Lendrick Muir School at Rumbling Bridge in Perth and Kinross, which specialises in dyslexia and learning difficulties, is the first casualty and will close this summer. Government inspectors last November delivered a damning verdict on the 30-pupil school’s accommodation, management and curriculum. Councils have since cut the number of placements.

It was the banks that finally pulled the plug on the Edinburgh-based charitable trust that has provided specialist education in a country retreat for more than 10 years. It was previously a List G school for maladjusted pupils unable to cope with mainstream schools. The building will be sold.

Other schools are rumoured to be at risk with councils increasingly reluctant to educate pupils in a sector some believe has a tainted reputation and is pricing itself out of the market, a charge refuted by Philip Barton, chairman of the 18-member Scottish Independent Special Schools Group.

Another round of sharp reductions in council budgets is likely to cause further shrinkage in the independent sector, while Fife plans to shut its three council-run residential schools.

Mr Barton, head of Starley Hall School, Burntisland, Fife, says: “The good schools will remain strong and those schools which do not develop their services and lose their place in the market place will close. We have to provide a quality of service.”

John McLaughlin, head of Lendrick Muir, who took over last summer after the previous head resigned, accepted the figures did not add up. The school has a staff allowance of 9.7 for 24 day pupils and six boarders. Estimates suggest the trust would have needed to spend more than Pounds 1 million to bring it up to the standard expected under the Children Act and turn it into a centre of excellence.

Mr McLaughlin, a former education officer in Shetland, said: “We would have to have put in place a whole range of things. There would be no more communal showering, individual rooms where possible, pleasant views from windows, proper systems of care, quality learning for staff, appropriate ratios. This is an attractive Georgian house but it was never designed as a school.”

On a cold day, the heating system guzzles 100 gallons of diesel.

“The amount of expenditure would have been too significant. The issue is not just about current standards but the standards in future following the regulations under the Children Act and that applies to any residential school in Scotland,” Mr McLaughlin said.

Jon Mager, assistant director of education in Aberdeen, is particularly concerned with the high cost of places compared to south of the border. Oakbank School in Aberdeen, has pushed up fees by 40 per cent to stave off closure. Ironically, its board is led by city councillors.

Colin Dalrymple, head of pupil support in Edinburgh, calculates fees are rising by between 4 per cent and 6 per cent, with some schools charging substantially more. “That will mean 4-6 per cent fewer youngsters in these schools,” Mr Dalrymple stated. Edinburgh has spent Pounds 2 million on placements and is reviewing its policy.

“We will only place in these schools if it is absolutely essential to the youngster. You are taking them away from being educated in their own community and further disadvantaging them and taking them away from their natural peer group,” Mr Dalrymple said.

Mr Barton, however, disputes the fee allegations and says schools are keeping increases to an average of 3 per cent. “A number have no increases at all, ” he points out. The suggestion that fees are higher than in England is “absolutely not true”.

He believes councils cannot provide for all their children locally and will always require small, specialist provision. “There is not a change in the need but a change in the finances.” He alleges one central Scotland authority has around 100 pupils who are not being educated because it has no money to buy places. One boy has been excluded 17 times, has particular learning difficulties but is being refused a place at a special school.

Claims of abuse against children in several schools have been met with stricter guidelines and staff training. Inspectors have reported excellent practice, he says. “We work in a sector where there are serious and difficult issues to deal with, where there are children who are abused and who are abusers.

“The reason schools need to register with social work departments is to increase the level of outside scrutiny and dialogue. Schools are much more accountable for the level of service they offer.”

Mr Barton was embroiled in an inquiry last year after an incident in which a pupil alleged he had been physically assaulted and inappropriately searched. The procurator refused to press charges.