The National Union of Teachers has accused the government of undervaluing the profession after announcing a pay increase of 3.5 per cent.

The hike, which will be implemented between April and September, increases the starting salary for teachers to £17,628.

"We need to ensure that governing bodies are able to recruit the head teachers they need to take forward the improvements necessary to raise standards in our schools. I'm very pleased that the STRB has responded positively to our concerns over retention of headteachers by giving governing bodies new flexibilities to set their pay," education secretary Estelle Morris said.

"The pay increases that I am announcing today demonstrate the government's continuing commitment to improving our education system. I am confident that they are affordable but I shall expect the investment to lead to real improvements in standards."

However, the union claims that this salary level is still 10.8 per cent lower than the average for graduates entering other careers. A 12.5 per cent increase had been requested.

The general secretary of the National Union of Teachers, Doug McAvoy, warned that the announcement would not improve the problems faced in recruitment and retention.

"The government has failed to appreciate the damage this will do to teacher recruitment, retention and morale. The government continues to undermine teachers," he said.

"The government has at last admitted the depth of the crisis in teacher numbers facing our schools. It must be aware of the impact poor salary levels have on recruitment and retention of teachers. Yet once again it allows teachers' pay to fall behind that available to graduates elsewhere in the economy."

Teachers' workloads also needed to be addressed, he said, although he welcomed the government's recognition of the problem.

Nigel de Gruchy of the NASUWT said:"The teachers' pay award is a mixed bag. While there are some positive points there are some less helpful ones. The above-inflation award at 3.5 per cent is welcome but falls below the average pay rise for white collar workers. The profession will continue to struggle in competing with comparable occupations when recruiting staff."

Gerald Imison, the deputy general secretary of the Association of Teachers and Lecturers, said: "Given the crisis in recruitment and retention to the teaching profession, this is a frankly disappointing pay award. The 3.5 per cent is, by current standards, only moderate and will not do enough to make teaching the attractive profession it needs to be.

"The restructuring of the main pay scale is significant and a positive response to ATL's claims. Its impact will be diluted because the starting salary is not high enough. All this means is that it will be five years before graduates see their friends in other occupations earning much more than them, rather than the current seven.

"Any extra money is vital for the morale of teachers, but if salaries are not adequate, good graduates will continue to shun the profession in large numbers."

Shadow education secretary Damien Green questioned where the money would come from to fund the increase.

"Teachers deserve a generous increase but the real question today is where is this money coming from. The Government has only allowed councils an increase in teachers' pay of 2.5 per cent so how will the remaining increase be funded?" he asked.

"When you include extra associated costs, today's announcement means that local authorities will have to find around £250 million extra to fund these increases. Will this be paid for out of cuts in the education budget or in the budget for other services?"

Liberal democrat education spokesman, Phil Willis, echoed unions' concerns. He also criticised education secretary Estelle Morris for not making the announcement in the commons.

"The secretary of state has treated Pprliament with contempt by refusing to make the teachers pay announcement at the despatch box. This announcement should have been made in the House of Commons, rather than leaving it to the Millbank spin machine," he said.