Education secretary hints at Leveson inquiry that policy would be allowable in second term of Tory-led government

The education secretary has given his clearest indication yet that a future Conservative government would let state schools be run for profit.

Giving evidence to the Leveson inquiry into phone hacking, Michael Gove was asked whether he hoped free schools would be able to make profits in a Tory second term.

He replied: "It's my belief that we could move to that situation but at the moment it's important to recognise that the free schools movement is succeeding without that element and I think we should cross that bridge when we come to it."

Allowing schools to make a profit is politically toxic. A Populus poll this year found overwhelming public opposition.

It is also a sore point in the coalition. Nick Clegg made a speech in September last year in which he ruled out profit-making, saying: "Let me reassure you … 'no' to running schools for a profit, not in our state-funded education sector."

Alluding to coalition tensions, Gove said: "There are some of my colleagues in the coalition who are very sceptical of the benefits of profit. I have an open mind.

"I believe that it may be the case that we can augment the quality of state education by extending the range of people involved in its provision."

Previously he has said that while he is a "pragmatist" on the question of profit-making, it was not necessary at present.

A shortage of capital is a barrier to the expansion of the government's free schools programme, and private investment would provide an injection of cash for new school buildings. While academies and free schools are run independently, they are classed as public bodies and their surpluses cannot go to shareholders.

At the inquiry Gove was questioned about a News International proposal to create an academy school in east London, which fell through because the Department for Education (DfE) could not afford to pay for a new building. He said: "We took a decision to step back and say we cannot provide the capital."

In emails published by the inquiry a senior DfE official told News International the "very tight" spending review meant a new building could not be funded.

Gove said on Tuesday that the publisher of the Sun and the Times was also interested in creating a second school in west London.

"I understand … that they had wanted to set up one school in the East End in order to ensure that their sense of corporate social responsibility was fulfilled. There was some talk at one point that another might be located in west London but that was the limit of their ambition."

Gove said he believed Rupert Murdoch was only interested in opening a free school for "purely philanthropic" reasons. He said he knew nothing about News Corporation's educational subsidiary, Wireless Generation, until he "read about it in the Guardian". The firm's software helps teachers analyse pupils' performance.

Gove said that he was aware Murdoch and others had an interest in the way technology would change education.

There was a hint Gove planned to make this announcement on Tuesday; his special adviser Henry de Zoete was present in a annex for the press at the inquiry and encouraged reporting of the comments.

Kevin Courtney, deputy general secretary of the National Union of Teachers, said: "It is well known that in Sweden one of the major ways in which schools make profits is by employing non-qualified staff to do the jobs of teachers. Michael Gove has already made it within the law that free schools are not required to employ qualified teachers.

"The free schools policy is a licence for the private sector to make money and is not in the interest of children, families or the taxpayer."