Grant-maintained schools have been told not to bother bidding for cash for capital projects as the sector faces its first big financial squeeze.

The quango that administers GM schools’ funding has scrapped the annual bidding round and warned heads that they will have to look for alternative sources of finance for optional extras such as nurseries and sixth forms.

The Funding Agency for Schools said it would only pay for urgent health and safety work, work which is required by law, and the removal of surplus places - a ministerial priority. National initiatives such as improving access for disabled people would be funded as would projects that are already under way.

Michael Collier, FAS chief executive, said the capital grant made available by Government for the GM sector “fell well short of the needs already identified”. Forecasts for 1997-98 and beyond show a decrease in the level of capital grant.

Mr Collier warned GM governors that ministers were unable to hold out any hope of more money becoming available. Up to now GM schools have been relatively well-funded compared to their local authority counterparts.

Ministers have allocated Pounds 138 million for GM capital projects for the new financial year - slightly more than expected but, says the FAS, not enough.

A survey of 1,030 GM school buildings highlighted a number of breaches of statutory health and safety requirements and revealed wide variations in the condition of premises.

Many GM heads are understood to be deeply unhappy at the way capital grants are to be allocated from April. Priority is being given to schools in breach of health and safety regulations and those with basic needs.

Nick Carter, an independent consultant working with several GM schools, said: “The change in the funding policy has not only moved the goal-posts, it has removed them from the field.”

The FAS has now scrapped the system under which schools make an annual bid for funding. Instead, all schools will receive a 10 per cent increase in their formula finance.

The agency wants GM heads to raise more money themselves, to take part in the Private Finance Initiative and to borrow cash.

Alan Whelan, head of St Benedict’s College in Colchester, said that GM church schools were being asked to find 66 per cent of the cost of building work, compared to the 15 per cent required previously.

He told parents: “You will remember that one of our strongest arguments for going GM was the fact that local parishes were struggling to find the 15 per cent of building costs required by us as a voluntary aided school.

“GM status was supposed to free us from all that. Now it seems we must find 66 per cent.“A TES survey last month of more than 100 GM schools in England and Wales revealed widespread hostility to borrowing. More than eight out of 10 heads would not consider borrowing on the open market and many feared the move could be used by Government as an excuse not to fund the sector properly.

Almost half of the Pounds 138 million for GM capital projects in 1996-97 - Pounds 63m - is already committed. The remaining money will be split between Pounds 30.8m for formula funding, Pounds 4m for matched funding projects, Pounds 1m for the disability access initiative and Pounds 23.3m for new projects required by law.

The FAS proposes to hold about Pounds 12m of the Pounds 16m left in a contingency reserve. The balance stands at just Pounds 4m.