Michael Gove accused of 'lunacy' in £400m free schools budget row

Anger grows within the coalition over the Education Secretary's funding for his pet project

Coalition relations threatened to deteriorate to an all-time low yesterday after Michael Gove was accused of diverting £400m of essential classroom funding to plug a hole in his free schools project.

In what threatens to be the worst spat between the Conservatives and Liberal Democrats in four years, a senior government source accused the Secretary of State for Education of "lunacy" and being a "zealot" by funding his flagship programme at the expense of much-needed local authority school places. David Laws, the Lib Dem schools minister, is said to have warned Mr Gove not to divert the money, but was overruled by the Education Secretary.

While free schools are being created where there is no demand, other areas have heavily oversubscribed schools and parents are being forced to send their children to schools miles away and that were not on their list of six choices. Figures published yesterday revealed that half of new primary free schools that are opening this autumn are unfilled, underlining fears that they are being created in areas where there is no demand.

According to the senior government source, Mr Gove reduced funding in December for the "Basic Need" budget – money given by the Department for Education to local authorities to ensure there are enough school places for all – from £2.75bn to £2.35bn between 2015 and 2017. The £400m would have funded about 30,000 new school places over that period. The reduction was used to plug a shortfall in the free schools budget of about £800m between 2013 and 2016. The remaining £400m black hole was funded from departmental revenue underspends, it was claimed.

The source said: "Michael Gove is so ideologically obsessed with his free schools experiment that he's willing to see children struggle to get suitable school places. Everybody knows there's real pressure on school places at the moment, and the Secretary of State for Education knows better than most. It is nothing short of lunacy to slash the amount of money available for new school places to lavish on free schools.

"Michael Gove was warned by the schools minister David Laws that this was a bad idea but the zealot pressed on anyway."

Basic Need funding can be used by local authorities to build new schools or expand existing ones to meet the need for extra places. Many areas are already struggling to create enough school places, with some authorities unable to give every child a place, and the cut in funding will increase pressure further.

The source added: "The Conservatives are putting the needs of a handful of their pet projects ahead of the requirements of the other 24,000 schools in the country. Michael Gove is so dogmatic about free schools he essentially places no spending restrictions on them at all. The free schools budget is out of control and the Secretary of State would rather sink another £800m into the black hole, rather than rein in spending.

"At a time when there is not much money around, this means they are benefiting at the expense of all the department's other policies. It's particularly damaging that even much-needed school places are in the line of fire, as a result."

There has been a fresh round of coalition infighting in the past two weeks, including the leak of a letter from Nick Clegg to Danny Alexander, the Chief Secretary to the Treasury, revealing Liberal Democrat opposition to tougher sentences for knife crime. And on Friday, further leaked emails revealed concerns inside the Department for Education over Mr Clegg's pledges on universal free school meals.

In an interview with Radio 4's World at One on Friday, Mr Gove's former special adviser, Dominic Cummings, accused the Deputy Prime Minister of publicly "lying" about the free school meals policy by saying that funding needed for lunches would be partly met by an underspend in maintenance funds.

The free schools programme has had a number of setbacks, including news last week that one of the flagship institutions, the West London Free School set up by the journalist Toby Young, is advertising for its third headteacher in three years.

A Liberal Democrat source said: "The Lib Dems are in favour of free schools but not at the expense of school places in the rest of the school system. We raised strong objections about this but we were overruled."

A spokesman for Michael Gove said: "The suggestion we are cutting money for new places in areas of need to pay for free schools where they are not needed is totally wrong. These claims pretend that money spent in free schools is not creating new places in areas of need. That is simply not true.

"From 2015, funding to councils for new school places will rise by more than £200m a year. On top of this, investment in free schools will provide tens of thousands of new places in areas of need. Indeed, the vast majority of free schools are in areas with a shortage of places. This investment in free schools is entirely in addition to the rising basic need funding for councils which we announced in December." The spokesman said it was right that new places were being created in free schools, which are "hugely popular with parents".

But critics will point out that the rise in funding from 2015 is from a baseline in the previous Parliament and that Mr Gove's spokesman did not deny there was a shortfall of £800m in funding for free schools.

Coalition clashes

It is exactly four years ago tomorrow that David Cameron and Nick Clegg stood side by side in the Downing Street rose garden and launched the first coalition in 60 years. If, back then, anyone could have guessed the area where relations between the Conservative and Liberal Democrat sides would break down dramatically and bitterly, many would have put money on the environment – MPs from both parties are diametrically opposed over wind farms and man-made climate change.

Yet the most serious deterioration has been in the department that had the most "coalicious" promise, and with, for the past 18 months, a Conservative Secretary of State and a Lib Dem minister so ideologically at one that it was impossible to distinguish between their views. But a gigantic crack in the coalition has appeared at the Department for Education, with Michael Gove and David Laws once again at the centre of a bitter fight over schools.

Despite minor skirmishes, the first year of the coalition went relatively smoothly. It was only around the referendum on the alternative vote, in May 2011, that the first nasty exchanges become public when it emerged that Chris Huhne angrily confronted Mr Cameron and George Osborne across the Cabinet table. The then Energy Secretary accused the PM and Chancellor of sanctioning personal attacks by the No campaign against Mr Clegg, the leading proponent of voter reform.

There was more tension to come as the NHS reform bill passed through Parliament, yet differences were largely contained. The worst moment – until this weekend, arguably – came in the summer of 2012 when Mr Clegg's cherished plan for reform of the House of Lords was killed off by Conservative MPs. In revenge, the Deputy Prime Minister pulled support for boundary changes, to the fury of Conservative MPs who stood to gain most from the redrawing of seats. From then on, it has been difficult to contain an all-out war between the Conservatives and Lib Dems.

In 2013, Mr Clegg blocked plans – drawn up by Mr Gove's minister Liz Truss – for a relaxing of childcare ratios. Then, in the autumn of last year, the two sides agreed a policy trade-off which appeared harmonious but has caused lasting damage. In exchange for the Lib Dems agreeing to Mr Cameron's married couples' tax allowance, Mr Clegg was allowed to announce a policy of universal free school meals for all primary school children from September 2014. Even though it had support of both sides of the coalition, leaks – presumably from those close to Mr Gove – have revealed reservations over whether the lunches policy would work.

In early 2014, Mr Laws vented his fury that Baroness Morgan, the chairman of Ofsted, was being forced out by Mr Gove. Two weeks ago, a letter from Mr Clegg to Chief Secretary to the Treasury Danny Alexander was leaked, revealing Lib Dem opposition to tougher sentences for knife crime. It had been sent the day after the killing of Leeds teacher Ann Maguire, and the leak was designed to cause maximum damage to the Lib Dems and portray them as soft on crime. Fresh leaks emerged only on Friday over Mr Clegg's role in the free school meals policy. Lib Dems see it as no coincidence that Mr Gove's controversial former special adviser, Dominic Cummings, gave an interview to Radio 4's World at One, the programme that had received the leaked emails.

So does this internal bitterness mean the coalition will break before polling day in 12 months' time? There are more flashpoints to come: the implementation of the free lunches policy in September could be a disaster, and the referendum on Scottish independence that same month could cause irreversible breakdown if there is a Yes vote. It is going to take a lot of effort on both sides to hold the Government together.

Jane Merrick