Ministers face growing conflict with heads and pay advisers over the pound;1,000 pay rises for experienced teachers when they announce an expected 2.5 per cent wage deal next week.
The School Teachers' Review Body, whose report is due out on Monday, is likely to reject demands from Education Secretary Charles Clarke to slash the number of teachers progressing through the upper pay scale by two-thirds in 2004.
The Government could overrule the review body for the first time in its 12-year history, but ministers would need to get any significant change through both houses of Parliament.
The National Association of Head Teachers is threatening a boycott of the upper pay scale if an agreement cannot be reached that satisfies its members.
Governors and all five major teacher unions have opposed the plans to limit numbers progressing to level 3 of the upper pay scale.
Ministers narrowly avoided industrial action by both headteachers' unions last year by providing extra money for senior teachers. The review body's report is expected to broadly follow Mr Clarke's call for a headline pay deal lasting more than two years of around 2.5 per cent, in line with inflation.
But on the controversial proposal for new criteria to limit the numbers of teachers reaching level 3 of the upper pay scale, the review body has urged the Government, unions and employers to come up with new solutions.
This has proved to be by far the thorniest issue for Mr Clarke in this year's wage round. More than 90 per cent of eligible teachers qualified for the first two levels of the upper pay spine.
But the Education Secretary told the review body that the current rate of progression was unsustainable and would add pound;700 million to English school wage bills by 2010 if it continued.
He proposed limiting government funding to support only 30,000 of the 100,000 eligible candidates for level 3 in 2004, backed by tough new criteria that only allowed heads to approve the applications of a minority of excellent candidates. Mr Clarke also called for levels 4 and 5 to be made even more challenging.
Only the employers offered any support for the plans. They were even opposed by the General Teaching Council for England, which usually stays out of the pay and conditions debate. It criticised the Government for devising the proposals in haste.
Since then Mr Clarke has told the review body that he remained open-minded about the criteria used to select excellent candidates.
But he also restated his view that performance pay could not continue in the same vein. And with funding tighter than ever there is no question of his department finding enough money for 90 per cent of candidates to move up the scale.
Ministers, keen to avoid a repeat of last year's dispute, held talks with both headteacher associations last week. But it is understood that little progress was made and further discussions have been suspended until the publication of the review body's report.
David Hart, NAHT general secretary, said: "Heads are united in their determination to boycott upper pay spine 3 if this not sorted to our satisfaction."