Councils are ready to defy Charles Clarke and stick to their spending decisions despite the Education Secretary’s attempts to blame them for the funding crisis. All councils have been told to write to Mr Clarke by Monday justifying any money not passed to schools.

But, according to heads the crisis could be solved at a stroke if the Government releases pound;1 billion unspent from last year’s education budget. Official figures show that the Department for Education and Skills underspent by more than any other government department. A DfES spokeswoman said the money had already been allocated.

Figures published by the Government last week suggest that pound;533 million earmarked for schools has not yet reached headteachers. Among councils accused of failing to pass on more than pound;5m are Essex, Liverpool, Manchester and Croydon.

But councils are planning to justify their budgets by pointing to a lack of central government funding and their need to hold onto money for items such as building work, special needs and pupil referral units. Ken Thornber, leader of Hampshire County Council, said that the pound;13.3m ministers said it had held was a “red herring”. The council had received the money too late to pass on by April 1, he said.

Derbyshire retained pound;12.7m intended for schools’ budgets, according to central government figures. But the council’s budget shows that most of this money has been earmarked for Government-backed schemes. pound;4.5m has been set aside for the National Grid for Learning, pound;1.1m for the leadership incentive grant. A further pound;3m will be spent on meeting the infant class-size limit, paying advanced skills teachers and providing teacher cover for the literacy and numeracy strategies.

Eric Wood, Warwickshire education officer, called for an independent MPs’

inquiry into the funding crisis.

Councils won support from David Hart, general secretary of the National Association of Head Teachers, who accused Mr Clarke of erecting a “smokescreen to divert attention from the Government’s responsibility for this crisis”.

He was speaking as the NAHT issued figures showing a “pound;2.5 billion black hole” in the Government’s funding plans for the next three years.

Speaking at the NAHT conference in York, junior minister Stephen Twigg tried to win over heads by encouraging them to set deficit budgets rather than “needlessly” laying off staff. He said funding was now his department’s “number one priority”.

Chris Waterman, executive director of the Confederation of Education Service Managers said: “Local authorities will not be happy to underwrite deficit budgets unless the Government ensures that the money to balance the books is made available in future years.”

Both the NAHT and the Secondary Heads Association back the introduction of a national funding formula to make clear what every school should get and avoid the annual row between councils and ministers over school funding.

The Government has said that it will look at the issue once this year’s crisis has been resolved and will take note of councils’ efforts to ensure cash gets to schools.

NAHT conference, 10