Government moves to encourage councils to involve the private sector in getting rid of surplus school land and buildings and improving existing facilities have been greeted with limited rapture.

Under proposals announced last week, local education authorities would, for a two-year period starting next April, be able to keep three-quarters of the proceeds from selling surplus assets to spend on capital projects. At present, they may only keep half: the rest has to be set aside for servicing debts.

Cheryl Gillan, schools minister, said the change “opened up exciting opportunities to upgrade local authority schools” by generating more resources for projects under the Government’s Private Finance Initiative.

But local authority spokesmen, while welcoming the move to enable councils to keep more of the proceeds from sales (“a slight inducement”, said Ian Langtry of the Association of County Councils), were sceptical about the benefits of using private-sector finance.

Alan Parker, education officer of the Association of Metropolitan Authorities, described the PFI as “a scam to get somebody to make money out of the publicly-funded education service”. Councils’ capital spending was small because the Government limited their borrowing, which it counted as public expenditure. “Yet they will let us borrow from the private sector, at a higher rate. Where’s the logic in that?” The increase in the share of sale proceeds that councils can keep will not depend on their using the money for PFI schemes. But the Government has said it will be monitoring local authorities’ performance on involving the private sector and will decide on their record whether to introduce further increases in the amount they can keep.

Meanwhile higher education last week announced its first Build, Own, Operate and Transfer (BOOT) deal under the PFI.

The University of Greenwich has linked up with Wimpey Construction Investments and Varsity Funding, a group established by the Bankers Trust Company, Redburgh Ltd (which specialises in setting up and managing private sector initiatives) and PRICOA Property Investment Management Ltd (a subsidiary of the Prudential Insurance Company of America). In a Pounds 12 million deal, accommodation for 664 students and a catering area will be built at the Avery Hill Student Village in time for the start of the next academic year.

John McWilliam, deputy vice-chancellor, said: “The University of Greenwich is delighted to be responsible for getting the first Private Finance Initiative in higher education in the UK off the ground.

“Only the next 30 years of operation will demonstrate the value of this scheme to all the parties concerned.”

* Other measures that affect school building were announced by the Department of the Environment last week. One of these would enable councils to make “dual-use” agreements with the private sector - developers of sports centres, for example - without the deal counting as capital spending. The private company could improve and operate the centre in exchange for charging for its use outside school hours.

Councils would also be able to enter into “design, build, finance and operate” contracts with the private sector. The private company would provide the initial capital to replace or improve a school building and the council would pay an annual rental fee for the use of it.

The Government will consult the local authority associations on the proposals next month and regulations should be published by Christmas.

Opted-out schools, meanwhile, are to be given the ability to borrow against their assets and to keep all the proceeds from selling surplus land and buildings in time for the next financial year.