The Audit Commission has handed the Government its share of responsibility for uneven supply and demand of school places.
The public spending watchdog this week warned that school planning was in danger of becoming gridlocked because of tensions and conflicts between Government education policies.
The Audit Commission claimed that better planning of school places could save up to Pounds 100 million annually, help raise standards and improve parental satisfaction.
In a hard-hitting report published this week, it said that the Government had to take its share of the blame for the thousands of children being taught in overcrowded classrooms. Choice was being satisfied at the expense of educational effectiveness, it added, and reductions in class size could only succeed by increasing resources or denying some pupils a place at the school of their choice.
In the report, called Trading Places, the Audit Commission said: "The tension between choice and economy is at the heart of many of the difficulties currently experienced within the education system."
It said that the current market-led approach to school admissions was resulting in a mismatch between the number of pupils and places, with schools being either overcrowded or undersubscribed.
One school in three is now filled beyond its physical capacity, yet at the same time one in six has more than 25 per cent of its places unfilled, tying up scarce resources in under-utilised classrooms and school premises.
Problems were caused in part by poor local authority performance but also by the national framework laid down by ministers, said the Audit Commission. It estimated that up to 40 per cent of unfilled places nationally could be removed, saving around Pounds 100 million. But it said both Government and local authorities needed to rethink their priorities.
Ministers claim that the choice and diversity provided by the grant-maintained sector and the specialist school programme have raised expectations and achievement.
The Audit Commission, while not commenting on that assertion, highlighted the tensions between promoting GM status and ensuring the economic and efficient supply of school places. Schools threatened with closure - or any other reorganisation - by their LEA as part of a scheme to remove surplus places can attempt to dodge the axe by seeking GM status.
Department for Education and Employment statistics show that in the 111 cases of this kind in England between 1989 and September 1996, 40 per cent were allowed to opt out and avoid closure.
In addition, 21 per cent of local authorities told the Audit Commission that schools identified for possible reorganisation had sought and been granted GMS before any statutory closure notice was issued.
The Audit Commission said: "The pursuit of a wide range of competing objectives has generated tensions and conflicts between policies which prevent any of them from being implemented with full effect, and risks the school planning becoming gridlocked.
"It is not possible for LEAs to move forward on all of these policies ... and maximise value for money. LEAs' endeavours take place within a policy framework laid down by Government; and many of these failures to achieve value for money are, in part, attributable to this framework."
But the Audit Commission did not exonerate local authorities. It said they had work to do on providing better information for parents as well as on co-ordinating admissions arrangements for all their schools.
They were told to focus on removing surplus places in institutions that were less than three-quarters full and on monitoring schools' financial and educational health and intervening before problems escalated.
Andrew Foster, Controller of the Audit Commission, said: "The most important challenge facing the education service is to raise standards in all schools. Improving the system for planning school places will help to create a climate in which that challenge can be met successfully.
"This requires effort at both a local and a national level to deal with the shortcomings of the present system."
According to the Audit Commission, two things hampered value for money in the supply for school places - too many and too few of them. But it said that it was unrealistic and "probably undesirable" to aim for a perfect match at every school.
Latest DFEE statistics covering 1995 show that in England, more than 477, 000 primary places - 11 per cent of the total - and more than 400,000 secondary places - 12 per cent - were unfilled.
At the same time the percentage of secondaries where the number on roll exceeded the physical capacity of the school increased from 25 per cent to 30 per cent.
In the primary schools more than 60 per cent of pupils in one London borough were in classes of at least 30. The Audit Commission said the issue of value for money went beyond the waste of resources created by surplus places and the problems that arose from the increase in overcrowded schools.
There were further difficulties of inefficiency and educational effectiveness. It highlighted particularly large classes in primaries, small schools, sixth forms and "schools in difficulty" - those which have almost failed an OFSTED inspection. It said small schools were expensive and in the secondary sector were less likely, according to inspectors from the Office for Standards in Education, to be "meeting with success".
Schools in difficulty, meanwhile, entered spirals of financial, social or educational decline - or a combination of all three.The local management of schools system of formula funding meant they could neither recover nor close.
"The reduced funding that accompanies the loss of pupils makes it harder for a school to address its failings - but protection factors built into the formula provide sufficient funding to slow the spiral of decline, if not end it. The formula blunts the effects of the market forces, protects schools from their own failure, and may condemn them to a slow death unless effective intervention occurs."
The Audit Commission said it would be wrong to blame Government reforms for all the problems. But it added: "While the current approach has not created all the problems, it is also not resolving them and is making some of them worse."