The sums available are substantial - nearly Pounds 116 million in the next financial year alone - but councils are also facing deep cuts next year as the Chancellor retains his iron grip on public finances. Council expenditure will remain capped for next year and the Government has made clear the additional cash must not be used to cushion the effects of normal spending reductions. It will also be restricted to specified educational priorities.

“Passporting” is the latest piece of official terminology. The new money must be a passport to further development, not a way of alleviating cuts.

John Stodter, Aberdeen’s director of education, warned of “a major tension between the additional money being made available and the realities facing councils next year. Our finance department is estimating cuts of Pounds 20 million across the council as a whole and their predictions have been bang on target in the last two years.”

Aberdeen calculates it would get just Pounds 3.5 million out of the Pounds 89 million available in additional revenue expenditure next year and Pounds 1 million of the Pounds 26.7 million in capital allocations for upgrading school buildings and updating information technology in the classroom.

Ken Corsar, Glasgow’s director, said: “It is going to look decidedly incredible if I go into a primary school and tell them they are to receive an additional 0.25 per cent courtesy of the Chancellor, but that they are also going to lose 1.25 per cent of their budget thanks to the Chancellor.” Glasgow is braced for a minimum 6 per cent spending reduction next year, which represents Pounds 17 million for education. “That is simply impossible,” Malcolm Green, the city’s education convener, declared.

John Dobie, depute director of education in Edinburgh, which expects at least Pounds 5 million extra, shares these concerns particularly if councils are hamstrung in restoring underprovision as a result of year-on-year cuts.

The way in which the cash is to be distributed is also a matter of dispute. Councils oppose ring-fencing through a specific grant, and the Secretary of State has bowed to that view, for at least the bulk of the new money. Neither are councils enamoured of challenge bids. Norie Williamson of the Convention of Scottish Local Authorities said that would involve “a lot of extra work preparing what often turn out to be abortive bids”. A report to the Scottish Office on how and where the money has been spent should suffice, Mr Williamson said.

The Scottish Office is believed to be considering an amalgam of approaches to square the circle of Treasury rules and Cosla reservations. It appears happy to distribute Pounds 59 million of the Pounds 89 million in extra revenue expenditure next year on the normal grant formula. Under this Glasgow would receive Pounds 6.6 million. Another Pounds 15 million would be distributed to fund capital projects out of revenue expenditure and the remaining Pounds 15 million would be allocated by councils bidding for a share.

The first element of Pounds 59 million is to be spent on three Government priorities with which Cosla is perfectly happy. These include raising school standards and putting additional resources into the classroom, the details of which will be spelt out in the Scottish Office circular. The third item is early years education. But it is yet to be clarified whether this is additional expenditure on top of the full Pounds 70 million made available under the nursery voucher scheme which ends next year and which included Pounds 40 million removed from education budgets.

The Scottish Office has told the authorities that ministers wish to improve “early years standards”. But it is not clear whether this will impinge on the early intervention strategy to which the Government and councils have already committed Pounds 24 million.

The Government is proposing that the authorities invest the remaining Pounds 30 million in “spend to save” schemes, half of which would be allocated under challenge bids specifically to encourage councils to close schools.

A letter from the Scottish Office to the councils, which has been seen by The TES Scotland, states: “Councils would be invited to say what spend to save investments could be made if funds of the size indicated were available, and the level of savings which would result.

“The Secretary of State is conscious there may be a number of areas where investment in fabric or buildings would enable substantial savings to be realised, though he understands the political difficulties faced by councils in making, for example, choices about school closures. He would like to use these funds to help councils where these issues are particularly pressing.”

This is a broad hint that the money may largely go to Glasgow, which is already preparing to tackle its major educational headaches (page one). Previous efforts to close city schools have collapsed following parental opposition and councillors’ unwillingness to face down the anger.

The Scottish Office now appears prepared to help councils by sweetening the pill, a recommendation made some time ago by the Accounts Commission. Successful bids would be those which can demonstrate “swift and substantial payback” in reduced running costs (closing the average secondary school eventually saves Pounds 1 million a year).

“This funding would allow authorities to make investment in improving schools, making them more attractive to parents who might be concerned about closures, ” the Scottish Office states.

This means councils like Fife, which have large secondary schools and therefore little scope for achieving significant savings, are unlikely to be successful bidders. But even Glasgow, with almost 50,000 surplus school places, could have problems. If legislation on opting out remains on the statute book, Dr Green says, “it only takes 30 signatures from parents seeking opting-out status to delay the closure of their school for a year which means, that since the extra provision is only available for a year, the money falls”.

Dr Green said that if Glasgow was not given its full share to tackle the major educational problems the city faces “there will be no credibility in the scheme”. He intends writing to Brian Wilson, the Education Minister, urging him “to state loudly and clearly and repeatedly that he will not approve any opt-out proposal, which simply requires him to repeat the Michael Forsyth formula that the legislation cannot be used to frustrate school rationalisation programmes. If the architect of opting out can say that, Mr Wilson certainly can.”

Mr Wilson said in May that self-governing schools would be “a thing of the past”. But he does not propose to scrap the legislation and Dr Green fears it will still be used to embarrass councillors in the hope that they will back off.

For the schools that remain, Pounds 26.7 million in capital monies will be available in each of the next four years for modernising buildings and investing in information technology. An additional Pounds 8.9 million is being provided this year to help clear an estimated Pounds 200 million backlog in maintenance and repairs.

Councils are anxious to get their hands on this first instalment since only seven months of the current financial year remain. But the Government’s whole approach marks a significant change of emphasis in the general grant-aided funding of services, which leaves ministers powerless to insist on priorities.

Specific grants are for particular purposes, such as Gaelic-medium education. But this has been the exception, although the growing use of challenge bids in areas such as exclusion and early intervention heralds a shift. Ministers clearly now want more accountability in how councils spend central funds.