All schools in Britain will receive extra cash as a result of the Government’s comprehensive spending review. Well, er, no, actually. Some schools in cities will almost certainly face cuts in the amount they have to spend for every pupil in the years ahead.

The culprit will be the standard spending assessment (SSA) formula which allocates cash and spending power to councils. Ministers agree that the present formula is unfair - with inner London the main beneficiary.

The complex undergrowth of the annual local government finance negotiations is probably best avoided by anyone wishing to keep a grip on their sanity. Suffice to say that David Blunkett, the Education Secretary, and Hilary Armstrong, the local government minister, believe that the existing spending assessments will not do. Reforms are now being considered for 1999-2000 .

As ever, such changes will produce winners and losers. And because, in the real world, the byzantine SSA formula distributes billions of pounds in grants and influences the limits Whitehall puts on council spending (through capping), it matters enormously to all schools and local authorities.

In its recent comprehensive spending review, the Government stated that English local authorities’ current spending on education would grow by 3.4 per cent a year in real terms from 1999-2000 to 2001-02. This amount is certainly more than in most recent years - though some of the new cash will be needed to make up for problems resulting from the tight squeeze on spending since 1995-6.

But for some councils, the apparent growth via this inflation-plus-3.4 per cent formula will not materialise. The reason is that the new way of calculating SSAs will divert it elsewhere.

Ministers have asked civil servants to review the part of the formula which allows for additional education needs. For councils changes to education SSAs are very important because the education budget accounts for nearly half of local government spending - about 45 per cent.

At present, the education SSA is split into five blocks: under-fives, primary, secondary, post-16 and “other”. Each of these blocks is then distributed on the basis of a simple client group (for example, the numbers of pupils aged 11 to 16) which is then multiplied by a unit cost figure. If an authority had 30,000 11 to 16-year-olds and the unit cost per pupil was Pounds 2,000, the authority would get a secondary SSA of 30,000 x Pounds 2000 = Pounds 60 million.

But it is widely accepted that some pupils have additional educational needs (AEN) and extra amounts are bolted on to the basic SSA calculation to take account of them. The factors currently considered are children with lone parents, parents in receipt of income support, and ethnicity. These factors are supposed to take account of the relatively higher cost of educating children from poor backgrounds and also of those who do not speak English as a first language.

It is these AEN factors that Mr Blunkett and Ms Armstrong do not like. For example, they are unimpressed by the so-called “ethnic” factor which simply deems all New Commonwealth children, even the large number who outperform the national average in examinations, as having extra needs.

Civil servants are looking again at the factors that could plausibly cause additional educational needs. They have come up with a large number of options, most of which would lead to considerable redistribution of cash, with inner London losing heavily. There would be an overall shift of resources from urban to rural England.

The new SSA options have been arrived at by complex statistical routes - the result of work by Government officials and local authority representatives. The most innovatory element of their efforts has been the decision to consider AEN factors that are derived by seeking statistical relationships between social and economic factors on the one hand and examination performance on the other.

The social and economic factors include class, the number of children within each authority on free school meals, children with unemployed parents, low birth weights and children with English as a second language. These were compared statistically with the performance of children in those authorities in key stage 1 assessments. In other options, comparisons were made with key stage 2 and GCSE exam results.

It is entirely wise of the current crop of ministers to scrutinise the education SSA. But the way the process has been conducted is an outright disgrace. Schools - which will be profoundly affected by the results of the review - have not been involved in the negotiations. Local authority representatives are seen as sufficient. Worse still, DFEE officials have not commissioned any new research into the causes of additional educational need: they have relied upon crude statistical links between exam performance and social factors.

A mathematical link between, say, unemployment and poor key stage 1 results, does not prove the one causes the other. It would be interesting to hear chief inspector Chris Woodhead’s views on a distribution formula which took as one of its key assumptions the notion that poor performance in schools was effectively caused by, say, social class. In the longer term, this method could create a perverse incentive whereby the poorer an authority’s schools performed, the more likely they were to receive extra funding.

The complexity of the options under consideration would make it extremely difficult for any teacher or governor to take part in the discussions unless they employed their own expert advocates. Yet the importance of the allocation of resources to individual schools cannot be exaggerated. There is clearly a problem with a system of distributing cash which is so statistically rarified that only Whitehall technocrats understand what is going on.

Nor will most teachers realise that the way in which SSA is being re-cast for 1999-2000 has moved the system closer than ever to a national funding formula for schools. Because the SSA working party has moved towards a far greater use of school-based data, the real possibility of a further step towards school-by-school needs assessments has been brought closer. In their haste to take part in the process, local authorities may not yet have noticed this further threat to their future role. It is inconceivable that ministers will understand the fine technical detail of what their officials have served up. It will all look too complex to bother with.

At best, Mr Blunkett will be told about the shifts of cash from authority to authority brought about by the various options and then follow his instincts. Many authorities and their schools will gain resources. Others will lose heavily. But the whole process will produce little more than a random visitation on individual institutions.

The time has come to involve schools in a debate about the money they receive. SSA is too important to leave to the experts.

Tony Travers is a local government analyst at the London School of Economics.

HOW THE CASH WILL BE ALLOCATED

Factors that are most strongly related to children’s examination performance are most likely to be adopted as the ones to allocate the additional needs part of education standard spending assessments. Once they have been chosen, they will be compared with past educational spending patterns to estimate how much additional cash should be allocated to reflect social and economic factors.

A formula is then created which will allocate cash on the basis of the selected additional educational needs factors. This allocation will then be used to top up the basic education spending assessment for each local authority.

There are then further additions - for some local authorities - to take account of factors such as population density (in the case of some rural areas), or high living costs (in the case of south-east England), known as the the “area cost adjustment”.