It was hailed as a panacea for the biggest headache facing schools with dilapidated buildings, leaking roofs and outside toilets. New Labour championed private finance as the only way to bring fresh billions into education and end the “scandal” of crumbling schools.

But six years after the Blair administration swept to power, critics say the private finance initiative is showing more cracks than the buildings themselves.

Construction projects have been delayed, heads have complained of shoddy work and there is still no proof that it delivers cheaper or better schools. Now the public-private sector partnership is facing fresh turmoil as it emerges that local authorities are trying to close PFI schools.

With council taxpayers facing potentially massive penalties if deals are broken only months into 25-year contracts, attention will focus on whether private-sector intervention puts public-sector interests at risk.

PFI has already exposed deep divisions between ministers and Labour activists. At Labour’s last conference, the initiative prompted a humiliating defeat for the party’s leadership and may finally sever the ties between the party and unions.

But ministers believe it remains the best way to overcome decades of school building neglect. Under PFI, construction and refurbishment is financed and carried out by private firms before the school is leased back to the LEA, usually for 25 years. Companies then maintain schools and make profits from the lease payments.

Its supporters say PFI is preferable to higher taxes and that putting services and maintenance in private hands allows already overworked heads to concentrate on education. Firms such as Jarvis, Balfour Beatty and WS Atkins are among the biggest players in the PFI market, striking deals worth more than pound;100m with local authorities.

Ministers’ confidence in the project appears undimmed. This week Tony Blair reiterated his commitment to PFI.

More than pound;1.6 billion in PFI credits has been awarded by the Department for Education and Skills, covering 59 contracts and 595 schools.

Latest figures show a further pound;1.6bn has been approved for 36 projects involving more than 600 schools. Nineteen other projects covering 260 schools are being prioritised.

Britain’s biggest PFI contract is in Glasgow, where all 29 secondaries are new or radically modernised. Stoke-on-Trent is the only English city to enter a partnership to refurbish all its schools. But while many deals have been declared a success by teachers and pupils, PFI has had its problems.

Critics say the private sector, putting profit before performance, cannot reliably serve the public interests, a criticism already levelled at PFI hospitals, roads and prisons. Concern has also been expressed about the true cost of PFI. Public-sector accountants say that hospitals and schools would be cheaper to build using traditional funding methods than massive 25-year mortgages.

And not all the projects herald the uncomplicated state-of-the-art facilities once promised.

In May The TES reported how one college in West Lothian was facing a financial crisis to meet the obligations of its contract beyond 2007, and one south London school complained of not being able to open on time.

In January a report by the Audit Commission criticised PFI for poor quality work and missed deadlines. It said it had failed to live up to ministers’

claims that it would save taxpayers’ money.

The report was branded “old news” by the DfES who said it related to the early days of PFI and lessons had now been learned.

PFI - A LIFE STORY

1992 Conservative chancellor Norman Lamont recommends use of private finance initiative contracts.

1993 Private finance panel (PFP) created to support the initiative.

1996 DfEE select four pathfinder school projects in Dorset, Manchester, Westminster and Dudley.

1997 New Labour sweep to power and order Bates review of PFI. It recommends only viable projects go forward. Treasury task force (TTF) replaces PFP.

1999 Second Bates review leads to replacement of TTF with Partnerships UK.

1999 Victoria Dock primary in Hull is the first PFI school to open.

1999 First pilots introduced for grouped schools procurement in Birmingham, Stoke-on-Trent, Kirklees, Cornwall and Tower Hamlets.

2002 Union opposition to PFI reaches a peak as Government is defeated in a vote at Labour Party Conference.

2003 PFI criticised by the Audit Commission for not being effective use of taxpayers’ money.