Latest news
Before I start to talk about financial decision-making, here’s some news that’s important for setting your 2020/21 budget. The Secretary of State has submitted his evidence to the STRB on the teachers’ pay award for September 2020: https://www.gov.uk/government/publications/evidence-to-the-strb-2020-pay-award-for-school-staff.
The preferred option involves a total increase of 3% in a full year across the whole pay structure, with 2.5% for upper pay scale and leadership salaries. As expected, starting and early career salaries will see a much bigger increase and the differentials will therefore narrow between the higher points.
As I suspected, the drawback comes in the financial arrangements. The existing pay grant covering the 2018 and 2019 pay awards will continue in 2020/21 then be transferred into the NFF from 2021/22, a hint that we might see the Hard NFF from then. BUT there will be no uplift to the grant to cover the cost of the September 2020 award; it has to come from the funding increases already announced. There are two problems with that: the increases only just get schools back to the pre-cuts days of 2015/16, and the increase won’t be distributed evenly. Schools that are receiving the Minimum Funding Guarantee may struggle; for 2020/21, LAs can implement a guarantee of between +0.5% and +1.84%. Let’s hope that’s reviewed for 2021/22.
A quick note also about some forthcoming conferences I’ll be speaking at:
- Schools North East Academies Show, Newcastle, 30th January: I’m presenting a session called ‘GAG Pooling: should you dive in?’ https://schoolsnortheast.org/m/academies-conference/
- The School Bus Roadshow, Cheshire 5th & 6th February: I’ll be doing a finance update covering recent announcements and some informed horizon scanning. https://hub4leaders.co.uk/learning-hub/events/
Ofsted makes a move
In a blog post on 13th January 2020, Daniel Muijs, Ofsted’s Deputy Director for Research and Evaluation, outlined why Ofsted undertakes research (https://www.gov.uk/government/news/why-we-do-research-at-ofsted). In the article, he confirmed that the inspectorate’s biggest new programme for 2020 would be the re-introduction of thematic subject reviews, including this one:
We will be looking at financial decision-making on inspection, to see whether this gives us more insight into the quality of leadership and management.
Tes reported on this at https://www.tes.com/news/school-finances-could-face-even-more-ofsted-scrutiny. An Ofsted representative said that the research was purely a trial and was not linked to the government’s plans to introduce judgements on this aspect. However, the government seems keen on it. I therefore thought it would be interesting to look at whether inspectors pay much attention to finance during inspection, especially where a school is in financial difficulties. One would expect this to be a red flag in inspection, because of its impact on a school’s capacity to improve.
Should financial decision-making be judged in inspection?
In principle, I support the idea of a more holistic approach to inspection that includes a school’s financial situation, but I’m not sure Ofsted is best placed to make the judgements. It depends on what exactly is meant by financial decision-making; the term seems a little vague.
I’d far rather inspectors had a better contextual understanding of the financial challenges schools face, i.e. delivering against high expectations with completely inadequate funding levels. Then schools which support a lot of pupils with additional and special needs might actually be given some credit, instead of being penalised in inspections and DfE performance tables. For me, this is what needs to be addressed urgently.
Finance is a vitally important element of school leadership, underpinning everything else. If finances are out of control, it can be extremely difficult to improve and sustain educational performance, especially in the current financial climate. Schools have responded in various ways, but we are now entering last resort territory, i.e. reductions in the offer to children, and someone needs to look at this.
Financial planning is admittedly difficult in the current climate, when there are so many unanswered questions about future funding, both at national and local levels. I’ve mentioned these in previous blog posts, so I won’t repeat them here. But the fact remains that there is a duty on schools to achieve a balanced budget, if not annually, then within a reasonable period (currently defined as three years in guidance on LA Schemes for Financing Schools).
Funding bodies, i.e. local authorities and the ESFA, already have a responsibility to monitor school and academy financial sustainability, so there isn’t any need to reinvent the wheel. Ofsted and DfE need to be clear about the purpose of the research and what the criteria will be for any potential judgement, if they are insisting on focusing on financial decision-making. The question is where Ofsted can best add value.
For guidance on financial planning, budgeting and budget reviews, why not take a look at my Books page, where you can find links to the following publications?
Forecasting Your School’s Funding
Leading a School Budget Review
The scale of the problem
It’s taken a while, and it’s involved some pretty intensive lobbying (well done to all concerned), but at last the government has accepted that schools need additional funding, with the 2019 Spending Review’s three-year settlement for schools. But it won’t all be distributed evenly; some will go to areas with rising rolls, and a lot of it will be targeted to schools who are below the National Funding Formula levels.
I hope the focus on financial decision-making isn’t a ploy to try to garner evidence that schools are mismanaging their resources, to avoid having to increase funding further. This line was used when Theresa May’s government was in denial about the scale of real terms cuts.
The trouble is, the extra money has come too late for many schools. Statistics for LA schools up to 2018/19 (https://www.gov.uk/government/statistics/la-and-school-expenditure-2018-to-2019-financial-year) show a substantial increase in the proportion of LA schools in deficit between 2015/16 and 2018/19, and the average deficit per school is rising. These figures are understated, because they are net of earmarked reserves. I’ve done it this way because earmarking isn’t always done consistently.
The figures speak for themselves, but I suspect the jump in special school deficits is linked to the number of LAs with a High Needs Budget crisis. As Schools Forums resist requests to transfer money to High Needs, the burden of LA spending reductions shifts towards special schools (and resource bases/SEN units in mainstream).
Valid comparisons with individual academy deficits are impossible, because they are published at Trust level and top-slicing of funding is too variable. They also refer to a different financial year. We need to set the percentage of LA schools in deficit against the context of a declining number of LA schools overall. Some with historic deficits may have become academies, either by choice or as a result of an adverse inspection. If it happens through intervention, the LA has to write off the deficit.
How does the inspection framework treat finance?
The Ofsted inspection framework is rather light on financial aspects. I’ve highlighted them in bold:
Principles section:
- We are required to carry out our work in ways that encourage the services we inspect and regulate to improve, to be user-focused and to be efficient and effective in their use of resources.
- Inspection provides assurance… that – where relevant – public money is being spent well;
Leadership and management evaluation: the extent to which… those responsible for governance… ensure that the provider has a clear vision and strategy and that resources are managed well.
And that’s all there is. It’s strange, when one of the core functions of governance is assurance on financial performance. The framework and handbook would need to be updated if judgements on financial decision-making were introduced.
The inspection question
I’m not wholly convinced that inspectors need to examine financial decision-making in detail at every school. Proportionality should apply, with a lighter touch if they have a balanced budget and a robust medium term financial plan (assumingthere are no recent or planned stringent cuts that will affect the quality of teaching). A one-off deficit due to an unforeseen emergency can happen to anyone, and funding bodies should pay close attention to the school’s response to it, to ensure it gets back on track.
But where there is a deficit, especially a significant one that has built up over a prolonged period, it definitely should be examined in the overall judgement of leadership and management (and questions should also be asked of the LA, or ESFA for an academy trust). The data suggest recovery plans simply aren’t working. Ofsted should concentrate on this aspect rather than adopt a blanket approach; it would save a lot of time and money.
As well as limiting the achievement of the school’s vision, a substantial and long-term deficit must surely affect a school’s ability to act on inspectors’ findings in relation to educational performance. If the judgement is Requires Improvement or Inadequate, some external input or investment in different approaches may be needed. How will the school be able to afford that, if its budget is spiralling out of control?
The other side of the coin is that if a school has been judged as good or outstanding while spending far in excess of their funding allocations, they must have achieved it with an unaffordable staffing structure and an unrealistic spending plan. The judgement is likely to be unsustainable as they implement a recovery plan for the deficit, which they surely will have to do. The situation also seems unfair to schools that have taken difficult decisions to stay within budget.
My experience has been that finance is rarely mentioned in school inspection reports, even when there is a significant deficit. But it’s some time since I last examined the issue, so I felt it was time for a refresh.
I’ve taken a simple high-level approach: I identified local authority primary, secondary and special maintained schools with deficits above £2m (18 schools) at 31st March 2019 and read their Ofsted reports to see whether their financial situation was mentioned. I checked the history of inspection dates and in every case, the school had a significant deficit in the March before the inspection date.
Schools with high deficits
Before you read any further, please understand that I am not making any judgements about the financial capabilities of the leadership in these schools; I don’t know their individual contexts. What I am interested in is the level of awareness of Ofsted inspectors, to set a baseline for their new interest in making value judgements about financial decision-making in the pilot.
The table below shows the number of LA primary, secondary or special schools in deficit at 31st March 2019 in value bandings.
All but one of the eighteen schools with a deficit above £2m have been in deficit continuously since March 2016 (the other one is since March 2017). The total deficits for this group have risen from £19.6m in 2015/16 to £49.5m in 2018/19 (+252%) and the average deficit per school has also more than doubled.
Inspection dates were fairly evenly spread: five before March 2017, three in 2017/18, five in 2018/19, and five in 2019/20 (two of them under the new framework since September 2019). Eleven were judged as Good (including three short inspections with sustained performance), four as Requires Improvement (RI) and three as Inadequate.
Analysis of inspection reports
Of the group of eighteen schools with deficits above £2m each, only one report contained a reasonably substantial comment on the deficit situation. Five contained absolutely no mention of finance at all, and eight ignored the deficit and referred only to Pupil Premium, Y7 catch up funding or Sports Premium funding. It’s strange that the inspection system should focus on relatively small elements of funding when there’s a massive deficit in the main budget.
The report with a proper comment was the school with the highest deficit in the country. The main observation was that the debt had prevented conversion to an academy, although inspectors also said that while the school ‘has reduced costs considerably, a large in-year deficit remains. Plans are in place to reduce it further over the next three years.’ (January 2018, RI; deficit at previous March £1.86m but rose to £3m in March 2018 then £3.6m in March 2019)
Here are the findings on the other four schools’ core budget deficits:
- The chair of the IEB has worked effectively to reduce the school’s current in-year budget deficit and has given careful thought to the next steps that the IEB needs to take in this regard. (March 2017, Inadequate, 2016/17 year end deficit of £3.17m, by March 2019 reduced slightly to £2.9m)
- One of the negative impacts of the severe budget deficit has been the loss of the school library… Despite the restraints imposed by the deficit budget, the headteacher has ensured that the curriculum is broad and balanced, and takes into account pupils’ needs and aspirations. (October 2017, RI, deficit £1.47m at March 2017, rose to £2.38m by March 2019)
- Governors are aware, for example, of… the budgetary challenges faced by the interim executive principal (June 2018, Inadequate, deficit £2.6m at March 2018, £2.1m at March 2019)
- The governing body monitors the school’s finances closely. It has worked closely with the local authority to ensure that the predicted budget shortfall is effectively managed. (January 2015 full inspection, Good, first year of deficit, but no mention in June 2018 short inspection (sustained Good), deficit £1.8m at March 2018 and £2.1m at March 2019).
In conclusion
I’d hoped that these reports would provide some reassurance that Ofsted has an awareness of the importance of financial performance, but I’m very disappointed by these results. I’ve only focused on the schools which currently have very high deficits, built up over several years, but given these findings, it seems extremely unlikely that attention will have been paid to lesser deficits.
It all suggests there’s a massive leap to be made to train up inspectors to improve their awareness of finance in time for the pilot. Where reports have noted financial problems, I can’t see much evidence of challenge by the inspectors; it all sounds quite matter-of-fact.
We can always keep our fingers crossed that if inspectors start to pay attention to finance, they will expose the true scale of the difficulties schools are experiencing up and down the country. Such a move could generate more evidence about how difficult it is for schools to achieve a sustainable budget with inadequate funding, especially where they are serving a lot of children with additional and/or special needs. A holistic approach is sorely needed; but it must involve a much better awareness of how financial constraints can affect performance. It will be interesting to see what happens next!
Until next time,
Julie