The investigation into St Philip's RC sixth-form college in Birmingham is the first of its kind and could lead to the school governors being removed by John Patten, the Secretary of State for Education.
The conflict has pitted most of the governors, from the traditional wing of the church, against the staff.
The governors want to close the college and hand its 900 students over to the Anglicans. They say too few pupils are Catholics and too many are Muslims, Sikhs and Hindus. But some staff believe the governors, most of them nominated by the Oratorian religious community which owns the college buildings, want to take advantage of the upcoming sainthood of Cardinal Newman, who lived on the site in the 19th century. The college and its adjoining Oratory could soon become hot religious property, and rumour has it that a Catholic university could replace St Philip's.
In the meantime, daily life for staff and students has become difficult. Muslim students have been told they cannot hold prayers on the site, and staff were even threatened with disciplinary action after inviting a priest to say Mass. The principal, Eddie Picardo, has been suspended after a number of disagreements with the governors.
John Patten has called for a full inquiry into events at St Philip's. It will be headed by Sir John Caines, former permanent secretary at the Department for Education, who is expected to report within a few months.
Tension has been mounting for two years at the college, which was founded by Cardinal Newman as a grammar school in 1887 and has been a sixth- form college for 20 years. For five years from 1987, the Oratory fathers allowed Birmingham Archdiocese to run it, but in 1992 this agreement ended.
Despite the traditional views of the Oratorians, who are seen as being on the right of the Church and answer to no religious authority other than the Pope, relations in those five years were cordial.
In the Oratory, Mass was still said in traditional style on occasion, but in the college a multicultural community had grown up. Exam results were good and the college won a prestigious Curriculum Award. In February 1992 most members of the college governing body were replaced by nominees of the Oratory. The new governors found that the number of Catholics in the college had dropped below one-third, although they were still the largest religious group, and a plan was drawn up to close St Philip's. It was to be replaced by an ecumenical Anglican college on the site of a Church of England School.
Within a few months of the change of governors the principal, John Guy, resigned. He was replaced by Mr Picardo, but relations with the governors soon soured, as they already had with many other staff.
First there was the row over Muslim prayers. An order was given that non-Christians were no longer to pray on the site, and a room was rented in a nearby primary school for the purpose. Some of the staff condemned the edict as 'spiritual vandalism' and said they would ignore it.
Then the staff and governors became embroiled in a row over college Masses. The staff say they had been asking for a chaplain for the college for some time; the governors say they had always provided this service. Whatever the truth, the arrival of an outside priest to say Mass at the invitation of the staff did not go down well. Disciplinary action was threatened against anyone who tried to organise such a service again. A few weeks later, a 40-seater coach was chartered by staff and students to go to a service at a nearby church.
The refurbishment of the cloisters has also caused disquiet. The work cost more than pounds 100,000 of college funds, but staff say the building is part of the Oratory. The governors say the college is free to use the building if it wants to. The principal refused to sign cheques for the work until it was approved by the Further Education Funding Council. He was suspended on 3 May.
Staff morale has not been improved by the Further Education Funding Council's refusal to finance the proposed new college. But staff have welcomed the government inquiry. 'There has been enormous stress for two years. The staff have not allowed the students' education to suffer because they are enormously able and dedicated,' one of them said.
The vice-chairman of governors, Isabella Slominska, said the college had to close because it was no longer able to fulfil its purpose of maintaining and propagating the Catholic faith. 'Really the college represents the ethnicity of the city, and by virtue of that it is multi-faith. There has been a significant dilution of Catholicity.'
She said the Muslim community was now happy with the arrangements, and that no member of staff would ever be disciplined for attending a Mass. The principal and chairman of governors had to be informed about visitors, including priests, for security reasons. 'You get lots of strange people coming in and some of them rush off with some of our things,' she said.
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