Ofsted has warned that the "halfway house" approach to academisation is not working and called for cash incentives to be restored to persuade more good schools to run multi-academy trusts (MATs).

The inspectorate’s annual report, published today, says the Department for Education’s policy to improve schools through academisation will not work unless more good sponsors are found.

It adds: “We are not seeing this matching of schools to MATs happen anywhere near as quickly as we would hope. In some cases, this has left local authority schools judged 'inadequate' to be in limbo for over 18 months before they became an academy in a MAT.

“While the number of school leaders continues to grow and programmes to build the capacity of MATs exist we need many more 'outstanding' schools and school leaders to step up to the challenge of providing system leadership.”

Ofsted said that school leaders needed to step up to replace and build upon the school improvement work of town halls that have had their funding cut.

Although 86 per cent of schools were rated as "good" or better at their last inspection, Ofsted warns that the country’s capacity to improve schools is worryingly thin.

The report says: “We need more school leaders to give back to the system by collaborating and supporting struggling local schools by becoming a system leader or forming a MAT.

“The current halfway house whereby all 'inadequate' schools become academies and require a sponsor, but where there is a severe lack of capacity to sponsor them, has led to a mismatch in available support.

“Simply put, without more good sponsors, the DfE’s ambition to support failing schools will not be realised.”

The report also warns that thousands of pupils could be disappearing from the education system after being illegally off-rolled.