The Government has been accused of acting with “class-driven envy” over its plans to abolish the Assisted Places Scheme, which subsidises the fees of 38,000 children in private schools.

In a debate during the second reading of the Education (Schools) Bill in the House of Commons, Gillian Shephard, the former Conservative Education Secretary, said: “The Bill is driven by class-envy dogma. It restricts the freedom to choose, and it destroys excellence. It fails to recognise the contribution that choice, variety of school and variety of route make to raising standards.”

The aim of the Bill is to save Pounds 100 million by 2000, which the government will use to reduce class sizes for children aged from five to seven.

David Blunkett, Education Secretary, said: “We have a choice between excellence for a few or high-quality education for the many, because we know that, both for the individuals concerned and for social cohesion and the economy, literacy and numeracy matter to every one of us.”

The average cost of a secondary assisted place in England is Pounds 4, 100 per year. The Bill allows children with a place to complete their school education. Pupils in private primaries will keep their place until they are 11.

During the debate, Mr Blunkett said there would be discretion, case by case, for children attending prep schools that go up to age 13. If the school is in a local authority with a middle-school system, and age of transfer is 13, then APS pupils may be funded until then.

The Education Secretary said the scheme had failed because it had not been targeted at those it was intended to help. One in five of the children on the scheme come from families with incomes above the national average. He said it was hardly a ladder of opportunity for working-class children: only 46 per cent on APS came from such backgrounds.

Estelle Morris, junior minister for school standards, said 1,000 pupils on the scheme come from families earning more than Pounds 24,000 a year.

The Government said it had also failed because those pupils on the scheme did not score significantly better in terms of A-level results than pupils in state education.

But Mrs Shephard said that the Bill was an attempt to destroy the independent sector. She said: “In one fell swoop, the Government is creating educational apartheid. There will be private schools for the wealthy, who have the luxury of being able to buy choice, and state schools or charity for everyone else.”

The Conservatives had planned to double the number of assisted places if re-elected.

The Government also came under attack from it own benches over its decision to name so-called ‘failing schools’. Gerry Steinberg, Labour MP for City of Durham, said: “No one would deny it is important to help schools that are not doing well, but it does not help to publish names and demoralise teachers even further.

“That was a Tory tactic frowned upon by the Labour Party, which now, unfortunately, seems to support it. We should not alienate teachers, we should appreciate them.”

Two weeks ago, 18 schools were identified by the Government for not having done enough since being put on special measures following an Office for Standards in Education inspection.

Mr Steinberg said the abolition of OFSTED and the sacking of Chris Woodhead, its chief inspector, would be the best boost to teacher morale.

Winding up the debate, Stephen Byers, minister for school standards, said: “The Assisted Places Scheme was born out of dogma but tonight reason will triumph, as we give notice that its days are numbered. The reduction of class sizes though the phasing out of the scheme was one of our key pledges to the electorate. Now, just over a month after winning the general election and forming a government, we shall deliver that promise.”

The Bill was expected to have its third reading yesterday, and could be in the House of Lords by June 16.