Faith schools will not be able to get private finance to rebuild and renovate after objections from the Treasury, the TES can reveal.
Ministers have pulled the plug on a pound;250 million scheme to rebuild Church of England schools using the controversial private-finance initiative because it is unsuitable for voluntary aided schools. The Church said the Treasury objected because its schools' governing bodies are charities.
Church leaders expressed dismay at the decision which left them concerned they will not benefit from government plans to rebuild or renovate every secondary school in the country.
Some dioceses have been preparing for PFI for up to three years.
But Charles Clarke, Education Secretary, has assured the Church that its schools will not miss out on repairs and that building work will continue to be paid for - using traditional methods. One in five primaries and one in six secondaries in England are voluntary-aided and liable for 10 per cent of their capital costs.
The Government will honour its pledge to replace 13 Anglican schools in what would have been the first wave of the PFI programme, at a cost of pound;120m, while a working party examines the future of funding for faith schools.
High on the working party's agenda will be an examination of how voluntary-aided secondaries can participate in the PFI-dominated Building Schools for the Future Programme.
Ministers have promised the programme will provide "21st century facilities" for all schools within the next 10-15 years.
Dr Kenneth Stevenson, Bishop of Portsmouth and chairman of the Church of England education board, said: "It seems that the Government has concluded that a pure PFI scheme could not be made to work for voluntary schools and that they would always have depended on government grant.
"I welcome the clarification, despite the great amount of wasted work."
A spokeswoman for the Department for Education and Skills said: "We are committed to fair and equitable capital funding for the voluntary-aided sector."