The coalition’s £1bn flagship scheme to provide free nursery education for two-year-olds will be funded by raiding money currently earmarked for local authority Sure Start schemes, threatening the existence of hundreds of projects helping disadvantaged families, it has emerged

On Tuesday, the Liberal Democrat leader, Nick Clegg, announced £100m of one-off capital funding to enable nurseries to build extra capacity, in response to fears that there would not enough places to meet demand. This cash comes out of the Department for Education’s current capital budget.

But it has now emerged that ministers intend to fund the day-to-day running costs of the nursery scheme by top-slicing hundreds of millions of pounds from the early intervention grant currently used by councils to pay for Sure Start centres, parent and toddler schemes, parenting projects, short breaks for disabled children, and initiatives that support the government’s troubled families programme.

Local authorities fear that financing the scheme in this way will leave a shortfall of up to 20% in their early intervention spending plans next year. One senior councillor told the Guardian that the potential cuts to its Sure Start and family recovery services as a result of the funding raid would be “brutal”.