The report from the Office for Standards in Education accuses the city of failing to deliver the level of service required to tackle the problems of children who suffer high levels of deprivation.
Managers are accused of delays in decision-making on a scale that has meant problems are increasingly difficult to tackle. The report cites poor exam and test results (despite improvements in recent years); high levels of exclusion and truancy and failure to provide alternative education for pupils not in school.
The minister has told the local authority that he wants a report by July 17 detailing steps that will be taken to provide suitable education for excluded pupils and to improve the rate at which children with special needs are assessed.
In addition, Mr Byers is ordering the city to produce an action plan by September 1 that sets out a strategy for dealing with surplus places, high levels of school budget deficits and low attainment.
The final report was sent to Manchester on Tuesday, only hours before being made available to journalists. The acrimony which surrounded its publication - the legislation provides for the local authority to formally publish the findings - follows the pattern set with the inspection of Birmingham. The report on Manchester is the first under the legislation, but there have been seven pilot inspections.
The director of education in Manchester, Roy Jobson, who leaves shortly to become director of education in Edinburgh, accused OFSTED of producing a commentary to the report written to "grab a headline". "The report makes it seem that because of the inspection we have just woken up to the problems. Rather, most of the report's findings come from our own self-analysis," he said.
The report points to the fact that the city ranks 110 out of 132 local education authorities in terms of English scores among 11-year-olds (108 in maths); and ranks 127 out of 131 local education authorities in GCSE rankings. However, rates of improvement are above national rates.
Permanent exclusions are running at an average of 224 per year over the past three years, of which 36 a year are from primaries. According to the report, in March this year there were 142 permanently excluded pupils without a school place.
"The LEA was not able to tell inspectors what educational provision is being made for 140 out of 142 pupils and did not have overall data about these pupils readily available when it was first sought by HMI. These young people are potentially at risk," says the report.
Absence rates in secondary schools are above the national average: 16 per cent compared with 9 per cent.
Manchester is criticised for not dealing promptly with schools' budget deficits. Around half its schools had a deficit in 19967 with an accumulated debt of around pound;6.2 million - substantially greater than any other local education authority.
The city has identified a 23 per cent surplus in secondary places, a level higher than any other metropolitan authority. OFSTED says this costs around pound;2m a year.
However, the education department is commended for the quality of its music service and the inspection and advice it provides to schools - both budget areas that have not been delegated to schools. The quality of teaching is better than average.
Manchester accepts the findings, but officials object to the language in the commentary and the comment from the chief inspector, Chris Woodhead, that the service is failing parents and children.
The director, Mr Jobson, who has been in the post for 10 years, says there is clear evidence of the progress children make. Manchester's analysis shows that children entering school have scores well below the national average. "It is not fair to say we are failing children, when it is possible to measure the progress that is being made. The report acknowledges that the quality of teaching is above average," he said.
The record on failing schools compares well with the national average, he says. The city has 10 failing schools, three of which the authority intends to close. Two are being considered for closure.
Manchester submitted a 33-page response to the first draft of the report. Changes were made before this week's publication, but officials expected to read the final version before it was made public.
Council leader Richard Leese said: "The report we have got will not win prizes for research or intellectual rigour, but I am not going to carp about the process because that is not what we are abo ut as a local authority. We are about raising standards in schools."
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