Teachers' unions this week urged the Assembly government not to cut education funding following last week's Budget.
Wales will lose out on more than Pounds 400 million next year after Alistair Darling announced efficiency savings of Pounds 15bn in the public sector. Ministers in Wales admitted that the Chancellor's cuts would pose "significant challenges".
Speaking at last week's UCAC teacher union conference, David Hawker, Wales's senior education civil servant, admitted that policies would have to be reviewed in the light of shrinking budgets.
"I think there are inevitably going to be choices going forward as to what we put our efforts into and what we put on the back burner until things have improved," said the director of the Department for Children, Education, Lifelong Learning and Skills.
The Welsh Local Government Association has predicted that the Labour-Plaid Cymru coalition will have to axe key policies from its One Wales agreement.
But teachers' unions said cuts should not be made at the expense of schools and teachers. Anna Brychan, director of the heads' union NAHT Cymru, described the situation as "alarming".
"You can't ask schools to do more and more with less and less," she said. "They will look at their budgets and find very little room for manoeuvre other than cutting staff or cutting provision."
Gareth Jones, secretary of the other heads' union, ASCL Cymru, said the government must work out its priorities quickly. "Wales is in the middle of a very ambitious educational development programme with a range of worthwhile projects that require funding," he said.
Despite the funding fears, there were positive signs that post-16 education in Wales could be in for a cash windfall after recent cuts. The Chancellor has announced an extra Pounds 250m this year and Pounds 400m in 2010-11 to fund an extra 54,000 places in school sixth forms and FE colleges. So the Assembly government will gain a total of Pounds 38m over two years, although it will be up to the government how it chooses to spend this.
An Assembly government spokesperson said no decisions on cuts had yet been made.