In the end, ministers looked over the edge but did not jump. Despite pressure from heads and key advisers, the Government’s five-year strategy for education rejected calls for a national funding formula.

Ministers seem to have realised that a single funding agency could not offer a fair deal for 21,000 schools from Cornwall to Carlisle and that they would carry the can for any funding problems.

As Education Secretary Charles Clarke put it: “The idea that the Department for Education and Skills could press a button here and solve a problem out there is ridiculous.”

In place of radical reform, the department introduced a series of seemingly small changes to the way in which schools in England are funded.

Three-year budgets from 2006 and an indefinite extension of guaranteed increases in per-pupil funding are intended to restore heads’ confidence in the system.

After years of pressure to spend more on schools, education authorities will be stripped of their power to divert money earmarked for schools to other services. Even so, money for schools will still be channelled through local government. Contrary to reports, LEAs will still be allowed to top up schools’ budgets from council-tax receipts.

These changes will be introduced alongside the consolidation of standards fund grants such as Excellence in Cities into a single school improvement grant.

So, is the reform a mere tidying up exercise, a way to consolidate piecemeal changes made in the wake of last year’s school budgets crisis?

Schools may notice little difference between the new “ring-fenced” budgets and the “passported” funding increases of recent years. But critics tempted to dismiss these changes as small beer would be mistaken.

Certainly, supporters of a centralised funding system believe they are worthwhile. John Dunford, general secretary of the Secondary Heads Association, said: “We have a substantial movement towards a national funding entitlement for schools. I think we are nearly there.”

For heads, the advantages are clear. A more transparent system will make it much harder for ministers and councillors to blame each other when schools are left short of cash.

Three-year budgets should give heads more confidence to plan ahead and reduce the likelihood that staff recruited in a year of plenty will lose their jobs 12 months later due to cutbacks.

Ring-fenced school budgets should remove heads’ lingering fear that councils are still hanging on to their cash.

The Government insists that LEAs will retain the power to direct resources according to local need. But Mr Dunford argues that when the requirement to ensure all schools get a minimum increase in per-pupil funding is combined with existing “fair funding” rules, it will leave councils with little room for manoeuvre.

This is good news for heads who are exasperated by what they see as an unfair allocation of money by LEAs. But it may not be such good news for schools whose circumstances change or whose intake becomes more challenging.

Graham Lane, chair of education at the Local Government Association, warns that LEAs will no longer be able to direct money where it is most needed.

He said: “Schools most in need will end up with less money because councils will not have the freedom to respond to local circumstances.”

Primaries, schools in the South-west and those in authorities that spend more than the recommended level could also lose out.

But it is the existing per-pupil guarantee - rather than the new ring-fencing arrangements - that will really restrict councils’ elbow room.

One of the problems with the guarantee is that it tends to fix - and in cash terms widen - any existing gaps in funding.

This is good news for the schools that are now well-funded. But what about schools in south Gloucestershire, which last year received just pound;3,060 per pupil, compared with the pound;5,510 per pupil in London’s Tower Hamlets - a gap of pound;2,450? And this year’s 4 per cent per-pupil guarantee widens that gap by a further pound;98.

Schools in rural areas, many of which have already done relatively badly under Labour, will be hit particularly hard. Despite this week’s announcement of a higher guaranteed increase for primaries, the funding gap between them and their secondary neighbours could grow again.

Primaries have closed the gap by 10 per cent since policy-makers responded to research which showed that investment in the early and primary years is most effective in tackling underachievement in deprived communities.

The requirement to introduce 10 per cent non-contact time for teachers by September 2005 has helped primaries win extra funds. But with the Government focused on secondary standards and secondary heads determined that this year’s split-level settlement will be a one-off, primaries face a fight for a largest slice of the cake.

Of course, ministers can limit the effect of the guarantee. If schools are promised only a 2 per cent increase, there will be plenty left over to boost the funding of primaries or under-funded areas.

The DfES said it will consult on how the guarantee should work in 2006-7, when three-year budgets and ring-fencing come into force. It promises to “strike the right balance between stability and the effective targeting of resources”.

But political expediency will prompt ministers to go for the highest figure possible. After all, what minister would present the public and the press with a 2 per cent rise in school funding if one of 5 per cent can be achieved?

A spokesman for the Department for Education and Skills promised this year’s settlement will give local authorities the headroom to allocate extra money to schools with falling rolls. But as spending increases slow from next year’s 7 per cent to 4.4 per cent up to 2008, LEAs are unlikely to retain that room for manoeuvre.

Phil Willis, Liberal Democrat education spokesman, said: “Falling pupil numbers mean that there will be a surplus of 8,000 primary teachers by 2008.

“Today’s announcement fails to address the huge imbalance that is likely to occur as shrinking schools, created in the wake of expanding schools, struggle to meet fixed overheads costs.”

The Government has already indicated that it has little intention of helping the lowest-funded authorities.

“The schools budget will target resources according to relative need, not any pre-set agenda to reduce differences in per-pupil funding,” according to the Government’s Teachernet website.

There is also a further and perhaps longer-term danger inherent in the Government’s plans. Despite headteachers’ and ministers’ complaints of raids on school budgets, education authorities in England will spend pound;217m more this year on education than the Government has recommended they should.

Local authorities put in much more during the mid-1990s to protect schools from budget cuts at a time when the Government of the day did not see education as its main priority.

When, as it surely will, education once again slips down the political agenda, will LEAs still be willing to bail out schools?

Mr Lane has his doubts. “I think this is the beginning of the end of the role of local government in education,” he said.

“With ring-fenced budgets, councils will not be able to to bail schools out as they have in the past. These changes leave schools reliant on central government.”

After the recent years of unprecedented increases in spending on education at least, headteachers see that as a price worth paying.

ALL ABOARD THE SLOW TRAIN TO GREATER PARITY

Schools in authorities which spend more on education than the amount recommended by the Government will have their funding protected when ring-fenced school budgets are introduced in 2006.

The Government promises that no authority will receive less than its current level of spending on schools, plus an annual increase that will take account of changes in pupil numbers.

But schools could find that their budget increases slow while ministers divert funds to help schools in underspending authorities to catch up with their more fortunate neighbours.

At present, 107 of the 150 LEAs in England put more money than the Government expects into schools’ budgets.

The Department for Education and Skills says it will provide transitional funding to make up the difference to prevent rises in council tax.

Schools in the 43 LEAs which spend less than the recommended level will not receive their due straight away.

Spending will be increased “over time” until it reaches the level set by a new formula which will be used to calculate all LEAs school budgets. The formula and interim arrangements will be the subject of consultation in the autumn, but the formula is expected to be similar to the one used now to calculate expected budgets.