The local government settlement could lead to the loss of more than 10, 000 teachers’ jobs, according to Chartered Institute for Public Finance and Accountancy predictions.

Chris Trinder, CIPFA chief economist, believes in the run-up to a general election the Government will want to accept the School Teacher Review Body’s pay recommendation in full. If the Government does not fully fund it, councils, already claiming a shortfall of 2 per cent following the budget, will struggle to meet the difference.

Last year the review body’s recommended 3.75 per cent increase was staged by the Education Secretary. This has had a knock-on effect for this year’s settlement. Alan Parker, education secretary of the Association of Metropolitan Authorities, said it adds an extra Pounds 75 million to the next pay bill.

In her letter to Tony Vineall, chairman of the School Teachers’ Review Body, Mrs Shephard, Education Secretary, said she expected a pay award to be considerably lower than the 3.6 per cent increase in education standard spending assessments.

But average earnings have increased by 4 per cent over the past year. Mr Trinder said the review body has to take a long-term view of the need to retain and recruit teachers. If history repeats itself, public review bodies before an election tend to chance their arms and make tougher recommendations.

The review body is under pressure this year from the teacher unions - and the Government - to consider pupil-teacher ratios and class sizes. Mrs Shephard says in the letter: “Demands will arise from a forecast 0.8 per cent increase in pupil numbers between the financial years 1996-97 and 1997-98. I will look to the review body to recommend an increase that will allow teacher numbers to rise at least in line with pupil numbers in 1997-98. Further pressure arises from the increasing proportion of pupils identified as requiring statements of special education needs.”

The unions, concerned by increasing workloads, are calling for the review body to protect class sizes by fixing maximum sizes and to give teachers more non-contact time. To date the review body has not pronounced on these issues, but it may not be bullied by the Government into recommending a modest pay rise in order to protect pupil-teacher ratios when it must also retain and attract staff.

The Secretary of State has warned that schools and local authorities have already drawn on their reserves in order to meet the cost of teachers’ pay. “Indeed the review body should consider whether reserves in some schools and authorities have dropped below prudent levels and need to be restored in 1997-98,” she said.

She told Mr Vineall that the Government expected public sector pay rises to be offset by efficiency savings. She said councils will be helped by the reduction in the employer’s contributions to teachers’ superannuation.

David Hart, general secretary of the National Association of Head Teachers, said: “It is hypocritical of the Secretary of State to say employers will have money in their pockets because of the reduction in superannuation contributions - this has already been taken into account in the SSAs. Her letter acknowledges rising pupil numbers and increases in special needs statements, but then suggests a pay settlement that will do nothing to retain or recruit staff. ”

Mr Trinder said: “The review body will be looking at a whole range of financial and economic figures and predictions. The Secretary of State may talk about low inflation, but teachers are aware of mortgage increases. To show its independence the review body may well come up with a figure it believes is necessary in a competitive job market.

“The effect on teachers’ jobs is already apparent. A 1 per cent underfunding of pay is equivalent to 5,000 jobs.”