When local management was introduced a decade ago the Government's management consultants predicted it would take 10 years for schools to iron out the problems associated with the differences in teacher costs between schools.
In fact the Conservatives allowed schools just four years to balance older and more expensive staff with less experienced but cheaper teachers.
But now ministers have told local authorities that school funding can once again reflect the additional costs of older staff - and the issue of teachers' pay and conditions - is back in the spotlight, with talk of extra money for more hours.
School standards minister Stephen Byers believes the current contract is outdated and wants more flexible working to be piloted.
Last month, ministers asked local authorities to consult with schools about changes to funding.
Currently, local authorities must fund schools on the basis of average teacher costs rather than according to the actual salary bill. This is known as the average-actual system. Schools are paid an average sum, but must pay the actual amount their teachers cost.
Schools with 330 or fewer pupils - or 12 or fewer teachers - may be compensated for the difference between actual and average costs.
In future authorities may, if they wish, pay schools according to the actual cost of their salary bills or use any combination of funding methods.
Newham, for example, is considering an "actual-average' formula, under which the actual salary costs of schools would be met but any additional staff employed by schools - over and above the formula calculated by the local authority - would be funded at the average level.
The proposals have largely been welcomed by education chiefs. In Lancashire, officials had complained consistently to Whitehall over the existing funding methods.
Jack Bennett, the authority's head of schools' services, said the recent consultation had shown that 90 per cent of primary and 70 per cent of secondary heads favoured actual, rather then average, funding.
He said the authority now planned to pay for basic salaries in full but schools would have to foot the extra cost of incentive points. All that remained was to decide whether to implement the changes in time for the new financial year, or to wait until April 1999.
Mr Bennett said: "The way salaries are funded has been a major drawback of the LMS system and we are happy that we can now change this. Currently, schools with an older, experienced staff can be up to pound;40,000 adrift of what they need to pay salaries.
"At the other end of the scale, schools with a high turnover receive up to pound;65,000 more than they need to pay staff wages."
Bob Litchfield, education director in Camden, said the changes would particularly favour primary schools, and ensure that experienced teachers remained in post.
"There is a case for this to be considered seriously. Many older teachers find it difficult to get appointed because they are too expensive, so this would help to retain them," he said.
Mike Walker, of the Local Government Management Board, said pressure had been put on ministers to change the funding formula rules from authorities with small schools.
He said: "Local authorities are considering this very carefully but every time there are adjustments there are winners and losers. This will not be a licence by governors to spend money and schools will not be allowed to exceed the overall budget. However, at the same time it does not mean all their financial control has gone."
Mr Walker predicted that councils near cities will experience the greatest difficulties. Schools closest to urban areas with a higher turnover of staff could lose money while those further away with more stable staffing will gain.
The change is favoured by Graham Lane, education committee chairman of the Local Government Association, who believes the proposed system will be fairer.
However, Mr Lane wants changes to go further. He is calling on the Government to dismantle the Teachers' Pay Review Body in favour of a return to pay bargaining between the unions and employers, with ministers imposing a solution based on expert advice if the two sides have failed to agree by a set date. A working group of the LGA is expected to put the proposals before ministers within weeks.
Mr Lane also wants the working year for teachers to be restructured into a five terms with teachers' working extended to 215 days, while keeping the pupil year at 190 days, to enable them to work fewer hours and earn more, he said.
Doug McAvoy, general secretary of the National Union of Teachers, said he would welcome a return to collective bargaining.
However, he added that he feared restructuring the school year would result in teachers working longer hours for less pay.
He said: "If teachers are going to earn extra money for longer hours then a mechanism has to be put in place to protect those levels of pay from year to year."