The Government's five-year-plan, launched yesterday, will end the present "Heath Robinson" system of funding, David Miliband, schools standards minister, said.
Money for schools will be taken out of the grant that councils receive from the Government for all local services and ring-fenced to ensure that it is spent on education. The changes will not apply in Wales, where the Assembly government remains committed to letting councils decide how they allocate their overall budget between different services, including education.
Heads welcomed the change, which will enable English education authorities to give them three-year budgets so that they can plan spending efficiently.
Prime Minister Tony Blair promised three-year budgets earlier this year but they would have been difficult to introduce without a change in the funding system.
Local education authorities will continue to decide how the money is divided between individual schools and how much should be spent on primary, secondary and special needs.
Mr Miliband said the reforms would bring greater clarity into school funding. "This guarantees that the budget voted by the taxpayer will go to local authorities and then to schools in a streamlined way."
But critics said the new arrangements would make little difference.
Ministers have been very successful in persuading councils to "passport" government money intended for education to schools. Only a handful have refused to comply.
Martin Rogers, co-ordinator of the Education Network, said: "What's the difference between ring-fencing and passporting? The Department for Education and Skills has been better at policing passports than Blunkett and the Home Office."
There will be no national funding formula and the Government will not be funding schools from Whitehall or allowing them to opt out of local authority control.