The School Teachers' Review Body is expected to make an above-inflation recommendation next week. And ministers have indicated they would accept a 4 per cent plus increase.
The Government claims the rise can be met from the extra 5.5 per cent it has put into local government spending.
But local authority leaders say they can only afford 3 per cent. Jeremy Beecham, chairman of the Local Government Association, has written to Education Secretary David Blunkett saying councils still have pound;132 million to pay for the overhang from last year's teachers' award and anticipate costs of a further pound;200m if councils are to meet their contribution to projects supported by the Government's standards fund.
Graham Lane, the LGA's education chair, said an above 3 per cent rise would mean employing fewer teachers and having larger class sizes.
Councils say the 5.5 per rise does not equal a cash increase, and many have other priorities, for example the cost of social services, which will drain resources.
This year Mr Blunkett made an unprecedented visit to the review body with his officials to present the Department for Education and Employment's evidence. He said he did not want to phase the award again. During education questions in Parliament he said the effect of three years of staging pay had been to "irritate" teachers.
The DFEE's evidence stressed the need to meet the Government's inflation targets and argued for a rise of between 2.5 and 3 per cent. But council leaders believe Mr Blunkett wants to ensure teachers' pay is in line with the nurses' increase. Newspaper leaks have suggested Health Secretary Frank Dobson's special pleading for nurses has been heeded.
The review body will hold fire on making changes to teachers' pay scales and conditions in the light of the Green Paper. It will concentrate on headteachers and is expected to boost the pay of primary heads.
The Government has earmarked an extra pound;1 billion to fund its reforms to pay, which will link teachers' performance to how much they can earn. The changes will come on stream in 2000.