Schools’ hopes of big increases in funding over the next three years could be undermined by the revelation that they have more than pound;1 billion in unspent reserves.

Education Secretary Estelle Morris is currently involved in tough negotiations with the Treasury over how much extra cash education will receive in next week’s Budget and the three-year Comprehensive Spending Review which will be completed this summer.

Government insiders expect education to receive a significant increase in funds but the rail crisis, public concerns about the health service, and the costs of the war on terrorism have all ensured that Ms Morris will face a fight to match previous increases.

Her task is unlikely to be helped by the revelation that many schools have money in reserve. Chancellor Gordon Brown has emphasised the importance of seeing real improvements in schools as a result of additional spending.

The 20001 figures on school balances, compiled by the National Association of Schoolmasters Union of Women Teachers, show an increase of nearly pound;360m on the previous year. They are based on official returns from 6,864 schools in 37 education authorities. Primary school balances averaged pound;35,469, or 7.5 per cent of their budgets. Secondary schools were closer to what is considered a reasonable contingency figure of 2 to 3 per cent, but still up at an average pound;83,722. Ms Morris’s own department underspent by pound;1.4bn in the same year.

Joe Boone, NASUWT’s assistant secretary for conditions and service, said:

“New money is coming through but not to teachers’ pay or the classroom. It’s going into bank accounts. You can’t trust schools to spend it.”

But headteachers said that the number of government funding streams made planning difficult. David Hart, general secretary of the National Association of Head Teachers, said: “The classroom unions would be better employed extracting a decent national settlement out of the Government rather than trying to get it off the hook by pretending there’s lots of money slushing around in school budgets.”

In each of his last three budgets Gordon Brown has given heads additional cash. Last year there was pound;1bn extra for education, with the average English secondary school receiving pound;10,000 extra to spend as they wished.

However, this is unlikely to be repeated. Ministers are said to be worried that giving more money straight to heads encourages them to create more teaching posts which ultimately exacerbates the staff shortage.

Any additional cash for schools in this year’s budget is instead likely to be tied to specific purposes such as building work or cutting teachers’

workload. Heads estimate that more than pound;1bn extra is needed for additional teachers and support staff.

Ms Morris is under pressure from the three main unions to reduce workload, following renewed calls at the Easter conferences for industrial action in pursuit of a Scottish-style 35-hour week.

The department has also guaranteed that no schools should lose out in real terms as a result of reforms of the funding system being drawn up for 2003.

Meanwhile, the Liberal Democrats are considering putting councils in charge of most school funding and hiving off post-14 cash to the Learning and Skills Council.

The party is preparing to drop its commitment to putting a penny on income tax to raise money for education. Instead, it wants to fund schools via a local income tax, said spokesman Phil Willis.

FUNDING STATISTICS

* Ministers claim a pound;7.6bn “unprecedented” increase in education spending during the past four years.

* Local council leaders claim that after salaries and inflation school budgets will increase by just 2 per cent this year.

* The Conservatives claim that Labour failed to meet its promise of increasing education spending as a proportion of national income during the last Parliament.

* Unions claim that some areas, particularly rural ones, have not received a fair share of extra funds.