The Government’s promise that all schools will receive a minimum funding increase is an “inefficient use of resources”, the public spending watchdog said this week.

A “one size fits all” approach will fail to ensure that money goes where it is most needed and prevent councils from tackling existing unfairness, according to an Audit Commission report.

The commission’s study of a representative sample of 15 councils found that there was no widespread funding crisis last year, despite reports of thousands of job losses. Instead, changes to the system increased existing inequalities, with reserves of well-funded schools increasing faster than the overall rise in funding, while the overdrafts of the less fortunate did likewise.

The study found that school balances fell significantly in only four of the 15 councils during 2003-4, despite predictions that they would do so in all.

Seven councils had school balances which remained at about the same level, and four enjoyed an increase, with one having a rise of 59 per cent.

A lack of reliable, up-to-date information on the pound;24 billion school budget left ministers and local authorities unable to get an accurate picture of the situation.

Government action, including the introduction of school funding guarantees and pressure on councils to pass on funding to schools, was based on “perception and assertion rather than accurate information”, the report says.

This led to pound;120 million of transitional funding being given to councils which were not necessarily the lowest funded or those with the greatest number of schools with deficits.

The commission found there was no evidence to support the charge by ministers and heads that councils failed to pass on spending increases to schools despite the fact that five of the authorities in the study were accused by the Government of not doing so. Concern that councils were diverting money to other services led to ministers’ decision to introduce ring-fenced education budgets from 2006.

Last week David Miliband, school standards minister, announced that primary schools would receive guaranteed increases of 5 per cent next year and that secondaries would get 4 per cent.

Schools will switch to three-year budgets and guaranteed increases for every school will also become a permanent part of funding after being initially introduced in response to the perceived crisis.

The report welcomes three-year budgets but says that per-pupil guarantees will lead to money being wasted. It says: “The minimum guarantee does not resolve issues of funding inequalities that might exist at school level. It has the potential to embed them and postpone them being tackled.

“It is not the best use of resources to give additional guaranteed resources to schools that are already well resourced and are carrying substantial surpluses.”

Mr Miliband said: “We make no apology for delivering greater stability in school budgets and greater certainty for heads and governors in their financial planning. These arrangements were developed in consultation with heads, chief education officers and local authority representatives and have been widely welcomed by schools across the country.”

Sir Sandy Bruce-Lockhart, chair of the Local Government Association, said:

“The report is strong evidence that centralising school funding to Whitehall is neither going to give local support to schools nor make good use of the public’s pound;24bn. The Government has to think again on this.”

Chris Keates, acting general secretary of the National Association of Schoolmasters Union of Women Teachers, said: “The minimum guarantees and transitional funding arrangements are essential to protect schools from the vagaries and variations of the current funding mechanism.”