“Them education action zones; they’ve gone down like a bloody lead balloon, ” was a comment overheard by a delegate at the North of England Conference in Bradford this week.

The reaction was to the announcement by Michael Barber, head of the Government’s standards and effectiveness unit, that businesses will be running education action zones and managing schools in some of the most disadvantaged areas in the country.

The zones, which will have funds of about Pounds 15 million a year - Pounds 250,000 from the DFEE, matched by business - plus school budgets of two to three secondary schools and their feeder primaries, will be managed by education action forums, which the Government intends to be led in some instances by business.

Professor Barber said Capita, which ran the nursery vouchers scheme and administers council payrolls, Nord Anglia, the Stock-Market-listed education provider, and the Centre for British Teachers, which runs careers services and Office for Standards in Education inspections, had shown interest. He could not name any non-education specialists but said that management consultancies would be among those interested in taking on contracts to manage action zones.

It was ironic that the North of England Conference, the premier showcase for local authorities, was the chosen venue to make the announcement that ended up on the front page of daily newspapers as “Private firms to run state schools”. The Daily Mail thought it was a radical and brave move by David Blunkett, the Education and Employment Secretary. The rule book will be torn up, it said. Zones will be able to scrap the national scales for teachers’ pay and the national curriculum.

“Emergency measures have long been needed to make good the damage inflicted by bad teaching and bureaucratic domination,” said the Daily Mail leader.

The bare bones of the policy have been known, but local authority leaders were outraged that the guidelines had been published without consultation. “It’s the arrogance of power,” said one delegate. Even the patience of Graham Lane, education chair of the Local Government Association, snapped. He raged that it was tantamount to privatisation of schools and the end of local democracy. He suggested it was a conspiracy hatched by civil servants and shadowy ideologues to do away with local education authorities.

In truth many councils, including Mr Lane’s, applied to be involved in the zones; he sees it as an LEA-driven scheme in partnership with businesses including Tate Lyle and London Electricity. But many believe the policy to be a Trojan horse, masking plans to sidestep teachers’ contracts and circumnavigate councils’ duties to schools.

Doug McAvoy, NUT general secretary, said he would be monitoring the new arrangements for teachers’ contracts and will seek to protect his members’ conditions. He is also concerned about the effect on schools just outside the zone if their good teachers are enticed away by better pay or prospects.

Professor Barber said the zones will be test-beds for innovation in a post-modern world. The DFEE letter sent out to local authorities, businesses, training and enterprise councils and community organisations telling them how to apply to become zones says that of the first five zones to be set up, one should be led and run by a business.

DFEE guidance says the action forum will typically include representation from parents, at least one person from the schools, business and the local authority. The Secretary of State will be able to appoint one or two members.

The zones will operate for three years but can be extended to five. What would happen after that is currently not clear. The first five will be operational by September 1998 and the other 20 by the following September.

The plan to bring in business won support from the Institute of Directors as well as from Stephen Dorrell, Conservative education spokesman, despite referring to his own government’s failure to get firms involved in running even one school, and the abandonment of city technology colleges.

For once the talk in the conference hotel bars was not of budgets. The extra money found for education by the Chancellor has helped, and the horse-trading with social service committees also bidding for the extra loot is yet to come. So when Stephen Byers, education minister, wrapped up the conference, following a suitably up-beat New Year’s message from David Blunkett via video, the issue of education action zones was still gathering steam. To reduce the heat, he assured delegates that businesses would not have an automatic right to run the zone. He described the plan as a non-dogmatic attempt to use a variety of ways, including input from the private sector, to raise standards.

But he did say that local authorities did not have a God-given right to lead schools. He warned council leaders that if they do not do their job well, the Government could either step in, as it had in the case of the London borough of Hackney, or it could get other organisations, including private companies, to run the service.

The conspiracy theorists still shook their heads.

The minister’s speech continued the week’s theme of social exclusion. He said his Government was presiding over a nation where five million homes have someone out of work and where one million people had never had a job. In some estates, he said, the biggest employer was the illegal drug industry.

His Government also had to deal with crime waves perpetrated by teenagers truanting from school. Raising educational achievement by whatever means, he said, will be the key to giving a new generation the will to win.