Schools face the prospect of further redundancies and a rise in class sizes if teachers' pay rises by more than the level of inflation next year.
Unions, local education authorities and governors' leaders were united in warning that the increases - announced in Tuesday's Budget - would not be enough to reverse recent increases in class sizes and fund a rise in primary pupil numbers.
LEAs insisted that the Pounds 878 million extra - including additional money for grant-maintained schools and to expand the Assisted Places Scheme - secured by Education and Employment Secretary Gillian Shephard would simply bring Government spending targets into line with the amount already being spent by councils.
Ministers, however, appear confident that the extra money will be enough to prevent a further round of job losses. Any repetition of the 9,200 teaching jobs axed by schools to meet cuts totalling Pounds 550 million this year could be disastrous for the Conservatives in a year leading up to a general election.
Mrs Shephard was adamant the extra cash would cover the cost of teachers' pay, inflation, and priorities such as the additional 86,000 children who will start school next year.
But LEAs say more is needed to cover the costs of the extra pupils, and additional costs relating to special needs and school transport.
With the Government forecasting a 4 per cent rise in earnings across the economy, at least half of Mrs Shephard's additional cash could be swallowed up by teachers' pay. She was this week stressing the need for a "reasonable" settlement for teachers, and asked their pay review body to behave responsibly.
Local authorities predicted anything above 3 per cent would mean further cuts and bigger classes.
Meanwhile, further education colleges and universities are facing severe cuts, in part to pay for extra funds for the politically sensitive school sector.
Colleges face a stark choice of halting building repair programmes or sacking staff as the Government is demanding "efficiency savings" of 5 per cent a year until 1998-99 and a Pounds 100 million cut to capital spending.
Medium to large colleges must cut costs by Pounds 500,000 to Pounds 1. 5 million next year and principals say there is little scope other than through reducing staff. In addition, they must expand student numbers by at least 50,000 on significantly reduced resources.
Colleges have already achieved record efficiency savings of 11 per cent in one year (1994-95) and they argue that there is no further room for manoeuvre. Michael Austin, chairman of the Association for Colleges, told The TES: "If the Government thinks the Private Finance Initiative will bail them out, they must be barmy.
Banks do not wish to invest in second-hand colleges."
Over the next three years, recruitment is expected to rise by at least 120,000 full-time equivalent students, while recurrent spending will at best remain static at just under Pounds 2.96 million.
Mr Austin said: "Colleges are cut to pay for schools and hospitals because ministers think students are not election vote winners."
Further expansion of universities has been halted for the next three years, raising the prospect of A-level candidates having to achieve higher grades than ever.
The schools settlement has met with a cool response from teacher unions and local authorities. Doug McAvoy, general secretary of the National Union of Teachers, said: "We will see a standstill: classes which are oversized today will be oversized tomorrow. That Pounds 878m will be a non-existent gain, never felt in schools."
Josie Farrington, chair of the Association of County Councils, said: "A year ago we warned of the tough decisions ahead following the inadequacy of the government's funding to even match actual spending by councils. The Government looks set to repeat this mistake."