The Department for Education has announced plans for a new national school funding formula that would remove much of the local authority role in distributing funds between schools.

Under proposals published today, the £40bn schools budget will be shared between schools using a national formula based on four main factors:

• A basic amount per pupil
• Funding for “additional needs” such as deprivation, low prior attainment and the number of pupils speaking English as an additional language
• “School costs” such as the extra costs related to serving rural communities
• “Area costs” that will make sure more funding goes to the areas with the highest costs

The department said the new funding formula would be introduced in 2017-18 and that there would be an “invest to save” fund from 2016-17 to help schools “manage the transition” to a new system.

It is not yet clear which areas would lose and which would gain funds under the new system, because the government has not set out how much weight will be placed on each of the four factors above. The financial implications will be made clear in a second consultation that will “set out full illustrations of the impacts of the funding formulae across schools and local authorities”, a statement from the department said.

TES reported last week that this second consultation was expected to be announced after the London mayoral election on 5 May. Inner London schools are among the highest-funded in the country, and therefore stand to lose most under a new formula.

Under the government’s plans, local authorities will have no role in distributing schools’ main funding but they will still be involved in the distribution of “high needs” funding for pupils with special educational needs and disabilities.

A statement from the Department for Education said the current system for distributing funds between schools was “outdated, inefficient and unfair”, leaving some schools with 50 per cent more funding than others in a similar situation.

Education secretary Nicky Morgan said: “The introduction of a national funding formula from 2017-18 will see the biggest step towards fairer funding in over a decade - ensuring that pupils get funding that genuinely matches their need.”

Labour shadow education secretary Lucy Powell said: “While the principle of so-called fair funding is the right starting point, the devil will be in the detail.

“Even before any changes to the funding formula, all schools will see their budgets cut by at least 8% in real terms over the next five years, having a huge impact on teaching and frontline resources.

“The Tory Government has dodged the difficult questions about school funding ahead of this year’s elections because they know that many parts of the country, including London where they face a key election, will lose even more from schools budgets.

“Now that they’ve fired the starting gun on a funding review, they should get on with the detail and not leave schools in the dark.”

A consultation on the proposals opens today.