EDUCATION FACES FUNDING THREAT

The government is considering taking the distribution of school funding out of councils' hands or severely restricting their freedom to retain education money.

The proposals are expected to be discussed by the emergency committee established by deputy prime minister John Prescott last week.

Pupils have been sent home and more than 2,000 teachers threatened with redundancy after changes to the funding formula meant schools were forced to make cuts.

The Department for Education & Skills blamed the fiasco on councils for holding money back inappropriately, but ministers could only name 19 out of 150 councils they claimed had witheld too much.

Ministers are still believed to be unhappy with the way local government has handled the situation and the committee, which will report back in mid-July, will consider setting up a national funding agency for schools.

A less radical alternative would be to guarantee every school a minimum funding rise, restricting councils' freedom to spend their education budgets.

Schools have already been given the power to dip into capital funds earmarked for building work to stave off redundancies.

The committee will be made up of representatives from the ODPM, DfES and Local Government Association.

But an LGA spokesman said any attempt to take control of school funding distribution away from councils would be 'opposed'. He added: 'The government made it very clear that the position of the talks was to agree a joint way forward to make sure the lessons are learned and not repeated.'

Peter Chalke (Con), vice chair of the LGA's education executive, said: 'This crisis was born out of the incompetence of the DfES. If Labour cannot get the funding right for 150 councils what hope would it have dealing directly with 25,000 schools?'

Dennis Reed, chief executive of the Local Government Information Unit, said it was an example of the government's 'centralising' ideas. He said councils were more able than Whitehall to respond to local needs.