Government plans to carry out a radical overhaul of the way schools are funded will lead to schools in areas such as Liverpool and Wigan suffering cuts of more than 10 per cent to their budgets, according to controversial research published today.

A report by the highly respected Institute for Fiscal Studies (IFS) into the potential impact of a national funding formula has painted a disturbing picture for many schools.

The Coalition is keen to reform the way it allocates money to schools as many institutions with similar characteristics have funding disparities of up to 40 per cent. Changes being considered by the Department for Education could lead to state-maintained schools being handed academy- style freedoms to control their budgets.

But according to the IFS, a reform of this type would lead to many schools having greater control over far smaller budgets. Under the proposed changes, areas including Liverpool, Wigan, Wolverhampton and Coventry would see falls in their school budgets averaging 6 per cent, but for individual schools the cut could be up to 10 per cent, the study says. Worryingly for heads, the figures include any cash made available to schools via the pupil premium, which is expected to rise to pound;2.5 billion nationally by 201415.

Yvonne Sharples, head of Parklands High School in Liverpool, said cuts of this type would have a “devastating” impact on her school and the community. “The Government has been very proud (of the pupil premium) and with its introduction, but this shows they will give with one hand and take away with the other,” Mrs Sharples said.

“Schools in Liverpool are incredibly reliant on the area-based grant, and the impact of such a move along with cuts to other areas of school budgets makes me very worried.”

The IFS said that, at the very least, one in six primary and secondary schools would face cuts of around 10 per cent. However, one in 10 schools, in areas such as north London’s Islington, Warwickshire and Derbyshire, would enjoy increases of 10 per cent.

IFS senior research economist Luke Sibieta, co-author of the report, said reforming school funding was worthwhile, but warned that it would be an enormous upheaval.

“Any change would also bring costs and disruption, with large losses for some schools,” Mr Sibieta said. “If the Government believes a national funding formula represents the ideal system, it should begin the transition soon and be more transparent about which schools and local authorities could be most affected.”

And the IFS said an attempt to introduce reforms in less than 10 years would lead to some schools suffering dramatic losses in funding. “In a transition lasting six years, some schools would incur annual cash-terms losses of funding of up to 5 per cent,” Mr Sibieta added.

Russell Hobby, general secretary of heads’ union the NAHT, said cuts of this size would lead to redundancies. “A 5 per cent reduction overall to a school’s budget you might just about be able to get away with through efficiency savings,” Mr Hobby said. “But anything above that and you’re looking at redundancies; (the) most likely (victims are) teaching assistants.”

The DfE said no decisions had been made on funding reforms, but admitted that some schools would receive more and others less under the proposals. “We would, however, put in place transitional arrangements to ensure schools do not experience sharp changes to their budgets,” a Department spokesperson added.

The DfE reforms could also mean schools will acquire far more control over their budgets, it emerged this week, including the power to retain funds to buy in support services if it is agreed at local level. Currently, money is handed directly to the local authority, which then decides how to allocate the cash to its constituent schools and how much to hold back. But under the proposed formula, part of the dedicated schools grant would be devolved straight to schools.

“It is a very big step,” said Malcolm Trobe, policy director of the Association of School and College Leaders. “If the money is delegated to schools, there will not be a tremendous difference between maintained schools and academies.”

David Grigg, head of Lord Lawson of Beamish School in Gateshead, favours a national funding formula that also has local flexibility. ”(It) should give schools as much independence as possible in deciding how their funding should be spent - they understand and can respond to their students’ needs much more effectively than either local authorities or central government,” Mr Grigg said.

LOSERS AND WINNERS

Among the biggest losers:

Liverpool

Wigan

Coventry

Wolverhampton

North East Lincolnshire

Among the biggest winners:

Islington, north London

Derbyshire

Warwickshire

UNDER THE REFORMS

1 in 6 schools would see cuts of at least 10 per cent

1 in 10 schools would see increases of at least 10 per cent

Schools could suffer repeated cash-terms cuts of up to 5 per cent a year as reform is phased in

THE CURRENT SYSTEM

pound;3-6k per-pupil funding for primary schools

pound;4-7k per-pupil funding for secondary schools

Source: Institute for Fiscal Studies.