Despite widespread opposition, the bill became law in the shape of the 1902 Education Act. The first local authorities were created in partnership with the church, and state-backed religious schools have since been part of the educational fabric in England and Wales.
A century later, the issue is not quite the crowd-puller it once was, but it remains contentious - not least because Tony Blair's government is shining a dazzling political spotlight on the church-run sector. David Blunkett, Mr Blair's first education secretary, wanted to bottle faith schools' "ethos and success". The Government has opened more than a dozen since 1997, and plans scores more. The Church of England is to help Whitehall revitalise inner-city education through city academies.
Faith-based schools are hugely popular with parents of all faiths and no faith at all. But they are derided as divisive and outdated by critics who ask: how is it that we are still paying for religious schools when only 7 per cent of the population goes to church on a Sunday?
What are "faith" schools?
In most respects, they're much like any other. They teach the national curriculum and form part of the local education authority structure. They are employed in the service of the state and paid for by the public purse. But in crucial respects faith schools remain controlled by - and in many cases physically owned by - the groups that built them. They can run their own religious education syllabus and determine their own admissions policies (although church schools are to be banned from interviewing pupils to assess their commitment to the faith under a revised admissions code which will take effect from the September 2004 intake). There are a few faith-based technology colleges, foundation (former GM) schools, and city academies, but most faith schools are part of the local authority structure and break down into two types: "voluntary aided" and "voluntary controlled".
What is the difference?
Aided schools come under the LEA jurisdiction, but a church or faith group controls the board of governors, ensuring that the school is run in accordance with its wishes. The state provides 90 per cent of the building costs and pays 90 per cent of major repairs (a new roof, for example, rather than a new window).
Controlled schools are almost entirely Anglican, and largely primary. After the 1944 Education Act, the churches were told to choose which status their schools would have, and more than half of Anglican primaries ended up "controlled" by the local education authority. The church does not have a voting majority on the board of governors. Instead, the school's religious character is guaranteed by a deed of trust or a foundation document stating, for example, that the headteacher must be a practising Anglican or that the chair of governors must be a local vicar.
The main contrast with other local authority schools is that they keep control over the act of collective worship, which must remain Anglican in character or, in a few cases, Methodist. They also keep control of RE, although most use the agreed syllabus.
When it comes to repairs, pupil admissions or staff appointments, controlled schools are treated like all other LEA schools.
How many faith schools are there?
About one state schools in three has a religious character. Almost 600 of the 3,000 secondaries in England and Wales are faith-based, and more than 6,000 out of just over 18,000 primaries.
What about Scotland and Northern Ireland?
Each has its own, separate tradition of religious schooling. Each has a strong Roman Catholic sector while the council-run schools are contrastingly Presbyterian in character. The Anglican church plays no role in either place. So most schools are Catholic or Protestant - reflecting the sharper sectarian divisions north of the border and, particularly, in Ulster.
Scotland has a long history of state education. The Church of Scotland and the civic authorities agreed to share responsibility back in the 17th century. Although today's local authority schools do not belong to the church, it maintains a strong interest in them, and many secondaries have their own chaplain.
There have been repeated attempts to de-polarise education in Northern Ireland, most notably through integrated schools. But these still educate only 4 per cent of children.
Why do we have them?
A combination of historical legacy and political will. Church schools were the first education system, stretching back to the 15th century. They included major public schools still very much in existence, such as Eton, founded in the reign of Henry VI.
But it was in 1811, with the founding of the National Society for Promoting Religious Education, that the Anglican education system took off. Around 17,000 "national" schools sprang up in the first half of the 19th century. When, in 1870, Gladstone set about providing education for all, he simply supplemented the existing church system with state-funded schools.
Meanwhile, the enfranchisement of Roman Catholics and Free Churches in Britain led to a growing number of new denominational schools. By the turn of the century, the Free Churches had established Sunday schools, and were in the forefront of the campaign against "Rome on the rates".
The principle of state support, established in 1902, was further strengthened with the 1944 Act. At the time, the education secretary, R A Butler, wrote that "the rights of conscience must be inviolate" and that children must receive "distinctive denominational religious teaching" if their parents desired it. He also recognised that supporting religious schooling in post-war Britain would mean dipping heavily into the public purse (although this was cheaper than nationalising the church system wholesale). After the 1944 Act, faith groups could get 50 per cent of their building costs paid for by the state, a proportion that has risen steadily to the present 90 per cent.
Who has what?
Overwhelmingly, church schools are run by Anglicans and Roman Catholics, but most of the main faiths and Christian denominations now have schools of their own.
* Anglican: the Church of England has 4,500 primary schools, a quarter of all primaries in England and Wales, but only 200 secondaries. It plans 100 new secondaries; some of them city academies, schools with increased control over their budget and curriculum. Anglican schools are run by local dioceses and overseen by the General Synod's Board of Education.
* Roman Catholic: The Catholic church has 1,750 primary schools and 360 secondary schools. They are run by the church's diocesan education authorities and overseen by the Bishops' Catholic Education Service.
* Other denominations: the Methodists have 56 primaries, most of them voluntary controlled, including 15 that are run jointly with the Anglicans. There are also mixed Anglican Catholic schools. St Michael's RCC of E high recently opened in Barnsley, South Yorkshire, and a similar school is planned for Liverpool. There is a Seventh Day Adventist secondary school in the London borough of Haringey and an evangelical Christian city technology college, Emmanuel, in Gateshead. Croydon in south London has St Cyprian's, a state-funded Greek Orthodox primary.
Plans for a 1,000-pupil, multi-faith secondary for Muslim, Jewish, Christian and Hindu children in London's Westminster collapsed last month after the LEA decided that costs and "methods of operation" meant it would not be viable within the proposed time scale.
* Other faiths: Muslims fought a long and vigorous campaign for their own schools, led by Yusuf Islam, the former pop star Cat Stevens. In 1998, they were finally successful and now have two primaries and a girls' high school funded by the state. There are 26 Jewish primary schools and five Jewish secondaries, with varying degrees of orthodoxy. Sikhs have one primary and one secondary.
Why are they so popular?
Faith schools are seen to be well run, with good academic results - perceptions endorsed by Ofsted and the Department for Education and Skills. On average, Anglican secondary schools get 12 per cent better GCSEs than community schools. But some Roman Catholic and Anglican schools do less well at A-level, possibly because they retain smaller than average sixth forms. And both sectors have had seriously troubled schools, including the Catholic St George's in Maida Vale, north-west London, where headteacher Philip Lawrence was murdered in 1995.
Faith schools are also perceived to endorse middle-class values of discipline, order and family commitment, and in a market system, a good reputation breeds success. Soon after becoming education secretary in 1997, David Blunkett praised the "absolute commitment and enthusiasm" from parents, pupils and teachers. Christian schools are popular with Muslim and Hindu families.
How do you get in?
This frequently asked question only really applies to the Anglican and Roman Catholic sectors. No one expects the handful of schools dedicated to Jews to admit Muslims, or vice versa. But the Anglican education system was created with a specific mission to the children of the poor and, while it maintains a distinctively Christian ethos, the church says its schools should be open to all-comers. In other words, Anglican schools should serve whoever lives locally, and many inner-city church primaries have large populations of non-Christian pupils.
This message of openness was reiterated following the riots in Oldham, greater Manchester, in the summer of 2000, when it emerged that a local Anglican school was insisting on church attendance as a criterion for admission, effectively excluding Asians. The Anglican hierarchy was deeply embarrassed and the Archbishop of Canterbury spoke out in favour of taking children from other faith backgrounds. The church backed legislation obliging its schools to consult their dioceses before writing admissions policies.
But some Anglican schools retain a strict interpretation of their religious role. The heavily oversubscribed Canon Slade comprehensive in Bolton, for example, insists that places be reserved exclusively for church-going Christians. Parents and children must have four years' regular church attendance.
Roman Catholic schools have always been more narrowly faith-based, having their roots in a minority church that still faces discrimination. They admit practising Catholics wherever possible, taking references from parish priests if necessary. This has generated a sudden enthusiasm for church-going among parents with children approaching school age. Some schools have caused anger by keeping places empty rather than fill them with non-Catholics.
Are they allowed to "indoctrinate" children?
Yes, in RE lessons and collective worship but nowhere else. Any school taking state cash has to stick to the national curriculum. This poses no problems for Roman Catholic or Anglican schools, but it is difficult for some other faith groups. The issue was illustrated most clearly by a row at Emmanuel CTC in Gateshead, which was accused last year of teaching an "Adam and Eve" version of natural history rather than the theory of evolution laid down by the national curriculum. The school argued that it was free to question Darwin's theories in RE lessons, as long as it taught them in science.
Can anyone teach in a faith school?
Church schools rely heavily on non-believers to bolster their staff, particularly in secondary schools. Schools have a difficult enough job to find any maths teachers, let alone Roman Catholic ones. Religious factors only start to bite higher up the promotion ladder - at senior teacher and deputy head level in Roman Catholic schools, because the church wants committed believers in the top jobs. Similarly, Church of England schools prefer headteachers who are practising Anglicans. The result is a serious shortage of senior staff, and the days when Roman Catholic schools could look to the religious orders for staff are long gone.
While there is no sign of the Government reversing its decision to invest in the church sector, it has said precious little about faith schools for many months. Ministers were no doubt prepared for a hostile reaction from Labour and Liberal MPs, but the riots in Oldham, and others in Burnley and Bradford, gave the complaints about religious schools an unexpected force. It was alleged that faith-based schooling in such areas was exacerbating racial and religious divides. The sight of an anti-Catholic mob laying siege to Holy Cross school in Belfast hardly helped the case for separate religious schools. While it remains to be seen what approach the new Education Secretary, Charles Clarke, will take, it will be no surprise if he reverts to the well-established policy of saying little on a topic that, 100 years on, remains a source of fierce political debate.