The decision by North Tyneside, Mr Byers’s political stamping ground, not to bid to become an education action zone will embarrass the Government. Durham and Gateshead have also rejected the scheme in a move potentially more damaging to Labour’s drive to raise standards.

The North-east’s lack of interest may be the first indication that Old Labour is not signing up to the Government’s modernisation agenda. Fear of losing control of their schools is making councillors unwilling to bid for the zone cash of pound;750,000 over three years.

Concern about the Government’s intentions have been fuelled by Mr Byers’s statements that action zones, which have to involve the private sector, are a pilot for the education system of the 21st century and will provide a “third way” to run public services.

There may be fewer than 50 bids for the first 25 zones. While the minister has upset local authorities by wanting at least one business-led zone, no company appears to have come forward.

One head of education policy said: “The North is Labour’s stronghold and the idea of its schools being taken over by business made a lot of people shudder.”

In Durham, the director of education, Keith Mitchell, has warned councillors that the Government’s intentions are not clear. His report to the education committee notes that private-sector companies have talked in terms of “breaking the stranglehold of local authorities and paving the way for new education structures in Britain”.

The view in North Tyneside - where Mr Byers was deputy leader of the council - is that the authority has yet to decide how an action zone would fit with its own strategy to raise standards. Les Walton, the executive director with responsibility for education, says the council has not ruled out taking part in the future, but will not be putting in a bid in this round.

Hartlepool, whose MP is Labour moderniser Peter Mandelson, has also decided not to submit a bid.

* Zone fear, page 8