SCHOOLS in the poorest areas need more money and more realistic targets, says the Office for Standards in Education.

The inspectors’ demand will be seen as a challenge to ministers, who insist all schools should hit the same targets and that “poverty is no excuse”.

But the first draft of the major OFSTED report out this week says the chances of many schools in deprived areas hitting national targets is remote. It says only ten secondaries in deprived areas manage a proportion of higher-grade (A*-C) GCSEs results anywhere near the national average.

The report, Improving City Schools, undermines the strategy unveiled last week by David Blunkett, the Education Secretary. He has said that schools failing to get more than 15 per cent of pupils through five or more good GCSEs - many of which are in poorer areas - will face closure.

However, Estelle Morris, the standards minister told heads at a conference in London this week on the report that it was wrong to believe poor communities could not produce children capable of such results.

“We obviously will take intake of schools into account ... but there is not a community where the children cannot produce this level of results,” she said. “While poverty is no excuse, it is a reason for extra resources,” she added.

In the report, inspectors argue for extra money for schools working in the toughest environments and suggest a national “poverty index” to rank them in terms of the deprivation they face.

They say extra money should be allocated on the basis of the exceptional job required of teachers, the number of children with less serious special needs (for whom there is no individual funding), and the scale of pupil turnover.

On targets, they agre with high expectations for all schoools, but argue policy-makers must find measures that enable those in disadvantaged areas to demonstrate what they have achieved. In fact, inspection reports show that these schools are improving at a faster rate than their more privileged peers.

The report is based on a study of schools where more than a third of pupils are eligible for free school meals. In such schools disadvantage is widespread and, in some cases worsening, say inspectors.

Against such odds, it is only the exceptional school that manages results near the national average.

The hardest job is in secondaries, where only 2 per cent of those in disadvantaged areas manage to come near the national results average. In primaries, 4.4 per cent manage average English and maths test results.

The report follows up work done in 1993 by inspectors looking at achievement in urban areas, but will also be read with interest at the Government’s social exclusion unit. The study said that some schools were being left behind in the rising tide of national improvement.

Now the new report says some of the schools do not have enough money to do a good job.

It highlights the variance in funding between schools serving areas of similar disadvantage. The worst-funded primary had pound;1,418 per pupil, compared with the best at pound;3,165. In secondaries, funding ranged from pound;2,000 to pound;3,000 per pupil.

Such schools, it suggests, should not have to rely on bidding for funds to get extra money. Schemes such as Excellence in Cities and education action zones only add to the variation in funding, it says.

As well as the suggestions on funding, the report recommends that ministers create a national programme to improve special needs services in mainstream schools and set up links between schools in disadvantaged areas.