A lack of Government funding could force Croydon Council to rely on free schools to 'fill the gap' in pupil places, a senior Labour councillor has claimed.

Simon Hall, cabinet member for finance, said the council could no longer afford to rack up debt by borrowing to build or expand schools, and would instead need to encourage free school applications to keep up with rising demand.

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The council borrowed £54m to build or expand schools in the last four years, according to its autumn financial statement.

Though it expects to receive £96m from the Department for Education (DfE) to provide more places over the next three years, the council claims it would need to borrow a further £35m to meet demand.

Coun Hall said: "It's the quirk of Government education funding. They constrain local authority grant levels, but if free schools put an application in they get almost unconstrained funds.

"Because it's not a level playing field, we have to look at these kind of tough choices. We're having to get involved in the process of opening free schools more directly.

"If we didn't have these financial constraints, would be necessarily be looking to go down that particular road? Probably not."

Free schools in England, which are directly funded by the DfE, received 60 per cent more funding per pupil than local authority schools in 2013/2014, a recent investigation by the Guardian newspaper found.

A budget report due to be presented next week includes that "the council is investigating a policy to only provide school paces where they are funded by central government, and allowing other providers to fill the gap".

Croydon Council predicts that an extra 2,100 secondary places and 5,182 primary places are needed by September 2017.

DfE grant money would still be used to build or expand schools to provide new places, Coun Hall said.

But he claimed the borrowing costs associated with this work had become unsustainable.

He said: "This is about making the choices that do provide the needed school places at the same time as working in the financial constraints that the government is imposing. The grant we get from the DfE doesn't cover the cost of school building we need to do to meet demand.

"If we can find other providers that we feel matches the council's ethos and with a track record of providing good schools in the borough, we want to attract those organisations and encourage them to put in free school applications.

Coun Hall added: "We're absolutely crystal clear that we need to do this, but in such a way that it doesn't put us in any jeopardy of having insufficient school places for Croydon pupils."

Tim Pollard, leader of the council's Conservative group, said: "Apart from the fact that they are tapping into a direct pot of Government funding, it's actually quite hard to see the difference between free schools and academies.

"If you go back into the mists of time, councils were expected to have sufficient capital funding. [And] actually, the Government has been pretty good in increasing Croydon pupil funding.

"It is getting more money than the vast majority of local authorities.

"What the council can't do is say, 'We will provide what we provide, and if free schools don't emerge then that isn't our problem'."