Councils provide schools with a range of support services The government is set to review the amount of money cut from local authority budgets in England to help fund new academy schools.
The move comes after a group of 23 councils filed a claim for a judicial review against ministers.
The councils argued the way a £148m cut for services they no longer provided to academies had been calculated was against government rules.
Ministers said they were responding to concerns raised by local councils.
Councils across England were set to lose a total of more than £400m over the next two years because, under government plans, they would no longer have responsibility for providing support services, such as special educational needs, for academy schools.
The councils said the figure was excessive and threatened court action. The government has now promised a rethink.
Labour said the decision represented yet another U-turn by the government and reinforced criticism by the Archbishop of Canterbury earlier in the week that ministers were pressing ahead with reform too quickly.
The move could also leave ministers with a funding gap if the money for support services for academies has to be found from other budgets.
The government has argued it cannot afford to fund school services twice over.
About 600 schools in England – some one in six – are now academies, three times more than when the coalition government was elected in May 2010.
Academies are outside of the local authority support structure, and receive no services from councils.
Instead, they receive their funding directly from the government.
To compensate for this, the Department for Education, through the local government settlement, has reduced the grant available to councils for support to schools.
The councils claim this cut has been calculated by deducting the amount it will cost individual academies to run those services themselves, rather than by the amount that councils will save by not providing them.
This, they argue, will leave them out of pocket and is against the government’s own guidelines, known as the New Burdens Rules, on such matters.
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