Companies which take over failing schools should be given a controlling majority on governing bodies, to ensure they can deliver the improvement targets in their contracts, ministers say.
Their plans would give companies the right to hire and fire staff, and to control teachers' pay, conditions, promotion and performance management. Companies say they need such powers to ensure real improvement in weak schools.
But union, governor and employer representatives - presented with the proposals at a meeting this week of the ministerial "way forward" working group on school governance - are concerned about schools' accountability to local parents and teachers' employment rights.
Meanwhile, schools minister Stephen Timms told the Financial Times, in advance of the education White Paper, that private-sector operators could be put in charge of failing departments in secondary schools.
He also floated the idea of teachers working in state schools who might be directly employed by the private sector - something the unions consider an anathema.
The plan would contradict a pledge local government leaders say they won from Education Secretary Estelle Morris - that education authorities would remain teachers' employers.
Nigel de Gruchy, general secretary of the National Association of Schoolmasters Union of Women Teachers, said: "The idea of having different departments under the control of companies is a recipe for chaos. It's mindblowing in its stupidity.
"What happens to the whole-school approach when you have different departments doing their own thing? Has the Government not learned anything from Railtrack?" Liberal Democrat leader Charles Kennedy this week warned council leaders that the Government's reform and privatisation proposals would leave it "presiding over the unplanned dismantling of the state education system".
Speaking at the Local Government Association's annual conference in Harrogate, he said the proliferation of specialist schools, faith schools, and city academies, combined with private-sector involvement in failing schools, would create a "haphazard, unplanned, piecemeal" system.
Doug McAvoy, general secretary of the National Union of Teachers, said:
"This is privatisation by stealth. By sidestepping protection afforded by legislation to public-service workers whose employment is transferred to the private sector, this move is even more sinister than straight forward privatisation."
Chris Gale, chairwoman of the National Governors' Council, said: "I'm very worried about local accountability, because that's what governors are about.
"And what happens if [the contractor] goes bust or decides to pull out?" The Department for Education and Skills paper says "sponsors" with five to seven-year contracts for improving failing schools would be able to select or nominate a proportion of parent, LEA, co-opted andor foundation governors to ensure a majority. It claims this is a "defensible" model because of the time limit to contracts and the need to turn around schools.