U-turn expected on school surpluses

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The Government had proposed a 5% levy on all excess cash held by schools in a bid to free up about £1.7 billion in unspent reserves.

However, the move - put out for consultation in March - drew a furious response from teachers and the Tories, who warned it would penalise prudent financial management.

Schools who are saving for new buildings and other major projects would be "unjustly" fined, they claimed.

Doubts were also raised over assurances that the funds would be handed back to local authorities for their education budgets, and the retrospective nature of the measure.

Challenging Gordon Brown on the issue at Prime Minister's Questions last week, Tory leader David Cameron said: "Why do you think you know best how to spend this money, rather than the head teachers?"

Education minister Jim Knight has already signalled a willingness to drop the retrospective element of the measure. The original plan was for schools to hand over 5% of their balance as of last April - even if they were now in the red.

However, Whitehall sources indicated there has been a more fundamental reconsideration of the proposals.

Schools Secretary Ed Balls met Mr Knight and senior advisers for more than an hour to agree the text of a statement due to be delivered to the Commons.