A major overhaul of the school funding system, which could redistribute money from inner-London schools to those outside the capital, is a priority for the government, TES understands.

The first steps towards the introduction of a fair funding formula, which would radically alter the way the national education budget is allocated, are expected to be taken this year.

Sources close to the Department for Education say they believe a commitment to reforming the system will be made either in an emergency Budget, expected from George Osborne on 8 July, or in the chancellor’s Autumn Statement. A detailed white paper and consultation could be published as soon as this autumn, enabling reforms to be implemented in time for the 2017-18 school year.

`Mind-boggling’ gap

Schools in rural areas have long complained that funding is disproportionately skewed in favour of those serving urban communities.

The reforms are expected to be expedited by the appointment of Conservative MP Robin Walker as parliamentary private secretary to education secretary Nicky Morgan. Mr Walker is vice-chair of the F40 group, which represents the lowest-funded authorities in campaigning for a new funding structure.

He used a House of Commons debate in March to argue that the “speedy implementation” of a new formula was “more urgent than ever”, and he hit out at the “mind-bogglingly vast gap” between funding levels in different parts of the country.

A source close to the DfE told TES that they expected the formula to be introduced over a three-to-five-year period, with “floors and ceilings” built in to ensure that no school gained or lost more than a fixed percentage of its budget.

“Funding will go from Labour areas [in London] towards Conservative ones,” the source said. “That’s not the purpose of the formula, but that’s what’s going to happen in effect.”

Analysis published by the Association of School and College Leaders at its annual conference in March shows that secondary schools in the lowest-funded areas receive about pound;1.9 million less than similar schools in the highest-funded areas.

Chris Healy, headteacher of Balcarras School in Cheltenham, which is one of the lowest-funded areas, said he was pleased about the prospect of a new funding formula. At current funding levels, Mr Healy said, his school faced insolvency by 2018.

“It doesn’t make any sense that funding at the moment is based on historical factors that go back decades,” he added.

Tim Plumb, co-headteacher of Woolwich Polytechnic School, which is in one of the highest-funded local authorities, said that any change should be carried out in parallel with increasing education spending.

“It may be that a degree of redistribution is justified, but you need to increase the funding so you get winners and bigger winners, rather than winners and losers,” he added. “If it means real-terms cuts to schools’ budgets.headteachers and groups of schools will naturally want to fight their corner.”

The DfE consulted on changing the funding formula in 2011, concluding that although support for reform was “widespread”, the overhaul should be put on hold because the proposed new model “would need refinement and careful implementation”.

The Conservative Party’s 2015 election manifesto pledged to “make school funding fairer”, but did not provide further details.

A DfE spokeswoman said: “We recognise there is still work to do over the coming months. We will be looking at what needs to be done to ensure that all local areas are funded justly.”