New rules 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 their 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 limit on reserves at 5 per cent. 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 certainly do not need is for local authorities to be walking all over schools with hobnail boots on, telling them that certain carry-forwards are acceptable and certain are not.”

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.

Conservatives said that Charles Clarke’s statement in the Commons on new funding arrangements contained an embarrassing U-turn. Last month he warned that the Tories’ funding proposals would put specific funding for infant class sizes at risk by scrapping funding for infant class sizes. Yet this week he announced that ring-fenced grants for infant class sizes would be scrapped.