The move, following long, hard negotiations with local authorities, means that the authority will lose around pound;500,000 in potential income.

However, Mike Haggerty, SQA spokesman, said the shortfall would be made up through “business efficiencies”.

“We are getting smarter at the way we do a lot of things and can see that trend continuing,” Mr Haggerty said. “Therefore we are confident we can transfer that benefit on to customers.”

Last year, the SQA proposed higher entry charges for National Qualifications, Higher National certificates and diplomas and Scottish Vocational Qualifications for 2005-06. The original plan was to raise charges for NQs and SVQs by 15 per cent, while Higher National Qualifications were to increase by 5 per cent.

Now, however, NQs and SVQs will increase by 12 per cent while HNs will go up by 4 per cent. The increases will be applied on August 1.

When increases were originally announced, the Convention of Scottish Local Authorities reacted with anger. Ewan Aitken, its education spokesman, threatened to consider switching its business to exam authorities south of the border to see if charges for administering the Scottish exams would be lower. The SQA responded, in turn, that its charges would remain competitive.

The intervening period has seen some tough negotiations, led on the SQA side by John McCormick, its new chairman.

Anton Colella, SQA chief executive, said: “I am pleased that we can pass on the benefit of our increased efficiencies by keeping our charge increases lower than we originally anticipated. We will continue to pursue efficiencies throughout the organisation, and we will always seek to pass on these benefits to our customers.”

Mr Aitken said: “The announcement of a 3 per cent reduction in the increase in SQA charges represents a significant change. Much improved communications between the SQA and local government, its major customer, together with increased efficiencies within the SQA, have not only led to considerable financial benefits, but also a much more collaborative approach which bodes well for the future.”

“I am delighted that our hard and persistent work with the SQA has been recognised and we are in a much better position than we were last year. We were able to factor in the SQA fees because, at the time, councils had not yet set their budgets.

“We look forward to working in partnership in the future.”

A spokesman for Cosla said: “We would like to think that the robust line we took has been effective. Our relationship with the SQA has improved dramatically over the past year. We know who they are and they know who we are - we are working a lot better.”

The spokesman added: “It is unfortunate that it takes something like this for that to happen. Both sides have learnt lessons.”