Ruth Kelly, the Education Secretary, will publish on Tuesday proposals to give schools greater independence, including the right to own their own assets.
However the plan, being pushed by Tony Blair, has faced opposition from within the Cabinet with John Prescott, the Deputy Prime Minister, expressing fears that poorer children in mainstream education could end up in collapsing state schools.
The launch of the education reforms comes amid renewed tension in Whitehall between the Prime Minister and Ms Kelly over the proposals. In a rare challenge to the authority of Mr Blair, concerns were expressed about the proposals in a Cabinet meeting last week.
Mr Prescott is not the only minister to have expressed concern about Mr Blair's education proposals. The plans, to be set out in the White Paper, entitled Higher Standards, Better Schools for All, would allow schools to seek a new status as a "trust school", but fears have been expressed about a two-tier education system.
Companies running private schools would be given an unprecedented role in the state sector with the ability to run, take over or set up state schools, under the reforms. Schools will also be able to take control of their budgets and bring in private sponsors - in a radical variation to the city academy model.
Whitehall sources are confident that thousands of state schools will take up the new freedoms and use the opportunity to expand.
But the plans to "federate" private schools into the state sector will prove controversial among many Labour MPs.
"It will be easier for independent schools to join the state sector, giving more freedom for schools" said one Whitehall source.
"They will have academy-like freedoms. The local authorities will have a role about driving up standards rather than the day to day management of the school. It will allow new providers to come into the education system."
The proposals will allow a new school to be set up in the state sector with financial support from private companies, independent schools providers and charities.
"We need a cultural change within the education system and to drive that change we need to free schools, empower parents and improve choice," said a senior government source. "We think that greater freedom for schools and more power for parents will drive up standards."Reuse content