Much of the blame for low standards in Tower Hamlets is laid at the door of managers of the service between 1994 and 1997, when the council was run by the Liberal Democrats. Councillors failed, says the report, to devise a strategy for raising standards. Although they were kept informed about schools' results, there was a "planning and policy vacuum".
Director of education at that time was Anne Sofer, who ran the service from its inception in 1991. Since retiring, she has been on the team sent in by ministers to tackle the problems in Hackney, east London.
In the report, the new director, Christine Gilbert, is complimented for providing effective leadership, and the report pays tribute to her for generating a fresh start.
The report says Ms Gilbert inherited a legacy of inefficiency. It says:
"Fortunately, she is fully aware of the shortcomings listed here (in the OFSTED report) and has set about tackling the massive agenda that faces her. "
Schools in Tower Hamlets take children from some of the poorest backgrounds in the country. Unemployment is high and the proportion of pupils eligible for free school meals is more than double the national average. "Poverty, poor housing and indifferent health are the reality for many inhabitants of the borough," says the report.
The Government's assessment of what the borough should spend works out at Pounds 3,608 per pupil and is the highest in the country. Around Pounds 7 million is spent on support for the 60 per cent of pupils who do not speak English at home.
The report says: "Despite very high levels of expenditure, the fact remains that attainment in Tower Hamlets' schools is unacceptably low at all levels. Standards have improved, but they remain poor."
It cites the fact that only 26 per cent of pupils gained five or more A-C grades at GCSE, compared with a national average of 43 per cent. Only 47 per cent of 11-year-olds achieved the expected level in English.
"These figures are unacceptable because they represent lost potential and a denial of legitimate aspirations of pupils and their parents," says the report.
It criticises the high level of "hold-back" by the borough. Tower Hamlets delegates only 89.7 per cent of the schools budget and retains Pounds 1, 208 per pupil, of which Pounds 170 is for central support services.
It says: "These figures are too high, as are the costs of individual services, such as finance and personnel. Headteachers are rightly concerned about the level of finances retained by the local authority."
There is also criticism of the Pounds 10m spent on special needs.
The data in the report shows that attainment in schools remains below national averages at all stages, but the overall rate of improvement is generally at or above the national rate, though starting from a very low base.
The report also acknowledges that the borough has had to build 10 schools to provide for an expanding population.
David Mallen, director of education in East Sussex, and president of the Association of Chief Education Officers, said the report indicated the difficulties experienced by an education service coping with a failed political experiment.
The previous Lib-Dem administration had split a small authority into even smaller units. However, the report had also acknowledged the strengths of the new director.