The rebuilding programme aims to raise aspirations
A scheme to renovate England's secondary schools could grind to a halt because banks are not lending money, the building industry has warned.
The Construction Industry Council said building firms were struggling to raise the cash needed to take part in the Building Schools for the Future scheme.
But ministers insisted banks were still interested in lending for the scheme.
The government's £45bn initiative aims to rebuild or refurbish every secondary school in England by 2020.
Graham Watts, chief executive of the CIC, told a cross-party group of MPs that the construction industry was facing a massive slump.
He told the schools select committee: "The sharp rate in decline we are experiencing is unprecedented.
"We expect output in construction to fall in 2009 by at least 9% - that's the worst fall in almost 30 years."
He said the industry saw Building Schools for the Future (BSF) as a "once in a generation opportunity to improve the learning and educational environment for our children".
"There's no shortage of people wanting to be involved, but a number of those are struggling to raise the private capital they require because of the problems with liquidity we have within our banking system."
He told MPs that the European Union or the government needed to intervene to provide more direct funding to support the building projects.
Tim Byles, chief executive of Partnerships for Schools, which is responsible for delivering BSF, told the committee: "The biggest difference between now and last year is the size of debt a bank is prepared to engage in a single scheme is reduced to £20-30m."
He said this meant that, for a £200m scheme, they needed to have six companies involved rather than one or two.
Banks 'still interested'
Speaking to the committee of MPs later, Schools Minister Jim Knight said the current problems with lending could have an effect on BSF because the scheme used private finance initiatives (PFI).
Under PFI, private companies fund the building of schools, typically with the local authority repaying the costs over the next 25 to 30 years.
But Mr Knight added: "It is not the case that the money has dried up."
He said there was still interest from banks wanting to take part in the scheme, and there were alternative sources of funding.
"The feedback we are getting is that this aspect of investment, in public sector projects, is the lowest risk of them all, and probably the last to feel some of the difficulty and heightened risk attached to it."
Ministers have said the BSF scheme will help to raise aspirations and standards in schools.
A report commissioned by the government found the majority of head teachers thought the BSF scheme was important for improving results and teaching.
However the study, by PricewaterhouseCoopers, found school buildings waiting for refurbishment were deteriorating rapidly and local authorities were reluctant to spend money on buildings which were about to be replaced.
"The physical condition of schools awaiting works is likely to deteriorate in view of the diminishing rationale for spending public money on a building which is about to be replaced or substantially remodelled," the report said.
Responding to the report, Mr Knight said: "It is unacceptable for buildings to be allowed to deteriorate - that's why throughout their BSF projects, each school continues to get revenue funding for routine repair and maintenance to keep their buildings looking smart, and capital funding to meet all health and safety needs."
Mr Knight opened the 50th BSF school on Tuesday.