Neal Smith and Michael Shaw report

A private education company is to invest pound;4 million in a pair of city academies.

Global Education Management Systems (Gems), a company which aims to become the largest provider of private education in the UK, claims that it will not profit from the new academies and that its interest is simply philanthropic.

Gems was at the centre of a political storm this month after it emerged that government officials had discussed the possibility of businesses being able to profit from sponsoring city academies.

A leaked memo from a Department for Education and Skills meeting suggested that officials had debated a model proposed by Sunny Varkey, the Indian entrepreneur who founded Gems. The memo said: “Do we look at different sponsorship models, for example, a commercial profit-making model like Sunny Varkey has proposed?”

Ministers have since stressed that the idea was rejected.

David Miliband, school standards minister, has told MPs that there was “absolutely no possibility” of the Government allowing state schools to be run for profit by private companies.

Gems also denied that it proposed running profit-making city academies, suggesting that the memo referred to its existing independent schools.

But Simon Cummins, Gems’ schools director, admitted that the company would be interested in profit-making state schools if the Government ever allowed it.

He said Gems had been in talks with Neil Flint, head of the DfES academy programme, about the two academies and believed they could open by September 2006.

The advantage for the company would be to establish its brand. “The academies will strengthen our position here as it will allow us to co-ordinate our staff training and make economies of scale for our resources in both sectors,” Mr Cummins said.

The firm said it would adhere to local authority rules on setting pay and conditions, even though it would be free to set its own.

The Government hopes to create 53 academies by 2007, of which a dozen have already been built. Private sponsors contribute pound;2m and the Government funds the rest, usually around pound;20m.

Gems is based in the Middle East where it has 20 schools serving the English-speaking community. Its UK wing, chaired by former chief inspector Mike Tomlinson, plans to establish dozens of independent schools, charging fees in two price ranges of around pound;5,000 and pound;10,000 a year.

Since last September it has acquired three private schools in England. The company is also to buy six further schools.

Gems is not the only organisation involved in private education which is interested in supporting city academies. Oundle school in Peterborough, which charges fees of more than pound;16,000 a year, is in talks about formally backing a new pound;32m city academy in the town. However, Oundle is expected to provide staff rather than sponsorship money.

John Bangs, the National Union of Teachers head of education, said the Gems plan was “potentially a giant leap towards privately-run state education”.

Sponsors of city academies include West Bromwich Albion, Bristol City and Watford football clubs.