Bungle deprives schools of £1.2bn

Gordon Brown's spending bonanza for schools was marred today by revelations that at least £1.2 billion of money earmarked for education went unspent last year.

The figures, which are an embarrassment to Estelle Morris, the Education Secretary, were smuggled out last night under cover of the spending review by being buried on a government website.

A row was rapidly brewing over why the cash was not spent even though education has been repeatedly declared to be the Government's number one priority. It came only hours before Ms Morris was due to spell out to the Commons details of how she will spend the latest £12.8 billion increase promised by the Chancellor.

She will announce the creation of a new breed of "advanced schools" and a raft of measures to tackle pupil behaviour and reward teachers in difficult schools.

The underspend was disclosed in a Treasury document which was issued at the same time as the Comprehensive Spending Review but not given to MPs and journalists.

Even though the Education Department claimed the money is not lost, it is not clear how it will be eventually recycled. A spokesman for Ms Morris's department admitted to an underspend of £1.2 billion - enough money to have paid for 10,000 extra teachers and 20,000 classroom assistants.

But the Treasury figures suggested it was more than twice as high - at £2.5 billion. The document listed the actual amounts spent by Whitehall departments in 2001-02 compared with the amounts they were allocated by the Chancellor in his 2001 budget. For Ms Morris's department, an underspend of £2.388 billion was recorded on current spending, plus another £135 million underspend on capital projects.

The Treasury figures were disputed by the Department for Education today - and even the Treasury appeared confused by how much money was actually left unspent.

But both the Treasury and the DfE admitted Ms Morris and her officials had failed to spend a small fortune originally earmarked for education and employment projects.

An Education Department spokesman said: "It is correct that we had a £1.2 billion underspend but there is flexibility in the budget and it does not mean that schools will not see the money they were due."

She said it was "an improvement" on the previous year when a £1.4 billion underspend was recorded. But insiders said Ms Morris had been "furious" when she found out.

Tory spokesman Damien Green said the muddle showed ministers were incapable of spending money efficiently on the scale announced by the Chancellor. Ms Morris will say this afternoon that weak head teachers in inner city comprehensives will face the sack as a direct result of the spending boost for schools.

They will pay with their careers as their governing bodies are given the chance of an extra £125,000 a year for their schools - if they can prove they have good leadership.

The financial incentive is part of a ruthless private sector-style culture being introduced as the driving force behind what she will describe as "root and branch" reform of the comprehensive system. The leadership incentive scheme will offer the £125,000 sum to 1,400 secondary schools in "challenging" circumstances. A large proportion are expected to be in London.

In order to get the money, school governing bodies will need to demonstrate to their education authorities that they have the leadership to make the best use of it.

Senior sources said today that some of the schools would already be doing well, despite their disadvantages. They might well use the extra cash to raise the salaries of talented teachers who might otherwise leave for easier jobs.

But in some schools, the sources said, governors would know they stood little chance of winning the money because the quality of senior management was already acknowledged to be a problem.