The authority will monitor the work of the contractors that ministers appoint to take over its school improvement and language support services following a second damning report by the Office for Standards in Education.

It will not be able to fire the contractors if they are unsatisfactory. But observers believe Hackney’s education director Elizabeth Reid - highly praised by OFSTED and Education Secretary David Blunkett for driving improvements so far - is likely to contribute to the strategy for those services.

One observer said: “The OFSTED report shows she is not part of the problem and is entitled to have her say. The contractors will be coming in cold.”

The Government’s response to the OFSTED report fell between the wholesale privatisation some had predicted and the lower-key solutions proposed by Hackney and the Local Government Association.

Mr Blunkett said he was “minded” to direct Ms Reid to contract out the two services. A consultant will be appointed from April 1 to draw up a specification by April 23 and advise on whether personnel and finance should also be tendered. Contractors to deliver the services could be in by May.

Hackney’s co-operation means the exercise amounts to a less-than-full test of the Government’s new powers. Ministers were still keen to talk tough. Mr Blunkett’s letter to Hackney’s leaders said: “This level of failure cannot be allowed to continue.”

The council has until April 13 to respond. But it has already enthusiastically begun major changes following the resignation of chief executive Tony Elliston - whose reorganisation of the council was heavily blamed for the education service’s problems. He leaves next week with a pound;110,000 pay-off.

Ms Reid and other service heads will be elevated to the executive; finance, which Mr Elliston controversially hived off from education, has already been returned to her control. A directly-elected mayor is proposed.

The two-week gap before consultants are announced indicates the minefield the Department for Education and Employment must negotiate - chiefly over the fate of the 30 staff whose jobs will be contracted out.

A spokesman for Mr Blunkett said the process was the same as for any tendered service such as school meals. But while Hackney rules out a legal challenge, LGA lawyers are expected to take a close interest in this test case.

If the existing officers do not continue in the job - and the head of school improvement is a well-regarded recent Liz Reid appointee - some argue it could amount to constructive dismissal.

HACKNEY FACTFILE

Primary children receiving free school meals: 61 per cent or 10,110 pupils

* Secondary pupils receiving free school meals: 58 per cent or 4,446 pupils

* Unemployed population: 23.1 per cent (19989)

* Number of languages spoken in schools: more than 100

* Primary school pupils receiving tuition in English as a second language: 50.5 per cent

* Secondary pupils receiving tuition in English as a second language: 51.8 per cent

* Number of refugee children in schools: 4,000

* Black or other ethnic-minority pupils: more than 75 per cent in 1997

* Crime rate: 42.8 per cent above the London average

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