Improvements in schools which have created partnerships with private firms have been undermined by "short-sighted" Government policy, the CBI said today.

The country's most influential business group warned there was a danger that a failure to manage the public-private partnership could result in children not achieving their true potential.

Private companies have questioned the long-term viability of the system because of the Government's inability to sustain the new education market, the organisation said.

"Partnership with the private sector has undoubtedly driven up education standards in some of our most deprived communities, bringing new hope and opportunities for our young people," said Digby Jones, the CBI's director general.

"But there's a real danger that ideological resistance and a failure to manage this new market effectively could result in many children never achieving their true potential, and the country can't afford that.

"The Government is being short-sighted if it doesn't realise it is in danger of losing existing skills and capacity by not better managing the market it has created. Business has to be more than just a white knight riding to the rescue when there's trouble."

The CBI, which studied the impact of using private firms in England's worst performing education authorities, said results had improved.

The Government was urged to create a dedicated commercial team at the Education Department and to establish a more formal dialogue with education suppliers.