Toby Young has said that free schools must be allowed to make profits if they are to grow in number.

The West London free school founder made the remarks in a report by the Institute of Economic Affairs, which proposed: "The government’s flagship schools reform policy will fail to make a substantial difference unless the government allows for-profit companies to provide free schools."

Young first suggested the government should look at for-profit companies in the TES in February.

"The secretary of state should either allow for-profit education management organisations to set up, own and operate free schools or, at the very least, put a procurement framework in place that enables free school charitable trusts to outsource the management of their schools to such organisations," he said.

"I'm sure plenty of management companies would be prepared to bear some of the capital cost of setting up a free school in return for a 10-year contract."

The external support comes as more column inches are being dedicated to the idea that Michael Gove does support profit-making schools.

The education secretary told Andrew Marr last September: "Nick and I are completely in agreement on this [free schools remaining strictly not-for-profit]. It is not an issue."

But then two months ago, he appeared to change his mind, stating that they "could" become a possibility in the future.

Gove told the Leveson inquiry that he had an "open mind" on profit-making in the future.

Education insiders believe that Gove is warming to the idea of profit-making providers.

But, sources say, he is realistic that the proposal will face considerable opposition while the Conservatives are in coalition with the Liberal Democrats.

Labour would also object to the idea, on the basis that they would undermine existing schools in the area and sacrifice good education for profit.

Labour's shadow education secretary Stephen Twigg has said such a change would "risk the abuse of public resources".

UPDATE: One of Gove's flagship free schools has collapsed weeks before it was due to open, apparently, because of lack of parental support. Although not a great headline for the education secretary, he could use examples like the Newham Free Academy to show that his scheme can only really get off the ground if schools have the ability to make profit.

Tags: Free schools, Michael Gove MP, Profit-making schools, Stephen Twigg MP, Toby Young