The National Union of Teachers claimed that teachers would lose #163;50 a month, while heads attacked the deal as a further obstacle to recruiting good graduates.
Tony Vineall, chairman of the review body, said his report had been written against the background of the Government's manifesto commitment to raising standards, the White Paper Excellence in Schools and the Green Paper on educational special needs.
"Much is expected of teachers, and only with their knowledge, skills and commitment, and with sufficient numbers of them, will the Government's targets be met," said the report. The review body said it had been under pressure from the Education Secretary not to use the extra money found for education in last year's autumn Budget on teachers' pay. But because of the need to attract good graduates and to sustain the morale of teachers "whose efforts are crucial to achieving a rise in educational standards" the review body recommended a pay rise of 3.8 per cent which should be implemented in full.
Some reports suggested Mr Blunkett had attempted to resist phasing the award, but when he announced the decision he said: "This is a fair settlement for teachers which reflects the continuing need to ensure the profession attracts, retains and motivates good quality teachers."
Doug McAvoy, NUT general secretary, called it "robbery". He said: "New Labour is behaving more savagely than its predecessor. Teachers with #163;40,000 mortgages will have had a #163;50 a month increase in their payments. As a result of staging, they will lose #163;50 a month."
David Hart, general secretary of the National Association of Head Teachers, said: "The Government can kiss goodbye to recruiting good honours graduates into teaching and to teachers in senior management positions. What a way to raise standards."
The review body concluded that while the recruitment situation was worsening, there was no evidence yet of a crisis. But it was concerned about the future. A survey of graduates revealed teaching has a bad press in terms of workload, pay and the difficulties of controlling badly behaved pupils.
The report says it is considering the Teaching Training Agency's suggestion of "golden hellos" to attract graduates. This would involve paying off student debts over a number of years.
The review body has introduced discretionary payments for teachers who run out-of-school activities such as homework clubs and summer literacy schools. This will be extra to the 1,265 hours teachers are contracted to work.
The payment is based on the additional duties allowance for teachers in residential schools, which is #163;5,541 (15 hours a week for a 38-week year at #163;9.72 an hour). The Government will decide whether this sum is pensionable.
The review body recognises unions' fears about workloads and said it welcomed the Government's intent to cut down on bureaucracy.
It concurs with the White Paper that appraisal systems are weak and agrees with the Government that teachers should be assessed on their pupils' results .
It said: "Given the crucial role of the heads in securing high quality education in school, it is all the more important that arrangements for headteacher appraisal are robust, effective and focused on the key skills of good leadership."
The review body will publish a separate report on the advanced skills teacher grade in March.