Academies and free schools should become profit-making businesses using hedge funds and venture capitalists to raise money, according to private plans being drawn up by the Education Secretary, Michael Gove.
Details of discussions on the proposed redesign of academy regulations were leaked to The Independent by Department for Education insiders who are concerned that Mr Gove is going too fast and too far in his ambition to convert all 30,000 schools in England to academies.
They are worried that the new setup will divert cash from classrooms, limit the availability of "expensive" subjects such as music and science and end the public service vocation of teachers. They want to see an end to the secrecy over the proposed reforms, which have not been publicly announced.
Mr Gove, according to senior DfE sources, is considering the controversial financial revamp of his academy schools programme after advisers predicted the growth of his reforms will stall unless operators and sponsors are given new financial incentives.
In a further radical measure aimed at boosting the economic attraction of academies, the Education Secretary is also examining proposals for academy schools who control large sites to be able to sell off or sub-let former council-owned land, with the money used to rebuild or improve schools.
The National Union of Teachers branded the covert discussions inside the DfE a "scandal waiting to happen" and called on the Education Secretary to make an urgent statement to parliament and taxpayers on where the academy programme is now heading.
Christine Blowers, the union's general secretary, said if those providing education were answering "first and foremost to their shareholders, then corners will be cut."
She predicted that expensive subjects and facilities such as science labs "will simply not be available", adding: "Parents will be aghast that their children could soon be taught by unqualified teachers in schools where the central driver is profit."
One senior Whitehall aide, who recently left the DfE, described the Gove plans as "either political suicide, or the most significant change since 1947 when school leaving age was raised to 15."
Stephen Twigg, Labour's shadow education secretary, called the plans a "triumph of dogma over evidence". He said the for-profit policy had been tried in schools in Sweden and resulted in money being diverted from classrooms. Sweden recently saw one of its education providers, JB Education, going bust leaving the future of 10,000 pupils in limbo.
Currently one in four of England's 7.3 million state pupils are taught in schools with academy status. Just over 3,000 of England's 27,000 schools have converted to academies, while over half of secondary schools and 10 per cent of primaries are academies.
A memo prepared for Mr Gove by senior DfE staff last October revealed that expansion of the academies and free schools programme would "not reach much beyond 5,000 [schools]" unless additional central resources were found. The Education Secretary was urged to begin planning a "fundamental shift" in academies' status before the 2015 election.
The proposals on profit and the sale of school land, advance the key concerns of the DfE memo and chime with the evidence Mr Gove gave to Lord Justice Leveson's inquiry into press ethics.
Asked at the Inquiry last year if he hoped free schools would be allowed to make a profit should the Conservatives form a second-term government, Mr Gove said: "It's my belief that we could move to that situation, but it's important to recognise that the free schools movement is succeeding without that element and I think we should cross that bridge when we come to it."
Abandoning the restrictions on schools making profits will do little to boost the pre-election relationship between the Conservatives and their Liberal Democrat coalition partners.
Mr Gove's plans will be seen by Downing St as carrying a high political risk. Last year a survey by Populus showed that three quarters of the public disapproved of academies making profits. It showed that the public were favourable to a range of institutions delivering education, as long as it remained free at the point of use. But concerns rose significantly over schools being run for profit.
A committed core inside the DfE backing the Gove-led reforms believe the numbers of academies and free schools cannot rise significantly unless the current financial regime is altered.
A spokesman for Mr Gove re-confirmed the target of converting all English schools to academy or free status, but later said that profit-making was not needed, adding: "More than half of all secondary schools are academies with hundreds more in the pipeline and the number of primary academies is increasing fast and now stands at more than 1,000."
This still leaves the vast majority of England's schools as council-run.
The momentum for further change is understood to have come from leading academy operators telling the DfE that rules urgently need to be altered to attract new sponsors.
The chief executive of a leading academies trust, who spoke to The Independent on the condition of anonymity, said: "Michael Gove understands the current business model for academies is not viable. We invest in failing schools that we take over. But it is not really investment because there is no return. Written into our funding agreement are explicit criteria which says we cannot borrow, and cannot enter into lease agreements of any significance."
He added: "Being allowed to make a profit means we could raise money to fund expansion, by borrowing against our existing assets, namely our schools."
The executive said that large international companies like Gems - who run schools for profit in Dubai, India, Abu Dhabi - would be attracted into the market.
Natalie Evans, director of the New Schools Network which helps groups setting up free schools in England, said the growth of free schools was "already unprecedented" and that profit-making was "not a necessary condition for the scaling up of the programme".
However she added: "More can be done, including relaxing the rules that currently prevent free schools from borrowing. This would create additional financial headroom for schools to grow and for new chains of free schools and academies to emerge..."
Other academy executives admitted one of the most politically sensitive plans being looked at by the DfE, is a change to the legal agreement which governs how state-owned land, leased generally on a 125 years basis to academies, cannot be disposed of without the permission of the freeholder, usually a local authority.
Councils need the permission of the secretary of state to dispose of school land, including where land converts to an academy. Legal restrictions prevent academy trusts from disposing of leasehold land if it ceases to be used as a school. The rules say the secretary of state's decision on any land disposal needs to "fair and just".
One executive said : "If Mr Gove wants to free up the academy programme - and he does - then to do this properly, he will have to loosen up the rules on the disposal of land. Some academy sites have sites bigger than they need and selling of a bit might allow academies to have great buildings. For those worried this is asset-stripping or profit-at-all costs, performance targets for academies could justify these changes."
Any proposal from the DfE for a partial sell-off of land leased to academies, worth tens of billions of pounds, would be one of Mr Gove's most controversial proposals and likely to become a key election issue.
Model schools: For-profit companies
The largest private sector education company in the world, covering nursery through to GCSE level. Operating on four continents over the last 50 years, Gems is responsible for the education of 130,000 pupils. New Gems schools opening this year include sites in the United Arab Emirates, Egypt, Switzerland and Uganda. Gems schools that follow the English model, and are named accordingly, include Gems Cambridge and Gems Winchester in Abu Dhabi, and Gems Westminster in Ras Al Khaimah.
A private education firm run by former chief inspector of schools Sir Chris Woodhead. Launched in 2004, it encompasses 64 schools across the UK, Europe, Latin America and South-east Asia, providing education for 27,500 pupils. It employs around 4,000 teachers. In 2011 Cognita was one of a number of schools operators that urged Michael Gove to widen the involvement of for-profit schools in his reforms. Sir Chris urged ministers at the Department for Education to “bite the political bullet” and allow for-profit firms to run publicly funded state schools.
Mainly focuses on the US, where it is a for-profit management company operating state schools. Started by entrepreneur Chris Whittle, it pioneered the idea of using education vouchers to run state schools for less money than US school district boards. It ran 1,000 schools, but now manages 157 state-owned sites. It expanded into England, running Edison Schools UK, and has partnerships with 80 schools.
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