholesale changes in the relative balance of providers”.

The report estimates that when the voucher scheme goes national in 1997-98, almost Pounds 570 million will be diverted from local authorities’ allocations for existing pre-school services. Only Pounds 160 million of new money, including Pounds 20 million for administration and inspection, will be provided.

The memorandum raises the possibility of increasing the value of vouchers in areas, such as London, where costs are higher. However, while four-year-olds in the City of London would receive vouchers worth about Pounds 1,600, in other areas the vouchers’ value would be cut to under Pounds 1,100.

Such an arrangement may be unnecessary because “there is, as yet, no evidence that the absence of a regional adjustment is likely to lead to market failure”. It could also lead to problems over boundaries. An outer-London voucher could, for example, be cashed in at a more expensive nursery in inner London.

Seizing on the leaked report as evidence of a “bureaucratic nightmare”, shadow education secretary David Blunkett said: “The whole nursery voucher scheme is a complete fiasco. Where there is no place, there is no choice.

“There is an implicit acceptance in this paper that there is no great rush of private and voluntary providers coming forward - only 110 extra places were created by the new private or voluntary providers in the pilot scheme.

“Even at this late stage, I urge Education Secretary Gillian Shephard to recognise that her objectives can be met more easily and more cost-effectively through planned local partnerships involving local education authorities, the private and voluntary sectors,” said Mr Blunkett.