Although Clarke said the new funding arrangements would be in place for only one year, the move creates a worrying precedent. Will local authorities be allowed to dip into capital budgets whenever the financial situation gets a bit tight?
The move is designed to ease the schools funding crisis. There is currently a £500m shortfall caused by increased staff salaries, a rise in teachers' pensions and the higher National Insurance contributions. As a result, many schools have no money to pay for salaries, books and equipment.
The news has caused concern in the construction industry. Commenting on the announcement, the Construction Products Association's economic director Allan Wilén said he was worried about the "government's apparent willingness to abandon its long-term investment strategy in favour of the stop-go crisis management of the past".
The policy contributed to the current poor condition of many school buildings, said Wilén, who added that the same could happen in the future. "Postponing maintenance projects will only add to the eventual repair bill as buildings continue to deteriorate," he said.
Stephen Ratcliffe, chief executive of the Construction Confederation, also expressed his concern about the use of capital funding to pay for day-to-day running costs. "We are very disappointed by this decision and concerned that this may only be the thin end of the wedge," he said. "Schools badly need improvements to their buildings and infrastructure and there is a real danger that pupils and teachers will pay a high long-term cost for a short-term quick fix like this.
Wilén also said that Clarke's decision could affect industry investment in schools. "It will damage confidence among construction product manufacturers and suppliers making them more cautious in investing in the plant and staff training needed to meet the government's stated long term objectives."
