More than £1 billion is expected to pour into English clubs in the coming season - but more than £600 million of it is likely to be paid out again in wages.

The annual report of the accountancy firm Deloitte & Touche into the game's finances published yesterday said football was growing "at a rate all other businesses would die for", but warned that unless players' wage demands were controlled the future looked bleak for many clubs.

It predicted that wages and transfer fees for international players would continue to explode, but said that the cost of first-team and squad players had to be stabilised. And it urged club chairmen to adopt incentive pay schemes along the same lines as those used by rugby league's Super League.

"If we could make one suggestion that would move English soccer forward it would be incentive pay," said Gerry Boon, chairman of Deloitte's football industry team. And he praised Leeds' chairman Peter Ridsdale for refusing to give in to the £45,000-a-week pay demands of the striker Jimmy Floyd Hasselbaink, who was sold this week to Atletico Madrid for £12 million. "He has set a good example. It was a brave decision, but a business decision."

The report, which covers the 1997-98 season, said the income generated by English football jumped 23 per cent to £830 million, but operating profits (which exclude transfer fees and interest costs) declined by 16 per cent.

While Premiership clubs turned in a profit for the first time since the 1994-95 season, the Football League slumped £53 million into the red, its highest losses. The downturn was almost entirely due to spiralling wage costs in the lower divisions, where 47 clubs paid more than two-thirds of their annual income in salaries. Fifteen clubs - nine of them in the Third Division - paid out wages in excess of their annual income.

Players' wages rose 37 per cent in the Premier League and First Division in the 1997 -98 season, and 27 per cent in the Second Division. The 13 per cent increase for Third Division players was more modest, but still far in excess of what the clubs could afford. The report said clubs had to spend on players to win promotion, but that left them "walking a financial tightrope" and dependant on backers with deep pockets.

It highlighted the yawning gulf between the Premier League and the lower divisions. While the 20 top clubs earned income of £569 million last year, the 72 Football League clubs only mustered £260 million between them. Twentytwo of them generated less income in the season than the £1.4 million (excluding television income) Manchester United raked in on a single matchday.

The lower division clubs are not even benefiting from selling players to the Premiership. They made a net gain of just £1.5 million from transfers in 1997-98.

Boon could see no easy way to stop the "yoyo effect" of clubs winning promotion to the Premiership only to be relegated the next season.

Wages in the Scottish Premier League exceeded £50 million for the first time according to a report by the accountants PricewaterhouseCoopers. Rangers head the list with an annual bill of more than £20 million, which is £8 million larger than Celtic.