Councils should be given more choice in deciding how to pay for building and upgrading schools, a financial watchdog has said.

The Accounts Commission for Scotland said that local authorities could gain "real benefits" from private finance initiatives (PFI), but should not be forced to rely solely on this method of funding.

The report, which examined funding schemes affecting 65 Scottish schools, found that they cost more than if councils were able to borrow the money themselves.

The Scottish National Party said that the commission's findings blew a hole in the entire scheme, which Labour refers to as public private partnership (PPP).

It is now time the madness of building schools and hospitals for private profit was ended

John Swinney, SNP leader

Nationalists said the report showed �80m a year was being spent unnecessarily through Labour's "obsession" with the private sector.

The SNP said that the "public sector comparator" (PSC), which is used to compare the costs of PFI projects and the public sector alternative was not a "level playing field".

They seized on a section of the report which said the PSC used figures 2.5% to 3% higher than the sum a council would actually have to pay for borrowing money.

SNP leader John Swinney said: "It is now time the madness of building schools and hospitals for private profit was ended."

But the Scottish Executive said the report vindicated its own view of PFIs and that it amounted to a recognition of the improvements PFIs have brought about.

Big school projects

The 92-page Accounts Commission report gave a qualified backing to the use of PFIs by councils for school building.

The report did, however, warn that because of widespread use of PFIs for big school projects, there was little evidence about the effectiveness of traditional finance methods.

It said: "The Scottish Executive should therefore consider the benefit of promoting real choice between procurement options for school services."

Annual fee

Councils have complained that the PFI is now regarded as "the only game in town" for paying for big bricks-and-mortar investments.

Ministers have so far given the go-ahead to 12 PFI projects covering a total of 80 schools, costing a total of �2bn over their lifetimes.

Typically, a council will pay a private consortium to build and maintain a school for 25 years or more, with the council paying an annual fee and then taking over the building at the end of the contract period.

The Accounts Commission studied six of these projects, covering 65 schools, and found that overall, councils had managed these well.