Charles Clarke, the Education Secretary, will allow schools to spend £600m earmarked for building repairs on teachers' wages in an attempt to avoid redundancies this summer.
He will also encourage the nation's 24,000 state schools to spend up to £1bn they hold in reserves, in what is the first clear indication that ministers accept there is a funding crisis in many institutions.
He announced the plans after emergency meetings with local education authorities. The Government had accused the authorities of holding back £533m from school budgets.
Mr Clarke will spell out moves to address the funding crisis when he addresses MPs in the Commons today.
He will be replying to a Conservative-led attack on the Government's handling of this year's education budget.
A source at the Department for Education and Skills said last night: "We've always said that we would consider additional flexibilities for schools in exceptional circumstances."
Mr Clarke is also expected to tell MPs that about £250m of the £533m said to be held by the authorities had found its way into school budgets.
But local education authorities are adamant that they have not been withholding money from schools. At the meeting with Mr Clarke, they called for more "flexibility" over allocating funds. He agreed to consider waiving restrictions that prevent schools from using capital funding to prop up their day-to-day budgets.
Graham Lane, the Labour leader of the Local Government Association's education committee, said: "Some schools don't need to spend it on capital projects this year. It would actually give them some extra flexibility."
Local authority leaders and the Government say they believe there will be few teacher redundancies as a result of this year's budget. But the authorities say they are uncovering many cases of short-term contracts not being renewed – particularly among classroom assistants.
David Hart, general secretary of the National Association of Head Teachers, warned that allowing more flexibility was "really no more than re-arranging the deckchairs on the Titanic". He added: "It doesn't address the main problem and that is that we haven't got enough money in the system and we need more."
Local authority leaders and union leaders representing heads, teachers and classroom assistants are to send a joint letter to Mr Clarke. They will call for an urgent meeting to discuss the implications of the funding crisis for the Government's agenda for modernising the teaching profession.
Those who have signed up to the agreement – which allows specially trained classroom assistants to take lessons and give teachers time for preparation – want more money to be allocated to it next year. "People have just lost confidence that there will be enough money next year," Mr Lane said.Reuse content