The struggle between the Government and school governors has turned into trench warfare. Neither side will give ground, but it is unclear who will win. The Chancellor says there will be no extra cash for 1995-96 and that local authorities could find more money. Governors are still showing signs of rebellion, though only in some areas.

There is no doubt that the stand-off between schools and the Government is quite different from the battles of previous years. Until 1995, the local authorities - with the teachers’ unions as problematic allies - have made annual efforts to convince Whitehall that there was not sufficient money toavoid cuts. During the past few weeks, governors and parents have joined the campaign, enormously strengthening the anti-Government side.

The sudden politicisation of governors suggests Gillian Shephard’s political judgment is sound. The Education Secretary’s letter to the Treasury (published in The TES on January 20) warned that the 1995-96 local government finance settlement was so tough it would lead to steep cuts in teacher numbers, and to other problems. The reaction of governors in Oxfordshire, Shropshire and elsewhere is surely the thin end of a very dangerous political wedge for any government.

Local management of schools (LMS) was intended to pass control over budgets and administration from town and county halls to governors. By passing power away from distant bureaucrats and into the hands of parsimonious local people, the Government would improve the control and quality of education spending. Councils were required to pass over to schools as large a proportion of the overall budget as the Department for Education felt it could get away with.

LMS and opting out have meant a crash-course in basic economics for tens of thousands of parents, teachers and members of the public. Previously schools relied upon local authorities to protect them from erratic year-to-year shifts of funding, or simply grumbled about resource allocation made by education officers; now governors face the realities of budget deficits, staff sackings and crumbling buildings.

Yet unlike local authorities, governors are in the happy position that they do not have to take responsibility for the money they spend. While councils must set local taxes, schools rely almost exclusively on top-down funding from local and central government. Put simply, governors can complain as much as they like. No one can blame them for funding shortfalls.

Better still, the newly-empowered school governor is very much the Government’s pet. How often have ministers gone out of their way (usually while defending accusations that they have created hundreds of politically-fixed quangos) to claim miraculous powers for newly-devolved school government or trust hospitals? It would require a complete recantation of the prevailing orthodoxy if local management were now to be seen as profligate or flawed.

So LMS has worked, but not in the way the Government might have hoped. Newly-politicised governors are now bent on wrecking the Chancellor’s policy of public spending restraint. They will almost certainly not succeed in 1995-96, but the threat that decent, public-spirited, citizens are now happy to become latter-day “Red” Ted Knights must surely cause pause for thought in Whitehall.

Worse still for the Treasury, governors are barely organised yet. Give them another couple of years and they will doubtless have a full-time team of representatives working out of a stuccoed Georgian house in SW1, backed up by lobbyists and PR gurus.

If the Government can hold the line for 1995-96, what will that tell us about 1996-97? Negotiations about the next spending round will start soon. Mrs Shep-hard already has powerful evidence for her next missive to the Treasury.

First, she will be able to point to the near-disaster of the early months of 1995, when rebellious school governors came within an inch of precipitating a humiliating climb-down by the Government. Second, she will refer to the rumpus over the low pay settlement for major groups of public-sector workers and the likelihood that better awards will have to be made in 1996.

Third, she will include statistics about declining teacher numbers and worsening pupil-teacher ratios. The Treasury will be no push-over. Their spies will tell them that few governors appeared willing to go as far as illegality or resignation, and that even where they did, the local authority simply took over and enforced a legal budget. Moreover, in the uncertain employment climate of the mid-1990s, teachers remain unwilling to risk industrial action over pay. Finally, they will be armed with figures that show improving examination results and other performance indicators for most parts of the education system.

The period 1996-97 is no ordinary year. At the time public spending decisions are made - between August and December this year - Cabinet ministers will have to make decisions that allow themselves the freedom to have a general election at any time from April 1996 to May 1997. Thus decisions about overall local authority spending, capping limits, SSAs, teachers’ pay and capital spending will be made in such a way as to accommodate the possibility of an election. Remember that in the run-up to the 1992 poll, teachers were given a big real-terms rise in pay and the Government paid up to fund the costs to local government. None of this will be made any easier by the reform of local government structure in many areas.

The Treasury is now fighting against a more dangerous foe, both in the short and longer term. For the present year - 1995-96 - it may be able to hold the lid on the original settlement. But 1996-97, for the reasons outlined above, looks very different. Beyond that point, the growing power and organisation of school governors will be the key to whether the Treasury can continue to maintain its control of spending. The rumblings from governors in 1995 have come largely from the shire middle-classes. If governors in the cities were to join with their rural colleagues, the Government would be in deep trouble.

The future lies in the hands of governors themselves. If they organise and become a powerful political force, Whitehall will find it very difficult to hold such articulate power in check. If this happens, the Conservatives have only themselves to blame.

Tony Travers is director of a research centre at the London School of Economics.