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Now is the season of job loss forecasts

Governments may change but the annual predictions that thousands of teachers will lose their jobs if ministers do not find more money for education continue to appear, like the first swallows of summer.

This year, however, the funding problem is particularly acute and peculiarly hard to resolve. For Gordon Brown, the Chancellor of the Exchequer, has promised to stick to the previous government's spending plans for the two years up to 1999. And, as governments will, the Conservatives had published very tight spending plans for the future, in the knowledge that they would have to be adjusted when the time came.

Mr Brown, however, has made it clear that he will not adjust them. He has also ruled out the normal public spending round, in which departments bid against each other for the available funds.

For 1998-99, local government faces a cash increase of only 1 per cent which, with inflation expected to be running at 2.5 per cent, would mean a cut in real terms. Even if education were to get all of the cash increase, it would be far from enough. Local education authorities estimate they need a one per cent increase plus inflation simply to keep pace with pupil numbers. To keep pace with the growing demands on the education service, such as the rise in pupils with statements of special educational need, let alone to start meeting Labour's pledge of smaller infant classes, a 2-3 per cent increase plus inflation is regarded as "realistic".

Education ministers are known to be concerned that the gap between needs and funding will create tensions between the new Labour Government and Labour-dominated councils and will undermine the party's claim that its priority is "education, education, education".

"Thousands of teachers could go if we do not get this right," one ministerial source is reported to have said.

Ministers are said to be pressing John Prescott, the Environment Secretary, who is responsible for local government spending, to persuade the Treasury to make a more generous settlement for councils. But it is hard to see how the Chancellor could go back on his central spending pledge.

Hence the suggestion by Graham Lane, who chairs the education committee of the Local Government Association, to "raid" school balances to make up some of the shortfall.

Schools are estimated to have built up surpluses of some Pounds 500m since they started running their own budgets but the money is, of course, unevenly distributed. Central government could rule that surpluses should be held by the local education authority, which could use the money to meet urgent demands, rather as banks behave with their customers' accounts.

This might give councils a temporary breathing space until 1999, when Labour will be free to set its own spending plans, perhaps giving education a larger share of the national cake. But the move would be unpopular with schools and might not enlist much support among local authorities.

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