The Teacher Training Agency has issued a stark warning that teachers who want to own their own homes may only be able to do so outside London.

Last autumn, the agency asked the School Teachers’ Review Body to consider whether the London allowance is a successful recruitment and retention tool, or whether other measures - including waiving student loan repayments - might be more effective.

The review body is planning to carry out a recruitment survey later this year. This will provide information on the difficulties London schools have attracting and keeping staff and how much use they make of recruitment and retention points.

But whatever the survey’s findings, they are unlikely to lead to a big hike in London allowances, which for the past few years have been rising at the same rate as teachers’ pay generally - 3.3 per cent last year and 3.8 per cent under this year’s phased settlement.

Nor is a revival of the discretionary inner London area supplement on the cards. Introduced to ease the teacher supply crisis of the early 1990s, this has remained unchanged at pound;822, while the number of teachers receiving it fell from 18,700 in 1992 to 4,800 in 1997.

In the report recommending this year’s pay award, the review body argued that large increases in area allowances for all London teachers were not justified when schools could award individual members of staff up to three recruitment and retention salary points.

Although these points are used more widely in London than in other parts of Britain, many school governing bodies remain loathe to award them selectively and few schools have the funds to give extra points to all staff.

Most teachers in the capital therefore receive just the basic London allowances, which will be worth pound;2,166 in the inner city, pound;1,425 in the outer boroughs and pound;555 on the fringe when the second stage of the pay settlement is implemented in December.

These sums may sound attractive to teachers who receive nothing on top of their basic pay, and there may well be a case for paying area allowances to teachers who live in Bristol, Reading or other cities where house prices are high.

However, the cost of living in London does mean that the capital’s teachers are worse off than their counterparts in other parts of the country.

According to the Nationwide building society, the average price of a semi in greater London during the last quarter of 1997 was pound;112,833. A similar house cost pound;49,697 in Wales, pound;50,267 in the North and pound;63,599 in the South-west where house prices tend to be close to the national average.

“If a teacher went from, say, Newcastle to London, the pay rise they could expect might be about 9 per cent. But the house price rise they would have to cope with would be over 100 per cent,” a Nationwide spokesman says.

Outside the education service many employees receive more money than teachers to work in London. The most recent annual survey of London allowances, by the independent research organisation Incomes Data Services, found that payments are highest in the finance sector, where more than one-third of employers pay pound;3,500 or more to staff working in central London. None of the building societies surveyed pays less than pound;3,252 and two pay more than pound;4,000.

In 1994 the Civil Service replaced London weightings with departmental recruitment and retention payments worth up to pound;3,000. Separate London pay scales give civil servants in the capital an additional differential over colleagues on national grades.

But some groups of London employees are worse off than teachers. Most workers in West End stores receive allowances of pound;2,000 or less, while in the public sector, the nurses’ pay review body has not recommended an increase in London allowances for the past three years.