The move will deal a further blow to the already flagging fortunes of one of the Government's key education policies. A prediction by John Patten, Secretary of State for Education, that more than 1,000 secondary schools would opt out by Easter is already bound to fail, with no more than 975 opting out by then.
In future, schools which decide to become self-governing will gain no advantage in cash terms over those which stay within local authority control.
The decision follows revelations that schools which pioneered the Government's opting out policy are receiving bonuses totalling almost pounds 14m each year.
More than 250 schools which opted out before April 1993 are receiving up to pounds 200,000 in extra funding each year. The discrepancy means that local authorities such as Essex and Berkshire, which have large numbers of self-governing schools, lose more than pounds 1m annually.
Now schools are to lose up to 10 per cent of the additional cash each year. Inflation will also eat into the fixed lump sum and officials at the Department for Education estimate that the bulk of the money will be lost to schools within four years.
Schools which opt out receive the same maintenance grant each year as local authority-run schools, but they also receive compensation for local authority services which which they must buy in, such as library provision and educational advice. The compensation has been frozen since 1990, but the maintenance grant has grown because authorities now distribute a much bigger proportion of funds to their own schools. Thus, self-governing schools are paid twice for central services.
Andrew Turner, director of the Grant Maintained Schools Foundation, said he did not believe the change would deter schools from opting out.
'Most schools, when they opt out, talk about being better off in terms of having control over a large amount of money and being able to get better value for it. I don't think they want to be better off if it means being funded in an unfair way,' he said.
Martin Rogers of Local Schools Information, a council-backed organisation which provides information on opting out, welcomed the move.