It may not have happened just yet - but when the recession hits schools, it is likely to be brutal, according to heads who are already facing impossible financial situations.

The thousands of would-be or former bankers said to be queuing up to train as teachers might find that education is not the promised land they imagined. Instead, those running schools are struggling to cope with rising salaries and other bills, the effects of government legislation and massive regional differences in funding.

Warnings of a budget crisis next year have already been made. It could lead to redundancies and a cutback on support staff.

Protestations of poverty from heads are unlikely to be met with sympathy by ministers. School budgets last year showed that surplus balances total pound;2 billion. A total of 91.7 per cent of schools keep back money in their bank accounts that should have been spent on resources or teaching.

But budget deficits total pound;120 million, which suggests that there is a growing gap between rich and poor schools. The funding system, which is designed to give extra cash in deprived areas, means some heads in the cities get about pound;3,500 more per pupil than their colleagues in rural areas - more than twice as much in the most extreme cases.

Adding to the worries of those managing school budgets is the prospect of little extra money for education after 2011 - when the next funding settlements are due to come into force - because of the recession.

Many councils are trying to make savings. So, the situation today where they are able to help schools fund support staff or cover maternity payments is unlikely to continue.

Three-year agreements were meant to bring stability, but changes ordered by ministers since the 2007-2010 settlements were announced have not been backed up with extra money.

The national job evaluation scheme, whereby councils have to review staff wages to ensure workers are paid fairly, and the workforce deal, which bars the practice of teachers regularly providing cover for absent colleagues, will both push up salary costs even further. On top of this, civil servants want heads to make efficiency savings of 1 per cent every year. Consultants have been sent out to help them do it.

At Queen Elizabeth’s Community College in Crediton, Devon, headteacher Richard Newton-Chance is struggling to work out how to cope with a predicted pound;250,000 deficit in his budget next year.

He is chair of the Devon Association of Secondary Heads and conducted a straw poll of his colleagues in the authority’s 37 secondaries. It shows many are in the same position, meaning their cumulative deficit could reach Pounds 8m next year, putting at risk 400 support staff jobs.

The county is one of the worst-funded in the country - 146th out of 149 local authorities. It will get pound;4,005 per pupil in 2010 compared with pound;7,871 in the City of London and pound;3,888 in Leicestershire, the poorest area.

Much money has been spent on Queen Elizabeth’s for extended services and to meet the Every Child Matters agenda. The school now part-funds a police community support officer and has 44 teaching assistants, mostly to help children with special educational needs.

Mr Newton-Chance, who has a budget of Pounds 8 million a year, says he does not want to lose any staff, but cannot see how else he can manage his books. “We are suffering from a combination of underfunding, obeying policy, and government departments just not talking to each other,” he said.

“It all just seems barking mad. There’s an air of unreality as to what we are expected to pay for with the money we get. I could accept all this if it was from people who knew how to run their own business, but when the consultants came in to help us identify the 1 per cent efficiency savings, they didn’t even know that’s what they were sent to do.

“Instead, I had a whole day of people telling me how well the school was financially managed, which of course I enjoyed.

“One arm of government just doesn’t talk to the other, shown by job evaluation. It’s meant my support staff bills will rise by 20 per cent, but my income has only gone up by 6.4 per cent. I also have to pay for a 9 per cent rise in teaching costs.”

Officers in Devon have long campaigned for extra cash. Along with other poorly funded authorities in the lobby group F40, they want a complete overhaul of the school budget system, which heavily favours London and other metropolitan areas.

The grant consists of a basic amount per pupil, plus three additions to compensate for local differences, deprivation and scarcity of schools. At present, authorities that do not qualify for high levels of funding for the three additions get money taken off their per-pupil amount.

The F40 group, which is made up of representatives from the 40 lowest- funded authorities, wants the formula to change so that every area receives the same basic grant with the three extras added on. But Treasury officials are thought not to favour demand-led funding along the lines of the NHS because it is more unpredictable.

Anne Whiteley, Devon’s executive director for children and young people’s services, said: “We are experiencing an unprecedented level of schools expecting to declare deficit budgets for the coming financial year.

“This is something we have been predicting for some time, and we joined with our schools to present Tony Blair with a petition signed by 60,000 Devon parents calling for fair funding as far back as 2002.

“We are 146th out of 149 local authorities, and every pupil in Devon is worth pound;359 less than the national average. We would urge the Government to consider a new formula which agrees set funding for every child, no matter where they live, and then adds on extra funding to take account of deprivation and all the other factors.”

PricewaterhouseCoopers (PwC), the accountancy firm, has been hired by the Government to assess the vast regional inequalities in funding. The gap between the best and worst-funded authorities has grown recently. Some receive twice as much as others. The F40 group says that this is destabilising school budgets.

A review into the dedicated schools grant has just begun to collect evidence in time for ministers to agree changes by 2010, when schools will be allocated budgets for 2011-2014. The two-year project, announced by Jim Knight, the schools minister, last year was set up to develop a single funding formula for all schools.

Ivan Ould, vice-chair of F40 and a councillor in Leicestershire, is meeting PwC this week to help them collect evidence. “You can use teachers’ pay to demonstrate our situation,” he said. “The funding allocations were based on a rise of 2.1 per cent, but since then wages have been put up 2.45 per cent and 2.3 per cent with no extra money being given to fund this.

“The diplomas will also add to school transport costs - Leicestershire’s is already about pound;15m. Other extra costs include the court fees when children are taken into care, which have been put up from pound;150 to pound;4,000 recently. How on earth are headteachers supposed to cope with this situation? It makes no sense to give three-year settlements if you keep changing the costs schools have to pay.

“Heads are obviously going to be reluctant to make staff redundant. If the Government can afford to bail out the banks, why can’t they help schools?”

Others are more optimistic about the financial situation. Geoff Venn, chair of the Bedfordshire Schools Forum and an Association of Teachers and Lecturers representative, says teachers there are not reporting problems, despite the authority lying 124th in the funding league table.

“We did do better in this settlement, but obviously there are issues because we lie just outside the London zone and have pockets of deprivation,” he said.

Jim Knight thinks schools are keeping too much money in bank accounts and has said he will consult on further action which could be taken from 2011- 12 to bring down the total of surplus balances. But if the problems continue to worsen, as many predict, Mr Knight’s mandarins may find these savings are few and far between.

Save cash on TV

A new Teachers TV programme could help heads save thousands of pounds on IT, cleaning or staffing. The makers of Save Money 2 need more schools to take part in the second series of the programme, where Claire Dicks, procurement expert from the Department for Children, Schools and Families, pores over their accounts to identify where they can make cuts.

She has already found one school could save pound;40,000 by not employing anyone to manage its cleaning services. She saved another school pound;17,000 by advising it to use the local authority’s photocopying lease rather than buying a contract.

To take part, phone 020 8600 3461 or email gemma.gibbs@illumina.co.uk

Richest and poorest

Money per-pupil in the five best and five worst-funded authorities

BestCity of London2007pound;7,0902008pound;7,3622009pound;7,6032010pound;7,871Tower Hamlets2007pound;6,0282008pound;6,2892009pound;6,5232010pound;6,792Hackney2007pound;5,9062008pound;6,1702009pound;6,4092010pound;6,682Camden2007pound;5,9232008pound;6,1612009pound;6,3732010pound;6,618Lambeth2007pound;5,5962008pound;5,8482009pound;6,0752010pound;6,337

WorstLeicestershire2007pound;3,4292008pound;3,5962009pound;3,7282010pound;3,888S Gloucestershire2007pound;3,4892008pound;3,6472009pound;3,7812010pound;3,944Herefordshire2007pound;3,5232008pound;3,6872009pound;3,8302010pound;4,002Devon2007pound;3,5512008pound;3,7072009pound;3,8432010pound;4,005Northumberland2007pound;3,5522008pound;3,7112009pound;3,8502010pound;4,016