GOVERNMENT officials in charge of resolving the schools funding crisis have admitted that they do not fully understand how the system works.

The Department for Education and Skills’ initial response to this year’s problems was to try to blame local authorities, suggesting they had held back more than pound;500 million meant for schools.

But in a letter to council chiefs, Stephen Crowne, the department’s director of resources, thanks local authorities and schools for helping his team to “understand better the budget process at local-authority level”.

Local government representatives welcomed the letter, sent this week, as a vindication of their view that civil servants have not got to grips with the funding system.

Malcolm Grimston, Association of London Government Conservative leader and Wandsworth Council’s cabinet member for education, said: “Part of me is enormously shocked that the people making decisions on school funding do not understand how it works. But I think it is a huge step forward that they are admitting it.”

Graham Lane, Local Government Association education chair, said: “They (DfES officials) have learned quite a lot in the last few weeks when we have explained it to them in words of one syllable.

“But their lack of understanding has been one of the faults of the past four or five years. They are in the special needs class when it comes to local schools’ funding. But they are making progress towards the mainstream so we can now have a proper conversation with them.”

Tony Blair told Parliament this week that around 500 teachers had lost their jobs, half because of funding problems. The Prime Minister admitted that a minority of schools had been affected seriously.

Iain Duncan Smith, Conservative leader, said only a third of schools had reported their losses, and estimates showed at least 800 teachers would lose their jobs because of the crisis.

The DfES is continuing to work with councils in areas hit hard by the crisis, but no new money is expected for 20034 and the focus is shifting to how to avoid a repeat of this year’s crisis.

Charles Clarke, Education Secretary, has revealed a package of changes being considered for 20045. They include two or three-year teachers’ pay deals and a U-turn over direct grants (see box). He also floated the idea of maximum and minimum funding increases for individual schools.

In his speech to the LGA education conference in Manchester last week, Mr Clarke said that he did not favour a national funding system that would bypass councils. But he did not rule it out either, and sources say the radical change remains an option for the long term if the other changes do not produce the desired results.

The LGA welcomed the change in tone from Mr Clarke but finished its conference by agreeing a cross-party resolution opposing any move to “nationalise” school funding.

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THE CHANGES

Changes to the school funding system being considered by the DfES for 200405

* An increase in direct grants to schools via the Standards Fund. The confusion caused by gradually transferring money from ring-fenced standards grants into the general pot has been blamed for many of this year’s problems.

* Announcements of budget settlements to be brought forward to give time to plan.

* A two or possibly three-year teachers’ pay deal to bring greater stability and allow schools to plan further ahead.

* Support schools in financial and budget management

* Total transparency in funding system at both central and local government level.

* Plans for a national funding formula dropped for time being. Critics warned that it would be impossible to cater for needs of 25,000 different schools under one system.