It was being assumed on Wednesday, as The TES went to press, that the Government also intended to lift local authority spending restrictions.

The local authority settlement will allow for a 4.5 per cent increase in school funding and take the pressure off reserves that have had to be raided in recent years to protect education services.

According to Gillian Shephard, the Education and Employment Secretary, increases agreed in this week’s Budget take account of inflation, the rise in pupil numbers, and allow for “a responsible teachers’ pay award”.

However, the local authorities point out that the Pounds 770m is roughly the amount they spent above last year’s standard spending assessment in an attempt to compensate for the Government’s refusal fully to fund the teachers’ 2.7 pay rise.

In the next few days, Mrs Shephard will give her directions to the teachers’ pay review body. She is expected to impress on the review body the need to consider the wider implications of any settlement.

The underlying Budget assumption appears to be that pay will increase by around 3 per cent, a rise that will only match the 3 per cent inflation rate predicted for the first three months of next year. However, a settlement closer to the predicted 4 per cent rise in average earnings would mean cuts in school budgets.

The Budget increases suggest ministers fear any repeat of the protests from parents and governors that followed last year’s budget cuts.

While ministers cannot force local education authorities to spend the extra rate support grant on schools, Mrs Shephard made clear that she believed parents would insist on priority being given to education.

Kenneth Clarke’s Budget includes an additional Pounds 104 million to be spent by the Department for Education and Employment. The first phase of the nursery voucher scheme will cost Pounds 37m (of which Pounds 16 million will be taken from local authority budgets). The Pounds 20m set aside for grant-maintained schools would cover central Government costs for an increase of about 250 in the opted-out sector.

Around Pounds 11m will be spent on providing more places on the Assisted Places Scheme that subsidises independent-school fees for children from low-income homes. This suggests that the Government could take 10 years to redeem its promise of doubling the numbers on the scheme.

Another Pounds 23m is to be spent on increasing the number of specialist technology and language schools.

In addition, the Government has allowed for Pounds 625m to be spent on school buildings, a 6.8 per cent increase on last year. The figure includes an extra Pounds 8m for grant-maintained schools; Pounds 5m for voluntary-aided schools and Pounds 27m for local authority schools.

The overall education and employment budget is Pounds 430m down on the sum predicted in last year’s figures for 1996-97. Most of the cuts will bite into the employment and training programmes.

FE colleges have been hard hit. They are expected to increase their number of students by 12 per cent with no more money than last year. No provision has been made for any expansion in higher education.

Labour has accused Mrs Shephard of sleight of hand.

David Blunkett, the party’s education spokesman, said the extra Pounds 774m local education authorities will be allowed to spend is Pounds 23m less than they spent this year. In effect, he said, there will be no change.

The main points

* An extra Pounds 774m on recommended council spending on schools in 1996-7 - up 4.5 per cent.

* Colleges to make 5 per cent “efficiency” savings a year until 1998-9.

* University budgets cut by 7 per cent in 1996-7. Participation rate frozen at just over 30 per cent until 1998-9.

* Training and employment programmes to be cut Sby 4 per cent in 1996-7 * Private finance schemes to be introduced throughout education.

* Up to Pounds 5m to pay for primary literacy and numeracy projects.

* Pounds 11 million extra to expand Assisted Places Scheme in 1996-7.