The plans, put to ministers by a powerful government funding quango, would mean one of the biggest steps towards centralisation since the Second World War. The call from the Funding Agency for Schools, the body set up to finance and plan opting- out, has been backed by head teachers' and grant-maintained schools' organisations.
It has caused outrage among local authorities, which say it could mean the end of local democracy, and has also been criticised by the influential National Commission on Education.
Ministers are unlikely to act before the general election to remove local authorities' powers, but many Conservatives would like to see a manifesto pledge on the subject.
Some of them want the Government to pay the same amount for all pupils, regardless of where they live.
The funding agency has set out its proposals in response to government plans for a new national financing scheme for grant-maintained schools.
A spokesman for the agency, which has a big role in implementing educational reform such as increased selection and extra powers for grant- maintained schools, said some schools were much richer than others under the present system.
"Local authorities don't decide on the content of the curriculum or teachers' pay or standards. This is a logical extension of a pattern that has developed in recent years," he said.
However, local authorities are horrified by the idea that they could lose control of school funding and believe that such a move would be tantamount to abolition. They would be left to administer a few closely regulated areas such as school transport and special educational needs, but would have very little real power. Graham Lane, the chairman of the Association of Metropolitan Authorities' education committee, described the move as "government by quango".
"This would destroy local government, and it would also destroy education for thousands of young people. I don't want a quango appointed by the Government running around interfering with locally elected bodies," he said. The proposal also drew criticism from a number of other quarters last night.
Don Foster, the Liberal Democrats' education spokesman, compared the powers the Government would take on to absolute monarchy. "It's a Henry the Eighth move," he said.
Labour's spokesman on education was more cautious, though. David Blunkett said he was not in favour of a national funding formula but objected mainly on the grounds that schools could lose money and class sizes could rise. At present, councils spend almost pounds 700m more on education than the Government says they should.
Labour has not decided exactly how far it will go in setting out national rules on school funding.
"It is very difficult for an agency based in York to make financial decisions which are sensitive to the needs of schools from Devon to Liverpool and from Norfolk to Carlisle," Mr Blunkett said.
Lord Walton of Detchant, chairman of the National Commission on Education, said it believed in local decision-making. "At first sight, I would feel uncomfortable about the total removal of all schools from any local authority democratic control," he said.
A spokesman for the Department for Education and Employment said a number of organisations wanted local authorities' spending powers to be removed. Ministers were looking at their suggestions and at those on payment by results, he said. "We will look at it in the light of what people are saying and in the course of time ministers will decide what they want to do," he said.
Leading article, page 13Reuse content