Gillian Shephard, the Education Secretary, has written to the School Teachers' Review Body saying that next year's Educational Standard Spending total of Pounds 17,204 million, representing a 1.1 per cent increase, will allow the majority of local authorities - because of capping - an increase in expenditure of 0.5 per cent.
She added in her letter that pay increases should be offset by efficiency savings.
Simon Goodenough, chairman of the National Governors' Council, said: "Schools under local management have worked hard to be efficient and many would find it impossible to find further savings. Governors believe teachers should have a decent pay increase and we don't want to be in a position, just when the dispute over the national curriculum has settled down, to face confrontation with the unions over pay."
The teacher unions have said the pay review body must show its mettle and independence by recommending a realistic award.
Doug McAvoy, general secretary of the National Union of Teachers, said that if the review body did not assert its independence, it would be revealed as a tool of the Government.
And one review body source explained: "Mrs Shephard's letter is just one part of the evidence presented to us. The review body's brief is to recommend a settlement that will recruit, retain and motivate staff."
David Hart, general secretary of the National Association of Head Teachers, said the review body's own workload survey showed that secondary headteachers worked on average more than 61 hours a week, and classroom teachers more than 48 hours; GCSE and A-level results had improved, as had primary education standards.
"The review body must take all this into account and make an award that reflects the hard work and responsibilities teachers have taken on. And it must press the Government to fund its award; trying to find efficiency savings in schools is a dead duck, the budgets are already squeezed dry."
Eamonn O'Kane, deputy general secretary of the National Association of Schoolmasters Union of Women Teachers, said that if forecasts of inflation rising to 3.6 per cent by the end of 1995 proved to be correct, then teachers would experience a drop in their living standards.
Graham Lane, the chair of the employers' side for school teachers, said the Education Secretary's letter had made it clear that the Government would not be providing enough money for a teachers' pay increase.
He said: "The review body has to understand that what the Government terms efficiency gains to offset pay costs are in reality continuing increases in class sizes and worsening pupil-teacher ratios. I hope the review body appreciates the seriousness of the situation. They cannot spend money which the Government has not given to local authorities."
Applications for initial teacher training show that the teachers' employment market is buoyant and unfilled vacancies are no longer a major problem.
However, Dr Pamela Robinson, of Manchester University, warned that once the economy picked up teaching would be seen as a less attractive employment option by many students, and then shortages - particularly in subjects such as science, technology and modern languages - could occur.