If rumours about the Conservative manifesto plans are to be believed, John Major is considering a proposal to remove education funding from local government and turn it over to a funding agency - presumably an enlarged version of the Funding Agency set up for grant-maintained schools.

Variations on this idea have popped up before. Teachers’ salaries are like a cuckoo in the local authority nest. There have been proposals to relieve the rates by getting the Treasury to pay the salaries direct. Usually these have been resisted by Chancellors who saw no reason to give up the rates as an additional source of tax revenue. It was politically useful, too, to have educational finance wrapped up in the local government bundle; it made it harder to pin the blame for short-comings on the central government.

When he was Chancellor, Nigel Lawson offered to take over teachers’ salaries in an attempt to head off the poll tax. This would also have enabled the central government to call the tune - no doubt by now teachers’ salaries would have been re-cast to include merit pay and the other incentives and deterrents ministers have urged on the pay review body.

But the latest suggestions go far beyond teachers’ salaries. The reasoning is simple and not wholly unconvincing. It is only logical to make funding reflect reality. Local education authorities are no longer allowed to have policies of their own which justify discretion in funding - no longer expected to exercise the judgment about priorities which would justify such differences.

All that remains is public confusion about who is responsible for what and this is politically damaging. Central government’s financial contribution is in the form of a general grant. It isn’t earmarked for specific purposes. There is no ring-fence round the money for education.

The standard spending assessments, used to calculate the grant, are meant to represent what an authority needs to spend to deliver a standard level of service - an almost meaningless concept, given the diversity of local circumstance and history. Some authorities spend more than their SSAs on education (and less, presumably, on other services). Others - Kent and Birmingham have in the past been notorious examples - underspend on education and divert funds to other services or the relief of local taxation. The variation in spending on either side of the SSA average is of the order of 5 per cent. But who cares about the small print? The Government doesn’t have direct control but gets the blame all the same.

Every teachers’ pay review, therefore, becomes a political disaster from the Prime Minister’s point of view. Local authorities, teachers and parents unite to cry havoc. The outcry can be relied upon to set the Education and Employment Secretary against the Chancellor which is bad for Cabinet unity and makes back-benchers restless.

The clinching argument, however, comes not from the political hassle, but from the arrival of grant-maintained schools. If John Major gets his way and opting out is forced on all schools, national funding would follow automatically. Local authorities might retain some responsibilities - for example for special needs - but for these, they could be paid on an agency basis.

It is this last point which goes to the root of the matter. If local education authorities are made redundant, there is no good reason for channelling finance for education through them.

Inside the Government, the Department of the Environment has traditionally been the sponsor of local government and its likely defender against devastating changes which would cut off its largest service. The Department for Education would once have been opposed to direct Treasury rule, but following its merger with Employment must now be counted a keen centraliser.

It would, however, be one thing to make a manifesto promise and quite another to put a new and effective funding formula in its place. The Funding Agency is proving how difficult it is to devise a common formula which could be universally imposed - a basic requirement if the present patchwork of local funding were to be eliminated.

It would be necessary to confront the wide variation in education costs which have been built into the system over more than a century. Less than 10 years after the 1870 Education Act there were already huge discrepancies. There is the oft-quoted case of Westminster, criticised in 1878 by Matthew Arnold because it spent 53s 5d a year on the education of an elementary schoolchild compared with a national average of 35s 3d - half as much again. And more recent figures tell the same story, with a few London boroughs spending about Pounds 2,700 per primary pupil compared with a national figure of Pounds 1,630.

No doubt it could be done, given a superhuman effort and unwavering political will. It would mean nationalisation with a vengeance. Ministers might pretend the Funding Agency was an independent quango but it would fool no one. Every financial buck would land on the Secretary of State’s desk. There could be no attempt to draw distinctions between policy and practice. DFEE staff would sit at their computer terminals, their heads swathed in damp towels, reprogramming the programs and re-formulating the formulae.

However it is done - and whether or not there is a switch to Treasury funding - going over to a universal funding formula is going to be fiendishly complex. It will almost certainly end up being expensive, too. No scheme could be devised which did not produce many winners and losers. There would have to be safety nets and running-in periods to ease the transition for the losers. The winners on the other hand would expect to get an early dividend.

By highlighting the question of education funding, John Major’s advisers have sharpened the political debate about education. It is now up to Labour to clarify its views on the role of local education authorities. Does Labour intend LEAs to have the kind of real power over budgetary priorities which would justify the retention of education within the revenue support grant? The dangers opened up by the headlong rush to centralise have been spelled out and Tony Blair must now restate his belief in strong local government and reveal exactly what role it should play in a modern education system. It would be strange if that did not require another go at education finance.

Stuart Maclure is a former editor of The TES.