Tony Blair plans to align the budget to the school year

The prime minister told the National Association of Head Teachers (NAHT) union's conference in Cardiff that the move would be announced in July.

He also indicated a promise to offer a free nursery school place to every two-year-old is likely to be a centre-piece of Labour's election manifesto.

Mr Blair said he wanted to create a "universal service" for under-fives.

He detailed government plans to provide nursery places for two year-olds in the poorest areas of England.

New children's centres attached to schools would offer child care, healthcare and employment advice for mothers seeking a return to work.

Starting education at the age of five "no longer meets the future needs of Britain", Mr Blair added.

Children achieve more if they get the best of early starts Prime minister Tony Blair

"Pre-school education has a powerful impact on children's development.

"Even at 22 months there is a significant divergence in development between children of different social backgrounds, and it steadily increases thereafter.

"Children achieve more if they get the best of early starts."

Mr Blair told the conference the change from a yearly budget would give schools greater financial stability and autonomy.

He said the budget would also be aligned to the school year, making it easier to plan spending.

Drive reform

"One of the greatest difficulties for schools, as head teachers constantly tell me - and indeed as the last two years frankly have shown - is to plan ahead not knowing year-on-year what the school budget will be."

The move comes as a result of this year's spending review and settlement for education, Mr Blair said.

Seven years after Tony Blair claimed his first three priorities would be 'education, education, education', the record is telling a different story Tim Yeo, shadow education spokesman

Last year many schools complained funding problems were causing them to reduce staff numbers.

Mr Blair said: "You also need the financial stability and autonomy to plan budgets effectively and all the reform that money can drive.

"We accept that budgetary security and autonomy has not been sufficient in the past and we intend to improve it."

He said the proposed three-yearly budget would be governed by the "proper financial systems and accountability" and with "assured funding to underpin them".

Mr Blair added: "We would like these budgets to be pinned to the school year not the financial year to reflect the way you do business as school managers."

But the shadow education secretary, Tim Yeo, told the conference that school funding was "ridiculously complicated".

He said: "There must be no repetition of the school funding shambles you had to endure last year."

Mr Yeo promised a Conservative government would end the "meddlesome stream of targets, diktats and directives from the central planners at Whitehall", brought in "since 1997".

He said that, under Labour, class sizes had grown, truancy had risen and "red tape" had increased.