The Government is considering using the new Schools Renewal Challenge Fund, part of the controversial Private Finance Initiative, to cover many building and repairs projects.

Local authorities and schools could be invited to bid for money as early as March under a timetable drawn up by the Department for Education and Employment. Plans for the fund, due to be sent to local authorities this month, are expected to set out possible criteria for bids. These are expected to include a requirement that some funds must be raised from private sources.

Teaching unions have been told that local authorities would be able to bid for cash to improve security in schools. The idea emerged after a meeting between union leaders and the Education and Employment Secretary following the fatal stabbing of headteacher Philip Lawrence in December.

A National Union of Teachers’ spokesman said: “To make the health and safety of children at school dependent on the goodwill of industry is a totally inadequate approach. Children’s safety is paramount and it should not be put at the behest of private money.”

In December Mrs Shephard said up to Pounds 40 million of government money would be available for the fund. However, LEA leaders fear the scheme will be used to cut government support.

This year only Pounds 10 million of new money was made available for buildings and major repairs under the annual capital allocation - an average of Pounds 435 for each school in the country.

Mark Oakes, spokesman for the Association of County Councils, said: “Any money raised by the PFI should be in addition to what we have already got, not as a way of cutting government funding further.”