Two grant-maintained primary schools have been given Government cash to set up new nurseries, despite opposition from their former local authorities.

Gillian Shephard, the Education and Employment Secretary, has told the GM funding quango that it must pay for under-fives’ places at the Holy Trinity in Gravesend, Kent, and Katherines school in Harlow, Essex.

Her decision puts her at odds with the two county councils, which have refused to fund the nurseries.

Holy Trinity and Katherines are among eight new nurseries at GM schools which have been approved by Mrs Shephard. Civil servants are negotiating who will pay for the under-fives’ units in three GM schools in Lincolnshire, Northamptonshire and Humberside.

Dudley, Hertfordshire and the London borough of Sutton have each agreed to fund a nursery unit at one GM school.

Mrs Shephard’s decision to fund the GM nurseries in Kent and Essex is controversial because until now the Department for Education and Employment has said that opted-out schools could only open nursery classes in areas where local authorities had no formal objections. This was because the cost of setting up and running GM nursery classes was recouped from local authority budgets.

Mrs Shephard’s ruling comes as ministers are struggling to get their contentious nursery voucher scheme off the ground. So far only two LEAs - Buckinghamshire and Wandsworth - have said they would trial them.

Ministers are also attempting to revive the flagging opting-out initiative. Funding nursery classes in GM schools could persuade LEA schools to opt out.

The GM quango, the Funding Agency for Schools, will cover both the capital and running costs at the nurseries in Kent and Essex. Both LEAs have refused to back the applications because they did not meet their criteria for nursery places.

Holy Trinity is to open a 40-place unit from September, despite Kent’s claim that there are already enough nursery places in Gravesend and that the new nursery would cost Pounds 45,000-a-year to run.

In a formal response to the LEA’s objections Holy Trinity said it already had 56 names on its nursery waiting list and that it believed the nursery would cost only Pounds 35,000 a year to run. The school claimed that Kent was discriminating against it because it was grant- maintained.

Where the FAS will find the money for nurseries’ running costs is still unclear though it has an annual budget of Pounds 1.7 billion.

A spokesman said: “We are discussing at the moment how the money can be recouped. The mechanism by which these nurseries will be funded and the budget that money will come out of has not been decided between ourselves and the Department for Education and Employment.”

Civil servants have now indicated that ministers are also willing to allow GM schools to borrow money to invest in new under-fives’ facilities on the strength of prospective income from nursery vouchers.

Mrs Shephard has already said she is planning to remove the requirement for GM and local authority schools to publish statutory proposals to set up nurseries.

Until now civil servants have had grave difficulties sorting out how to set up nurseries in GM schools. Ministers were unable to force councils to fund a non-statutory service, like a nursery, in an opted-out school and could have laid themselves open to a legal challenge if they had done so.

At a GM conference in London earlier this year, Mrs Shephard told opted-out heads she hoped to decide on their applications ahead of a general nursery expansion.

She also said that “the prospect of adding nurseries at GM schools would be a major incentive for primary schools to be grant-maintained”.

The Government is committed to make a start towards providing a nursery place for all four-year-olds whose parents want one before the next general election.