Ministers are determined to introduce a new local management framework to delegate more cash to schools, giving heads and governors as much power as practicable. They are talking about 100 per cent delegation and moving all schools up to grant-maintained sector level.
How far this will result in any additional funding for schools is unclear, however, since the paper envisages a separate pot of money for LEA functions, including their new responsibilities for ensuring high standards.
A national funding formula is also being looked at. "We shall consider developing a basic entitlement which would represent the minimum amount per pupil which any school would expect to receive in its budget," the technical paper says.
The disclosure comes just three weeks after David Blunkett, the Education and Employment Secretary, threatened to introduce a national formula if authorities did not ensure that the extra money in the Budget for education went directly to schools.
He told the Council of Local Education Authorities that they had a clear responsibility to pass on the cash, although he believes councils do have a funding role.
The technical paper reveals that the Education Bill in the autumn might foreshadow a complete review of funding.
The Government is determined to reduce spending on central administration. It suggests capping the amount of money local authorities hold back from schools.
Local authorities will have their powers to suspend delegated budgets extended. At present they can only do this in cases of financial mismanagement. In future authorities will be able take over schools that are underperforming generally but only "as a last resort".
The paper also makes clear that local authorities should not expect schools to rely solely on their services, stating that they would be free "to go elsewhere if other suppliers can provide better value for money".
Authorities would be required to review every year the formula used to distribute money to schools. Some of the present rules for formulas may be relaxed such as the proportion that must be based on pupil numbers. But authorities may be required to simplify their formula in line with the Common Funding Formula for GM schools.