Tory dreams of cashing in on education turned into a nightmare yesterday when Britain's first for-profit school was placed under special measures by schools inspector Ofsted.

Inspectors said that children at Breckland free school in Suffolk are not fulfilling their potential and the staff turnover is too high.

The full report will be issued tomorrow but new principal Alison Tilbrook has already told parents that the school is failing.

"Too many students fail to make sufficient progress and they do not attain the standards of which they are capable," Ofsted said, adding that the school's own assessments were "inaccurate."

Breckland, supported by Swedish firm Internationella Engelska Skolan, is the third of Education Secretary Michael Gove's free schools to be put into special measures.

The verdict deals a huge blow to Mr Gove's flagship policy of prising schools from democratic control.

Teaching union NUT called on David Cameron to suspend the free schools programme.

"The NUT takes no pleasure in the news that another free school is failing to provide a sufficiently high standard of education for its pupils," general secretary Christine Blower said.

"Parents and students at this so-called pioneering school have been badly let down, not only by the school's private operators but by the government which has sold them the lie that free schools can provide them with a better offer than their state school neighbours."