As The TES revealed last week, new regulations being introduced alongside this week’s funding changes will see councils given the power to seize the reserves of any school holding more than 5 per cent of its budget.

Only those which have capital projects planned, or other good reasons for hoarding the cash which are to be specified by the local authority, will escape. No school would be forced to cut its reserves below pound;5,000.

David Hart, general secretary of the National Association of Head Teachers, said he had no objection in principle to a 5 per cent limit on reserves.

But it was not for the local authority to specify the reasons a school could go beyond the limit. Neither should councils have the power to take the money away and put it back in the budget for all schools.

“What we do not need is for LEAs to be walking all over schools with hobnail boots on, telling them that certain carry-forwards are acceptable while others are not,” he said.

But Graham Lane, chair of education at the Local Government Association, said the present system, which operated without strong sanctions, had allowed schools to build up reserves of pound;1 billion.

The new regime will give greater freedom on how money is spent to schools and local authorities .

Specific grants for infant class sizes, performance management, teacher induction, golden hello recruitment incentives, advanced skills teachers and school improvement are among those which will become part of core funding next year.