Labour MPs have criticised a Department for Education letter that suggests schools could make up their budget shortfalls by purchasing cheaper photocopiers or switching energy suppliers.

In a letter to the Labour MP John Cryer, who wrote to raise concerns about the funding shortfall for schools in his constituency, the schools minister, Nick Gibb, said the government recognised schools “are facing increasing cost pressures” and was advising schools about how to save money.

“Schools could save, on average, up to 10% by making use of our national energy deal and over 40% by using the national deal for printers and photocopiers,” the minister wrote. Other suggestions included following advice on better staff deployment from the Education Endowment Fund and the government’s school buying strategy.

Cryer said the comments showed the department was “living in a fantasy world, utterly divorced from the reality in our schools” and said one school in his constituency was due to lose £960,055 in real terms over the next four years.

Schools in Waltham Forest, part of Cryer’s east London constituency, face real-terms budget cuts of £21m between 2016 and 2020 – based on increased costs of £17m from unfunded new cost pressures, such as the government’s apprenticeship levy in addition to about £4.3m from changes to the national funding formula for schools, according to the local authority’s calculation.

“The government is clearly in complete denial about the impact its policies are having on schools,” Cryer said.

Nick Gibb (left). Photograph: Alastair Johnstone / SWNS.com/The Guardian

In the letter, Gibb said the government had protected the core budget in real terms overall and that it was the largest on record, totalling more than £40bn and due to increase to £42bn within two years as pupil numbers rose.

He defended the overhaul of the schools funding formula, which MPs across the house have claimed will mean their schools lose out. “The current funding system is based on data that is a decade or more out of date and does not support our ambition for all children to be able to fulfil their potential,” he said.

Gibb wrote that the DfE recognised the increasing cost pressures of staffing, including the “national living wage” increase and apprenticeship levy, and said recommendations on costs such as printing would help with savings.

Stella Creasy, the Labour MP for Walthamstow, which borders Cryer’s Leytonstone and Wanstead constituency, said many of her local schools were facing real-terms cuts of up to 20%. “It is insulting that government ministers just dismiss these concerns by suggesting they could get cheaper photocopying,” she said.

“Investing in education is vital to our future success as a nation and these cuts will leave many of our schools here struggling. When they are wasting money on free schools and grammars at the same time as slashing the support for existing schools, the government must urgently think again about its education spending priorities.”

On Wednesday, the public accounts committee accused the DfE of an “incoherent and too often poor value for money” free schools programme while the existing school estate – much of which is more than 40 years old – is falling into disrepair. The report found that an estimated £7bn was needed to restore it to a satisfactory condition.

During its inquiry, the committee heard evidence from headteachers about the state of their buildings, with one describing how on windy days, dust from asbestos ceiling tiles would fall and students had to go to an emergency van to be decontaminated. The school has since moved into a new building.