Labour has been accused of reducing education spending to the lowest level for 40 years.

A survey by professor Howard Glennerster of the London School of Economics shows spending on schools and universities fell to 4.5 per cent of GDP in 1998 and 1999, the lowest level since the early 1960s.

The figures, presented to the British Association for the Advancement of Science conference in Glasgow, will embarrass Labour as it unveils its education white paper.

The reduction was caused by the decision to stick to Conservative spending limits in the first two year's following the government's election victory in 1997. The result was education spending at a lower level than that seen during Margaret Thatcher's government, when it stood at 4.7 per cent, the report finds.

Spending increases seen in the last years of the previous parliament and plans for the rising spending during this term in office are set to increase the share of GDP spent on education, but by 2003/04 it will only have returned to the levels seen at the beginning of the 1990s.

Professor Glennerster said that real terms spending per pupil had also seen a fall. "It was not until 1999/2000 that real per pupil spending in secondary schools rose above the 1995/96 level in England and a year later in Scotland," he told the Guardian.

The findings will confirm criticism of the government made by opposition MPs that the announcement during its first term of an extra £40 billion on schools and hospitals were an exaggeration after it was revealed that several years' expenditure had been had been rolled into one larger figure.

Shadow education secretary Theresa May said the figures showed the "grim truth behind Labour's spin" and warned the government that it would not be forgiven if it failed to deliver on education during this term in office.

"Whilst Tony Blair has talked about more investment and a focus on standards, the reality for schools across the country has been stretched budgets and more pointless government initiatives," she said.

Glennerster also pointed out that the levels of expenditure seen under the early years of the Labour government had also coincided with strong improvements in educational achievement and exam pass rates, implying that "more money for schools is no guarantee of better results".