A council is planning to fine schools £21,000 for each child that is excluded.
Conservative-run Devon County Council believes it could raise more than £5m a year as part of its plan to deal with a massive overspend in education.
According to a council report, the scheme was designed to "incentivise schools with high exclusion rates to explore every possible avenue to keep children and young people in school".
Liberal Democrat councillor Alan Connett said schools needed a "final sanction" without the threat of a financial penalty. The council has been approached for a comment.