More than twice the number of teachers than originally expected will be allowed to reach the next level of performance pay after ministers agreed a new pound;77 million funding package.

As predicted by The TES last week, the deal thrashed out with unions and employers will allow a majority of eligible teachers to qualify for level 3 of the upper pay scale (UPS3), while levels four and five will be replaced with an “excellent teachers scheme” available only to a minority.

It marks a major climbdown for the Government, which had originally wanted to limit UPS3 to a third of eligible candidates through a strict quota system. Ministers had said that the cost of allowing the vast majority of candidates to continue up the scale, as they had done for the first two levels, was untenable.

Now they have agreed that UPS3 - representing pound;31,602 for teachers outside London - should be the salary to which “all good classroom teachers can aspire”.

The expansion of UPS3 in 20045 will be funded by a Government grant of pound;48m, with the rest of the money coming from schools which will be expected to redirect money previously used for management allowances.

They will be expected to contribute pound;24m saved by the allowance freeze from April and another pound;5m from a reduction in the number of management allowances paid following the workload agreement.

The distribution of the grant is weighted towards primaries because the majority of management allowances operate in the secondary sector.

The whole package is enough for more than 68,000 of the 90,000 or so eligible teachers, or around 75 per cent, to qualify for UPS3, worth an extra pound;1,128 a year.

But only around 20 per cent of teachers reaching UPS3 can be expected to qualify for the “excellent teachers scheme”. Details of the scheme, due to begin in September 2006, have not been finalised. But it will be worth more than pound;35,000 for non-London teachers in line with UPS5 and may draw on advanced skills teacher standards.

The draft agreement was reached with all major teaching unions except the National Union of Teachers, which held separate talks with ministers after refusing to sign up to the basic concept of performance pay.

The deal still has to be approved by the union and employer executive committees before it can be submitted to the School Teachers’ Review Body, which is due to report back by March 5.

Education Secretary Charles Clarke said it was a further success for the social partnership approach his department was taking with the unions and employers, following last year’s workload agreement.

David Hart, general secretary of the National Association of Head Teachers, said it ought to defuse the “very real prospect” of a damaging pay dispute affecting every school in the country.

But John Bangs, NUT head of education, said that, with the top of the upper pay scale reduced by more than pound;2,000, the Government was selling teachers short.