Jim Knight, schools minister, said this week that schools would be guaranteed only 2.1 per cent a year in funding rises from April 2008 to 2011 and pay would be consistent with that. His statement to Parliament gives the Government little room to move much above a 2 per cent pay deal.

Schools will have to cut back by pound;1 in every pound;100 because costs are projected to rise by 3.1 per cent.

“Every school and local authority will receive increases in funding per pupil each year,” Mr Knight said. “But every school will also face the challenge of making their funding work harder in support of our shared aims.”

A government spokesman said schools could save money through better procurement, continued workforce reform and better use of support staff such as sharing financial and IT managers with other schools (see panel).

Office for National Statistics figures this week show retail price index inflation climbing back to 4.2 per cent, only half a point below its high of 4.8 per cent in March.

From beer to rent or mortgages, teachers’ costs are rising faster than their pay - and that is set to continue for three years. The Government is determined to keep the teachers’ pay deal as close to 2 per cent as possible. The two biggest teachers’ unions, the National Union of Teachers and the NASUWT, are poised to ballot for strike action over pay.

Teachers have done well out of this Government: from 1998 to 2006, the teachers’ pay bill grew by 43 per cent in real terms. That will now slow and some schools - especially the 5,700 that will get the bare minimum 2.1 per cent rise - could be forced to lay off staff.

There was some good news: the package includes extra cash for under-funded poor schools in wealthy areas and those with influxes of refugees or immigrant pupils speaking minimal English.

The pay deal is expected to be announced before Christmas.

School funding, pages 16-17.