Poor pupil cash will not be ring-fenced

Critics claim premium scheme money will be used to plug gaps in schools' budgets

The Government will not ring-fence the £2.5bn a year to be handed to schools for the most disadvantaged pupils to ensure all of it is spent on them, Nick Clegg admitted yesterday.

The Deputy Prime Minister said it would be wrong to "micro-manage" every school from Whitehall by dictating how money allocated under his "pupil premium" scheme is spent. He dismissed criticism that it could be used to cover spending cuts.

But Alan Milburn, the Government's independent reviewer of child poverty and social mobility, is to investigate how and where the money is being spent. "It is opaque," said the former Labour cabinet minister. "That is a real problem. I will be looking into it."

In a speech yesterday, Mr Clegg offered schools a new deal under which they enjoy the freedom to spend the scheme's £1.25bn this year, rising to £2.5bn by 2015, in return for them redoubling efforts to close the gap between their poorer pupils and the rest.

He said the Coalition would not copy the previous Labour government by trying to hold the hand of every teacher in every classroom. He is confident teachers will innovate and spend the money well in different ways – such as one-to-one tuition, catching-up classes, breakfast clubs or counselling.

"This is a major change," he said. "We are saying, unlike ever before, that school excellence is not simply about great overall results. The best schools must be engines of social mobility too."

The Liberal Democrat leader insisted that schools would be held accountable and could not just spend the money on other things. Ofsted, the schools inspectorate, has been ordered to look "forensically" at how schools spend the money and to what effect. He said: "If a school's pupil premium population is failing, more likely than not the whole school will be judged to be failing. At that point ... Ofsted will take a much closer interest in how that school's pupil premium is spent."

He went out of his way to praise teachers, striking a different tone to recent criticisms of poor performers by Michael Gove, the Education Secretary, and Ofsted.

"When all the odds are stacked against a child – hardship, low confidence, parents who can't cope – it is teachers who step in and make the difference, teachers who go above and beyond the call of duty," said Mr Clegg.

But Christine Blower, general secretary of the National Union of Teachers, said: "The Government needs to be honest. The pupil premium is simply being used to plug gaps in schools' budgets because of other funding cuts by the Government."

Answering questions after his speech, Mr Clegg fired a warning shot at the Chancellor George Osborne by saying the Liberal Democrats would not allow him to bring in regional pay in the public sector. He insisted the Government was considering only "localised" pay in specific services and accused unions of "ludicrous scaremongering" about pay freezes in the North while wages went up in the South-east.

Pupil premium: Clegg's big idea

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l Nick Clegg became interested in the "pupil premium" idea of directing extra money for disadvantaged pupils to schools when he visited the Netherlands 10 years ago as an MEP.

l It became a key pledge in the Liberal Democrat manifesto.

l Under the Coalition's scheme, schools currently receive £600 for each of the 1.8 million pupils on free school meals at any time in the past six years.

l It will cost £1.25bn this year, rising to £2.5bn by 2015.