Plans to shut East Brighton College of Media Arts could land taxpayers with a huge bill.

Contractors Jarvis paid for and built the school under a controversial private finance initiative contract.

If Brighton and Hove City Council presses ahead with plans to close the troubled college, it will have to pay a financial penalty to the company.

The size of the pay-off has not been calculated and depends on the future use of the site but insiders warn it could run into hundreds of thousands of pounds.

Last month we revealed the council was investigating a number of options for the school, which was rebranded and reopened under New Labour's Fresh Start initiative in 1999, including shutting it down.

Pupil numbers have dropped dramatically and parents are steering clear of the school when they make choices for their children, causing a knock-on effect in the city's other schools which are oversubscribed.

When Jarvis took the contract, it was predicted there would be 845 children at the college by 2008. The most optimistic current forecast says the figure would be less than 450.

A report released to councillors yesterday said any change in use would leave the council liable to pay a charge to Jarvis.

It said: "This report has extremely significant financial implications which cannot be fully quantified at this stage."

A council spokesman said the penalty cost of each option for the site would be included in a consultation study to determine its future.

He said: "The financial implications of the various options will be considered as they are analysed and included in a report to the children's sub- committee on September 8."

Schools councillor Pat Hawkes said parents of children in the city were voting with their feet. Tory education spokeswoman Vanessa Brown said they had always been sceptical about the rebranding of the college.