The Audit Commission's suggestions for reform could place the future of all smaller schools under scrutiny
Ministers must review policies on grant-maintained status for schools facing closure through reorganisation if they are serious about tackling surplus places, the Audit Commission said.
It said the Government could close off the GM escape route currently available to schools threatened with closure without having to resort to legislation or abolition of the favoured policy.
All that was needed, it argued, was a stronger assurance than the one given two years ago in a Government circular that local authority planning would not be undermined by school attempts to opt out.
It said provisions could be introduced to prevent a school from seeking GM status for a set period after the LEA had formally included it in a review of provision. The Audit Commission said safeguards would need to be built into such a system to prevent an LEA from producing a series of such reviews to place "GM blight" on a school.
It acknowledged that such a proposal would face hostility, with opponents arguing that this would place a limit on the freedom of a school to seek GMS when they and their pupils' parents felt it was right.
But it said: "In short, this is an area where Government should consider its priorities. The desired outcomes of economy, efficiency and effectiveness, as well as the satisfaction of parental choice, will not be achieved automatically through the operation of the market alone.
"These outcomes, and the balances that will inevitably be struck between them given limited resources, can be achieved only by active intervention to manage the market."
It said ministers could improve the national policy framework by reviewing existing policies and procedures on capital, parental choice and the balance between promoting choice and tackling surplus places. And it said they should consider options to give more effective powers to local agencies such as local authorities and the Funding Agency for Schools.
So radical a move as giving councils more powers is unlikely to see the light of day, with the Government determined to weaken the local authority power base.
But, said the Audit Commission: "The challenge is to review the system and enable an even greater proportion of children to enjoy the benefits of higher standards of education."
It said local authorities should look at the future of all primaries with fewer than 90 pupils and secondaries with fewer than 600 (700 with sixth form).
And it said the ability of local authorities to manage the supply and demand of school places would be influenced by how well they work with a range of organisations - including GM school governing bodies and foundations.
Evidence it has collected suggested that the relationship between LEAs and the Funding Agency for Schools were generally good but many councils had been unwilling or unable to obtain information on the capacity and admission numbers of local GM schools.
The Audit Commission said LEA performance in supplying and allocating school places was varied as was their willingness to tackle unfilled places.
In areas experiencing problems, the quality of information given to parents was often poor while only 14 per cent of councils ran a fully unified system of admission which covered all schools.
Few LEAs had comprehensive strategies and systems for tackling the problems of small schools, small sixth forms and schools in difficulty.
"LEAs argue that they are impeded by tensions and conflicts between government policies, a mismatch between their powers and responsibilities and a shortage of resources to undertake all their functions. The Government's response is to argue that some LEAs have failed to adapt to the changing regime and are making excuses to avoid necessary but contentious responsibilities."
The Audit Commission said local authorities could secure better value for money by reviewing their own performance in supplying places, managing admissions and responding to issues of financial and educational concern.
The Government in turn, it said, could help councils by restating its support for local efforts to plan provision.
"The current system is not maximising value for money in the planning and supply of school places.
"This loss of value for money may be seen as an acceptable trade-off by those who believe that the market reforms have contributed to educational effectiveness.
"However, the price is significant, not only in terms of finance but also in terms of the choice, educational experience and satisfaction of a minority of parents and their children."
Chris Waterman, education officer at the Association of London Government, said the report was probably the most damning indictment of Government policies that the Audit Commission had ever produced.
"It exposes the Government's abdication of responsibility for a crucial bit of the education service."
He said that despite the conflicts between GM status and surplus places that had been exposed by the Audit Commission, the Government was determined to allow the opt-out sector to expand.
The Education Bill before Parliament will give them the freedom to increase by 50 per cent.
"Even though the Audit Commission is saying hang on, get it right, the Government is still going madcap down a totally bankrupt route."
Andrew Collier, general secretary of the Society of Education Officers, said: "The confusion of national policies casts doubt on whether the Government is seriously looking for value for money."