Imagine this. It’s Monday morning, June 11. The new secretary of state for education Stephen Byers has summoned his permanent secretary, David Normington, and presents him with a list of key priorities, hastily scrawled on a page torn from a notepad.

Despite this rather low-tech form of communication the note is a model of new Labour radicalism. Top of the new education secretary’s list is a demand for greater involvement of the private sector in state education. Item two calls for a redefinition of “public service” which will embrace the private and voluntary sectors, as well as the state. Item three, the final demand, calls for a fundamental review of the relationship between headteachers, school governors and local education authorities to identify any changes needed to allow the new system - part-public, part-private - to flourish.

The scenario might seem fanciful but already a posse of civil servants and centre-left policy wonks are putting flesh on the bones of what promises to be - barring an unexpected Tory election victory - a radical second-term education agenda for Tony Blair’s government.

One of the first reports likely to land on the new education secretary’s desk (whoever he or she might be) will be from the commission on public-private partnerships, set up by the former chief secretary to the Treasury, Alan Milburn, in September 1999. Due to be published in June, this will set out to define the “appropriate” role of the private sector in public services and recommend practical ways in which it can be harnessed to deliver better services in hospitals and schools.

The commission’s report is likely to set out the political parameters for private-sector involvement in education, seeking to draw a distinction between beneficial partnerships with the public sector and “privatisation” - handing over ownership and control of state assets to the private sector.

While outright privatisation schemes are likely to be firmly rejected, these are nevertheless troubled waters for teachers and for Labour supporters, many of them steeped in a public-service ethic based on a school system both funded and delivered by the state. With a prime minister determined to focus on educational “outcomes”, no matter how they are achieved, Labour ministers have little time for defending any one form of service provision. What matters, to use the New Labour mantra, is “what works” - pragmatism rules OK.

This opens the way for a whole variety of initiatives, many of them already up-and-running to some degree, and which the Government has grouped under the umbrella title of “public-private partnerships”. These include capital investment schemes through the private finance initiative (PFI), private-sector involvement in local education authority services and business sponsorship of specialist schools and schools involved in education action zones, one of Labour’s early experiments in partnership, which is now being quietly shelved (see TES, April 6).

Increased dependence on the private sector raises crucial questions. For example, should companies be allowed to run state-funded services - including schools - for profit? If not, what about not-for-profit companies being contracted to run independent state schools?

The leading advocate of not-for-profit companies is Neil McIntosh, a former director of the housing charity Shelter and now chief executive of CfBT, one of the UK’s largest specialist education services providers and, uniquely, a charity. In a recent paper published by the Institute for Public Policy Research, a centre-left think-tank closely linked to the Milburn commission, he urges ministers to use this route to encourage whole chains of schools, funded by the state but under independent management. The model, he says, should be that of housing associations which have over the past 30 years increasingly taken responsibility for local authority housing management.

Advocates of the private sector tend to view our state education system as another example of municipal failure, much the same as the crumbling council housing stock housing associations replaced. Such is the polarisation in the current education debate, however, that supporters of state education argue that the last thing it needs is a creeping privatisation which will lead to residual “slum” provision in communities where help is most needed.

Exactly how far down this road a second Labour government decides to go remains far from certain but according to one well-placed source at the Department for Education and Employment one thing is clear: “The era of state-only funding is over.” According to this official view government policy will in future concentrate on finding the best way of delivering education services using both public and private sector.

“What works is more than a mantra. We must remember that no public-service model has delivered high-quality services for every child. But privatisation is not on the agenda,” the source says. If this public-private policy is to succeed it is going to have to overcome serious difficulties. The private finance initiative is having a rocky ride with high-profile failures such as Pimlico school in west London and resistance from schools to “risky” long-term service contracts in Brent, north London, and elsewhere. There are also doubts, significantly voiced by the IPPR’s chief economist Peter Robinson, about whether it provides value for money. But with deals to build or refurbish schools worth pound;500 million already signed and plans for future projects valued at pound;800m, PFI looks set to become the main route for capital investment in state schools.

Other forms of private sector involvement have now gained widespread recognition, with companies working hand-in-hand with LEAs on school improvement and other mainstream services. Next on Labour’s launch pad will be city academies which may, with modification, become a model for McIntosh’s dream of a chain of independently-managed state schools.

Lying behind the recent Green Paper on schools, which sketches out some of these plans, is the unanswered question of whether the Government seriously wants the private sector to run schools in this way. That question, according to government sources, has not yet been decided.

If it does want to take that route it will have to decide how far it is prepared to change the way schools are managed. If private companies are to be brought in to takeover schools - failing or otherwise - they are likely to want to control budgets. One option understood to have been considered within the Department for Education and Employment is to allow providers to opt out of the current arrangements which give governors primacy over heads.

Any such move, if taken up by ministers, would prove highly controversial and would require new legislation. Equally, if Labour is serious about encouraging the growth of the private sector it would have to introduce safeguards to protect schools and children from private-sector failures.

Whatever ministers decide after June 7, the already strained relationship between new Labour and the teachers’ unions is certain to be further tested. “Our worry,” says the impeccably moderate John Bangs, head of education at the National Union of Teachers, “is that the Government is romantically attached to the private sector without having any idea of whether it can deliver.

“The evidence from the United States, which has gone further down this road with charter schools and vouchers, is that it leads to fragmentation. What we need is real joined-up thinking which recognises that schools are a public service and that schools are part of communities and need to work together.” The next education secretary, Mr Byers or otherwise, please take note.

A ROUGH GUIDE

* Public-private partnerships: a catch-all phrase for schemes involving the private sector in deliveringpublic services. These include contracting out payroll management and grounds maintenance. LEAs now work happily with contractors and both work on core educational activities such as school improvement.

* Private finance initiative (PFI): the most prominent form of partnership. Allows LEAs to buy the services of a private company to design, build, finance and maintain new schools, or to refurbish and re-equip crumbling schools. The company finances the investment and the LEA pays it an annual fee under a long-term contract, typically 25 years.

* Education action zones (EAZs): designed to harness private-sector know-how and innovation in schools in deprived areas and to foster closer links between schools and businesses. Clusters of schools work closely with local businesses and other non-public-sector groups. Each zone receives a government grant of up to pound;750,000, part of which is conditional on raising money from the private sector. Zone status lasts for between three and five years.

* City academies: all-ability schools designed to replace failing schools or meet new demand in major urban areas. Will be registered as independent schools, but will not be able to charge fees. Owned and run by sponsors (businesses, churches, voluntary bodies, individuals) and funded by government grants on conditions agreed with the Secretary of State. Sponsors must be able to pay 20 per cent of capital costs “in cash or in kind”.

* Education service providers: for-profit companies, such as Nord Anglia, annual turn-over of pound;62 million, and not-for-profit organisations such as CfBT, a registered charity, with a pound;60m turnover.