Hundreds of teaching posts have been cut

The increase assumes their costs will rise by 3.4%.

The announcement - with an emergency �120m to balance budgets - is meant to draw a line under the mistake this year which saw many schools go into the red.

Education unions and local government leaders say its success will depend crucially on this year's pay settlement for teachers, due next month.

Salaries account for the great bulk of schools' costs.

Also due next month are the overall local government funding figures for 2004-5.

I am not going to go around saying all this problem was bad management but I think it was a factor in some cases in some schools Charles Clarke Warning on staff costs

The Education Secretary, Charles Clarke, said in a statement to MPs that the proposals were designed to restore confidence in the school funding system.

He said his figures assumed an estimated increase in costs for schools next year of 3.4%.

This allowed for an "inflation-led pay settlement" - that is, approximately 2.5%.

Looking ahead, he expected the minimum increase for the following year, 2005-06, also to be 4%.

Emergency funding

Mr Clarke said a school whose pupil numbers stayed the same next year would be "guaranteed" a 4% increase next year.

The funding of education is routinely described in terms such as "fiendishly complex" Where the money goes

If pupil numbers declined, it would get more than 4%, to help cover fixed costs such as cleaning and heating.

But he said that, because of the decline in young children in the population - 50,000 fewer of school age this year and next - the number of primary schools with less cash and therefore possibly fewer staff "will be significant".

Secondary schools with falling rolls would be in the same position.

If numbers were increasing, schools would get at least 4% for the existing pupils and an overall increase for next year of at least 3.4%.

The minimum amount allocated to local education authorities for education - known as the formula spending share - would be 5%.

Details would be announced later and the amounts would vary from one LEA to another, but he expected the maximum increase to be 6.5%.

Mr Clarke said there should be enough money to implement the workload agreement with the unions - reducing the burdens on teachers and increasing the role of support staff.

Balancing budgets

He was easing the regulations to allow education authorities to help schools to balance their budgets.

Even so he expected some schools would still have problems, so he was establishing a "targeted transitional grant" for the next two years.

This assumed a minimum increase of 12% per pupil across the whole country from 02-03 to 04-05, "well ahead of our best estimate of unavoidable pressures for those years".

He estimated this would cost about �120m and benefit about a third of the 150 LEAs.

Some schools would still have difficult balancing budgets, so their LEAs could argue for more "to avoid real damage to children's education".

There would be up to �300,000 per LEA, or 0.2% of its budget, available for next year - to be recouped in future years.

"I do acknowledge that getting back into balance may involve difficult decisions," he said.

'Suspicion'

The shadow education secretary, Damian Green, called it "a fairly non-transparent statement".

He said many familiar with school funding regarded "with deep suspicion" the assumptions about a 2.5% pay rise and 3.4% in costs.

He said he hoped we would not see a repeat of the funding crisis, "but I fear we will".

The general secretary of the Secondary Heads Association, John Dunford, said the measures would be successful only if the increase to schools was more than their costs.

But also they must give enough help to the schools worst hit this year "to enable them to escape from the financial trouble into which they were plunged".

The National Union of Teachers said schools had needed an average increase of 11% to stand still this year.

"A 4% guarantee for the next two years is a very long way from that."

"More teaching posts will be lost. More teachers will face redundancy. More pupils will be disadvantaged by classes being taken by unqualified persons."

More but not enough

The government put an extra �2.7bn into schools for this financial year.

But schools had to cope with higher wage bills, the Workload Agreement - which takes certain administrative and other day-to-day tasks out of teachers' hands - and higher pension and National Insurance contributions.

The already complex calculations were further complicated by a change in the distribution of the money between different areas, which saw winners and losers.