Local government must adapt or die as it becomes the latest target in Tony Blair’s modernisation drive.

The Prime Minister has education authorities in his sights after a secret meeting of ministers and key advisers just before Christmas, according to high-level sources.

The gathering, called to discuss the future of education authorities, included Chris Woodhead, the chief inspector, who has publicly debated whether they undermine school dynamism. It was also attended by Michael Barber of the Government’s standards and effectiveness unit, who announced last week that businesses would be encouraged to take the lead in education action zones.

That announcement - and the warning by school standards minister Stephen Byers that local education authorities did not have the “God-given right to lead and run everything” - was a clear indication that they are on probation. They must deliver on the Government’s pledges on standards and class sizes - promises on which Labour has staked its reputation.

Tough literacy targets for education authorities, also announced last week, underlined that they will be made accountable for ensuring that 80 per cent of 11-year-olds reach the required standards in reading and writing by 2002.

Councils will find themselves under even greater scrutiny this year as OFSTED starts its inspections of education authorities and the Audit Commission checks their efficiency, investigating how much money they keep centrally and how it is spent. Wide variations in accounting and huge discrepancies in the amount councils hold back from schools for administration and support services are expected to be revealed.

Mr Blair’s personal interest shows his determination that local authorities must modernise or the Government will find alternative ways to force through its agenda.

Philip Hunter, president of the Society of Education Officers which meets today in Harrogate, said: “Local government must be on its toes. We must deliver the Government’s programme - if we show we can’t they will find another way of doing it. I think that is reasonable.”

The Department for Education and Employment is under pressure from the Treasury to find a more efficient way of getting cash into schools. Local authorities have already been warned by David Blunkett, the Education and Employment Secretary, as they set their budgets over the next month, that the pound;2.3 billion he secured for schools in the Budget must not be spent on other areas.

Some senior Labour figures believe a partnership between central and local government is possible, but say there is an increasing centralising tendency among DFEEministers and civil servants.

Margaret Hodge, chair of the backbench education committee, said: “LEAs have got to recognise their role has changed. They will have a strong role to play in raising standards. But those which are desperate to get back to running schools will have to think again. If they let us down, central government will look to find control mechanisms to ensure its will is carried out.”

The School Standards and Framework Bill already sets out new duties for local authorities and increases the Secretary of State’s powers to intervene. And a code of practice will spell out their responsibilities even more clearly. Heads believe there should be sanctions if LEAs breach the code.

Peter Robinson, senior economist of the Labour think tank, the Institute of Public Policy Research, said the Government could use its standards agenda to ride roughshod over local democracy.

But Alan Smithers, head of Brunel University’s centre for education and employment research, said: “All children will benefit from action zones, but some will benefit more than others and in those zones we may learn a lot that local education authorities will want to take on board. If they won’t it’s up to the Government to frame a different way of doing things.”

Action zones, page 16