Brian Clegg, assistant secretary in charge of salaries for the National Association of Schoolmasters Union of Women Teachers, fears that underspending by a substantial number of schools could be used by Chancellor Kenneth Clarke in his Budget speech next week to justify a further squeeze on education spending.
Mr Clegg has called for limits to be set on what schools can carry forward. "If schools carry money forward they should make it clear in a financial statement what they are planning to spend it on," he said. "If local authorities had this level of underspend the district auditor would want to know why.
"When Kenneth Clarke was Education Minister he was aware of these balances and he is unlikely to forget about them now he is Chancellor. And the danger is that schools will get even less this year because some schools have not spent last year's allocation."
Latest figures show that secondary schools have underspent by on average more than 4 per cent of their budgets, middle schools more than 6 per cent and primaries more than 7 per cent. Mr Clegg said:"It makes it very difficult to argue to the select committee looking at primary education that more money is needed when governing bodies aren't spending what they've got."
Chris Trinder, chief economist for the Chartered Institute of Public Finance, is not so concerned about the effect of balances but does believe that the education service could find itself short-changed.
He said: "The idea that Pounds 5 billion can be cut from the public services bill without effect because of the low rate of inflation, as the Chancellor suggested, does not work. Public services are labour-intensive and wages have been rising higher than inflation.
"It could be argued that education has been under-financed in the first place and schools who are keeping balances are doing so because they feel uncertain about the future. Local education authorities are also uncertain because they do not know how much it will cost for external markers and supply cover for curriculum tests and how much new money will be provided."
Gillian Shephard is battling with the Treasury not to make swingeing cuts in schools' capital spending. With the Government's flagship policy of grant-maintained schools merely treading water with a small but steady trickle of yes ballots, she is thought to have argued strongly that GM schools' funding should not be hit hard.
And Employment Secretary Michael Portillo is said to be preparing to cut Pounds 250 million from training budgets, convinced that the Training and Enterprise Councils are not fulfilling their function.
The local authority organisations have written to school governing bodies because they fear Government action on public expenditure will lead to an increase in class sizes.
Baroness Farrington of Ribbleton, chair of the Association of County Councils, said: "An extra 110,000 children will need schooling next year, making the task of governors that much tougher.
"We hope school governors will convince their MPs not to approve a cash-freeze settlement for local government. It is right and proper that school governors are told now that they can expect a grim year ahead.
"The local authority associations expect a cash freeze to be announced at the end of the month. Every council in the land is now effectively capped and unable to spend more than the present limits set on its budget by the Government."
The School Teachers' Review Body last year said it wanted the Government to clear the "funding fog" and increase the transparency of funding. But so far little, if anything, has been done to meet its request.
The review body is required to set a pay award that will recruit and retain staff within the bounds of affordability. Armed with an extensive survey on teachers' workload which showed that primary heads worked an average 55. 4-hour week, secondary heads a 61.1-hour week, with primary teachers working 48. 8 hours and their secondary counterparts 48.9, the review body will find it difficult to make a stingy award.
And since peace has broken out between the Government and the teachers over national curriculum testing (apart from the National Union of Teachers, which is still threatening to continue its boycott), there will be hopes that the goodwill will extend to a decent pay increase.