Conor Ryan: Where has all the schools' money gone?

Ministers may have hoped for an easy ride at the Easter teachers' conferences after Charles Clarke, the Education Secretary, boycotted the National Union of Teachers. But they reckoned without one-tenth of schools claiming that the Chancellor, Gordon Brown's largesse had translated into real-terms budget cuts.

What is going on? The Government tried to give schools north of Watford a fairer deal this year. But it failed adequately to cushion the blow for other schools. When Labour ended grant-maintained status in 1997, ex-GM schools were only initially guaranteed no cash cuts as moves were made to equalise funding. After an outcry, their funding was inflation-proofed. Transitional funding took time to disappear, but the complaints stopped.

This time, while local education authorities have been guaranteed at least 3.2 per cent extra per pupil this year, schools have received no such guarantee. Some authorities are spending the money on central services for special needs or disruptive pupils. Hence the howls of anguish from schools.

Ministers exacerbated matters by simultaneously shifting over £500m of targeted cash for school improvement, tackling truancy and performance pay into Local Education Authority (LEA budgets, raising employers' pension contributions by five per cent, and trying to employ new classroom assistants. At the same time, the Treasury increased National Insurance.

But the Government is not solely to blame. The funding changes were introduced after years of lobbying by schools and education authorities. And some schools have turned performance-related bonuses for the best teachers into incremental pay hikes for all eligible staff. The School Standards minister, David Miliband, argues that even with this Molotov cocktail, there is enough because £500m has apparently disappeared into a black hole, which his officials are frantically trying to trace.

Even if he finds this cash, a bigger difficulty remains in the form of the Deputy Prime Minister, John Prescott. For it is his department's insistence on distributing education money through local-authority grants that creates new problems every year. Without the education money, overall council funding rises might seem more meagre. It would be far better if the DfES distributed all school funds, not just the Standards Fund (some of which was unwisely surrendered to Prescott). Because schools and LEA funding is now split nationally, schools' money could go directly to heads rather than sinking into complex local-authority distribution formulae.

A national formula would start with each school's existing funding per pupil. Each school would get a guaranteed annual increase to fund teachers' pay. The annual pupil census could identify where extra funding was needed to support disadvantaged pupils, bilingual learners or special needs. Rural schools and those with higher salary costs could be compensated. With new technology, this should be straightforward and transparent. At the same time, LEAs would still have their own budget to cover special needs and school buses. They could top up school budgets from the council tax if they wished.

Most head teachers would support such a change. But the local-government lobby, supported by Mr Prescott, remains an apparently insurmountable obstacle. Graham Lane, the Local Government Association's indefatigable education chairman, boasts that education authorities spend £100m more than the Government says they should. Yet in the mid-Nineties, when money was tighter, the councils' top-up was £600m. This may partly explain why schools haven't experienced all their promised increases, but it also suggests that the Government could readily afford to find the extra cash to fund schools directly.

Moving to national funding would seem to offend against the idea that everything is best done locally – a key government mantra this term. Yet the real spending decisions would rest with heads and governors, rather than local authorities or Whitehall.

There might be teething problems, but these difficulties would be outweighed by less bureaucracy, more transparency and greater certainty that any centrally provided extra money actually reached schools. Tony Blair and Charles Clarke should insist on the change now, unless they want to see school reform playing second fiddle to funding rows for years to come.

The writer was David Blunkett's political adviser from 1993 to 2001

education@independent.co.uk