The increase covers the spending review period and increases the DfES budget from pound;56 billion in 2005-6 to pound;64 billion in 2007-8.
This represents a 6.4 per cent annual cash increase - more than some people had predicted but a slowdown compared to the last five years.
This early announcement shifts the grounds of the debate over education spending. Rather than competing with other departments for money, the debate shifts to the choices within education.
The pound;64 billion question is whether money should be spent on schools, colleges, universities or early years. There is room within the pound;8 billion increase for the DfES to fund the pound;1.9 billion bid from colleges but only if the Government is willing to make tough choices.
Schools needed money to raise standards in Labour's first and second term.
Funding cuts made in the Nineties were reversed and spending has increased to reduce teacher workloads and improve buildings. Will schools need so much in future as pupil numbers start to fall?
Over the next five years, the number of primary and secondary pupils will fall by 350,000 - more than 5 per cent. Will the DfES get a demographic dividend from this or will it take the chance to increase funding levels further?
Then, there are universities. The Government won't collect the new top-up fees from graduates until 2009 but they will pay the money in advance to universities from 2006. This, plus the new system of grants, will create pressures on the DfES budget. The university sector has asked for additional money to create new places for the rising population of 18 to 21-year-olds but here, again, there are choices. Is it more important to expand university provision by 150,000 places to cope with population growth and rising demand? Or would the money be better spent expanding 16-18 learning?
The 16-18 population is also rising. And, last week, Prime Minister Tony Blair floated the idea that education and training should be the norm for everyone up to the age of 18. It's a tough choice for government. Fifty per cent of the age group into university? Or 100 per cent of the earlier age group in education and training up to 18.
The pound;1.9 billion that colleges need to deliver current government targets assumes a lot less than 100 per cent participation. The college bid is large but it is modest compared to the expectations of employers and consumers. Anything less than pound;1.9 billion will limit what colleges can do to meet demand.
Colleges are already under pressure this year to limit what they do to fit Learning and Skills Council budgets. The pressures will increase from 2006 with serious consequences for pay and quality. The reform of 14-19 education proposed in the Tomlinson report will not be easy if school funding continues to outpace what colleges receive.
A guiding principle of the reform is that no institution will be an island.
Schools and colleges will need to collaborate to offer a broad curriculum.
Differences in pay, conditions and funding levels already exist. Widening these gaps is a poor starting point for closer partnerships.
The area at biggest risk from funding cuts is adult learning. Yesterday's cuts created today's skills shortages in the construction trades. Cuts tomorrow will create new shortages in other areas.
The Budget announced plans to expand early-years provision and to get more single parents back to work. Both plans require training. Both assume the existence of accessible courses across the country. Take this away in pursuit of a narrow set of targets and the policies will falter. Cutting adult learning will also complicate partnerships between the LSC and regional development agencies.
A document published with the Budget rejects the RDA bid for more control of LSC funds but suggests instead that there could be joint regional targets.
These will only mean anything if national priorities take account of regional demands. There is significant regional lobbying for more investment in level 3 provision and courses customised for specific business needs. Both could be ruled out by lack of national funds. A joint target without the money is little more than a piece of paper.
The skills strategy envisaged an expansion of courses at all levels but assumed that employers and individuals would pay more. There are no simple solutions to generating more income from fees. Sector skills councils are in their start-up phase. Employer behaviour will change slowly. Meanwhile, the Government will send out a clear message about skills if it starts cutting the budget. And if the Government starts cutting spending on adult skills, so will employers.
The 2004 Budget has brought forward some of the decision-making about future government spending but there could be a general election within 12 months. So there's still plenty of opportunity to influence events.
Julian Gravatt is director of funding and development, Association of Colleges.