Parents, teachers and especially ministers started the New Year with fingers crossed that the Government had solved last year’s school funding problems.

Will the guaranteed 4 per cent increase in per-pupil cash prescribed by ministers be enough to meet rising overheads and stave off another round of teacher redundancies?

The picture will become clearer in the next few weeks as schools hear how much money they will receive in 2004-5.

Perhaps even more than the row over tuition fees, another round of school cuts and teacher redundancies would do serious damage to Labour’s prospects at the next general election.

But while the medicine should prevent that calamity, in the rush to avoid a repeat of last year’s crisis, ministers may have put in place a system which relieves short-term pain at the expense of leaving longer-term problems untackled.

Concerns are emerging that the guarantee, which covers 2004-5 and 2005-6, will exacerbate the unfair aspects of the present system, with primary schools, those in deprived areas and those who did badly last year all losing out.

One of the aims of the new funding system introduced last year was to address complaints that many councils do not receive a fair slice of the funding cake.

Wales is not covered by the new arrangements, with local authorities continuing to allocate funds to schools in the normal way.

The per-pupil guarantee uses up virtually all the available additional money for the next two years, leaving ministers with little with which to create a more level playing field - particularly during 2004-5.

In 2005-6, things may be slightly better, although much of the pound;1 billion headroom will be swallowed by the costs of implementing the half-day-per-week non-contact time for teachers promised in the workload agreement.

Shire counties such as Cambridgeshire, Cornwall and Staffordshire have for years complained of underfunding and formed a lobby called F40 to campaign for a better deal.

Some of these authorities were helped by last year’s settlement, but those that were not face another two years with little hope of improvement.

John Dunford, general secretary of the Secondary Heads Association, said:

“If you were badly funded in 1990, you are still badly funded now.

“The funding arrangements for 2004-5 slow down the redistribution of funds towards those areas which have historically been poorly treated.”

Indeed, the gap between the haves and the have-nots will grow in absolute terms.

It is not just schools in the F40 authorities that will lose out under the new system.

Primary schools have become used to receiving a larger share of extra spending than their secondary neighbours.

The historic gap between per-pupil funding in primary and secondary schools has shrunk by 10 per cent since Labour came to power (see box).

Although secondary schools still receive more than primaries, the difference this year is pound;760 per pupil compared to pound;840 in 1997-8.

That gap will widen again if money is distributed to schools on the basis of a rigid guarantee.

This is of course as much good news for secondaries as it is bad news for primaries.

But it flies in the face of evidence which suggests that additional resources directed at children in the early years will have greater impact than the same money spent later.

Dr John Bennett, senior consultant for child development at the Organisation for Economic Co-operation and Development, told a recent conference in Paris that investment in early years and primary education is the most effective way of tackling underachievement in deprived communities.

It also comes at a time when increasing numbers of primary schools will be suffering from falling rolls and therefore suffering budget cuts, although the settlement will offset some of the pain by guaranteeing such schools a larger per-pupil funding increase.

Heads of schools in deprived spots of otherwise affluent counties, such as Hastings in East Sussex, may also be viewing the current situation rather ruefully.

According to Graham Lane, education chair of the Local Government Association, they are disadvantaged under the current system because their councils are funded at a lower level than deprived authorities and funding rules force them to allocate at least 75 per cent of school budgets on the basis of pupil numbers.

This, he argues, leaves councils insufficient room to top up funding to take account of pockets of deprivation. The per-pupil guarantee will place further restrictions on authorities.

Although the side-effects of the per-pupil guarantee will be unpleasant for some, unions, local government and schools themselves seem ready to accept them as a small price to pay to avoid the problems which bedevilled many last year.

Heads of maintained schools may be upset to hear that the guaranteed increase will apply equally to the pound;2.4 million transitional funding still received by ex-grant-maintained schools.

Perhaps more importantly, the effects of the latest settlement shed a disconcerting light on the future of school funding.

From ministers’ point of view, the problem about redistribution of funding is that it creates winners and losers and as this year’s experience shows, the latter are far more likely to make headlines. This will become an increasing problem, if as many experts predict, the days of large annual rises in education funding are over.

The state of public finances is likely to leave Chancellor Gordon Brown little room for big rises in school spending in the next three-year spending review this summer. Ministers will then face one of those tough choices that Tony Blair loves to talk about.

Do they press ahead with their original intention to make funding fairer and risk the wrath of those schools who lose out, many of whom will be in key marginal constituencies? Or do they take the safe option, spread cash thinly and see the system get less equal?

It is a question which should weigh heavily on Michael Barber and Andrew Adonis, Tony Blair’s education advisers. In the face of Cabinet opposition, they are pressing the Prime Minister to take school funding out of the hands of councils.

Supporters of a national funding formula argue that it would get more money through to schools and distribute that money more fairly. But in the current political and financial climate, the latter at least might be a vain hope.

TOTAL FUNDING PER PUPIL (POUNDS )

Year Age 3-10 11-15

19978 2,310 3,150

19989 2,390 3,220

199900 2,560 3,350

20001 2,770 3,620

20012 2,930 3,800

20023 3,010 3,900

20034 3,200 3,960