Education Secretary Lucy Powell is locked in a standoff with the Treasury The i Paper understands, after she announced a wage rise for teachers would be paid for with new money without the green light from No 11.
It means schools face having to meet the pay award out of their existing budgets.
Powell, who was appointed by Andy Burnham in July and is also deputy leader of the Labour Party, announced the 3.5 per pay award would be met from extra money in September, staving off possible strike action over fears it would have to come out of the budgets of all ready hard-pressed schools.
At the time National Education Union general secretary Daniel Kebede said: “Finally, we have a government that accepts the reality that any teacher pay award must be fully funded. Plugging the £460m black hole in school budgets signals a welcome return to reality, and a message of hope for the entire school community.”
In a letter to the union Powell had said the money had been found by reevaluating local government pensions schemes.
She wrote: “Recent revaluations to the local government pension scheme will see a reduction in employer contribution rates and deliver significant savings on schools’ pay bill for support staff.
“We can confirm this reduction in costs will not be clawed back and as such, we are confident that schools will be able to cover the costs of the teacher pay award, at a national level.”
Extra money already accounted for
However, this money had already been built into schools’ budgets unions claim, meaning there is no extra amount able to meet the cost of the pay award.
The move has left schools warning they still face funding pressures, with the National Association of Schoolmasters Union of Women Teachers (NASUWT), known as the Teachers’ Union, saying there is “no new money for schools” and that the Government cannot “spin its way out of a funding gap”.
School finance leaders and the NASUWT argue that schools were already benefiting from the pension savings, had incorporated them into their budgets .
A senior Whitehall source told The i Paper that the September announcement was linked to an attempt by the Department for Education (DfE) to strike a “side deal” with the NEU and head off threatened industrial action.
The Treasury had not been involved in the initial discussions and had not agreed to the way the announcement was framed as “new funding”, the source said. The episode is understood to have further strained relations between the DfE and the Treasury.
The dispute centres on savings from the Local Government Pension Scheme (LGPS), which covers many school support staff.
Employer contribution rates fell by an average of 4.9 percentage points from April 2026 after stronger-than-expected investment returns. All 77 LGPS valuations had concluded by December 2025, meaning the savings were known about before the teacher pay deal was announced in July.
A letter from NASUWT general secretary Matt Wrack to Powell last week, says schools had been paying the new rates since April and employers “have been aware of the new rates for some time and have already built this in to budgeting and financial planning”.
The savings varied significantly between pension funds. The TES found reductions ranging from zero to 10.2 percentage points, while analysis by Schools Week put the range at 0.3 to 15.6 percentage points.
On 18 September, DfE official Adrian Gough wrote to Wrack confirming that the LGPS saving was “not additional money that Government is providing”.
Unions warn of cuts
After Powell’s September letter, the DfE also removed a table from its Education Hub setting out how the 3.5 per cent award would be funded.
Wrack said in the letter sent to Powell that her intervention had caused “considerable confusion” and created the impression that additional funding had been provided to ease pressure on schools.Wrack told The i Paper: “Despite all the spin, there is no new money for schools and the underfunding crisis remains.
“Our members deserve honesty from the Department for Education because at the moment there is concern and confusion in schools with mixed messages coming from ministers.
“If Lucy Powell believes schools can fund this pay award from existing budgets she needs to explain to the profession which services she expects schools to cut.”
The NASUWT has called for the original funding table to be republished and for the Government to provide full details of what funding Powell’s September letter was linked to.
A Department for Education spokesperson said: “Teachers are the driving force behind higher standards and better life chances. That’s why backing and retaining great teachers is at the heart of our plan to raise standards, and why we have delivered a pay award that recognises the vital role they play.
“The pay award remains the same. What has changed is the affordability position following the recent valuation of the Local Government Pension Scheme, which has reduced schools’ costs and strengthened schools’ ability to meet the costs of the award at a national level.
“This represents a substantial improvement in schools’ overall financial position for this year – helping them meet the costs of both support staff and teacher pay.” end
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