However, the good news is that a pay freeze is also off the agenda. In the face of a growing crisis in teacher recruitment, the Government looks likely to target any additional cash for pay at particular sectors of the profession.
Education Secretary David Blunkett has already asked the teachers' pay review body to look at the balance between primary and secondary heads' pay, while school standards minister Stephen Byers is studying performance-related pay schemes being piloted by education action zones. The new grade of additional skills teachers is also being rolled out.
Education Secretary David Blunkett said: "We are talking about something for something. We will be discussing with the teaching profession the way forward but it is based on the understanding that we do need to reward people for performance.
"We can't simply up everyone's salary by a quantum leap, but we can do something to ensure people stay in the profession, that if you do a good job you will be rewarded."
The spending review is based on the assumption that inflation will run at 2.5 per cent. A recession or excessive public-sector pay demands could upset the Government's careful budgeting.
David Hart, general secretary of the National Association of Head Teachers, supports the focus on heads' pay.
But he believes the teachers' pay review body is effectively being "handcuffed" to a pay policy by new requirements set out in the review. These are that review bodies must take into account departmental service targets, spending limits and inflation targets, as well as the need to recruit, retain and motivate teachers.
"The Government has to be more flexible, because there is a very severe recruitment crisis affecting the teaching profession - not just in quantity, but quality," Mr Hart said.