Forecasting Your School’s Funding
2018 has been a very hectic year for School Financial Success. Nikola and I have published two books and have continued our monthly blog post and newsletter. I’ve spoken at several conferences throughout the year, have presented three webinars during November (two for Capita and one for Schools North East), and I gave oral evidence to MPs at Westminster for the Education Committee’s SEN Inquiry on October 23rd. As you’ll see later in this post, we’ve also both been busy preparing the manuscript for our next book, which is nearly ready. A cover reveal will appear soon on social media!
Another term is nearly over, and we’re all starting to look ahead to budget setting for 2019/20. Dedicated Schools Grant (DSG) allocations have now been published and the stage is set for councils to use the new dataset from DfE to run their local formulae.
There’s been a passing nod to the dire situation in high needs funding, with an announcement of an extra £350m for SEND made by Damien Hinds on December 16th (on a Sunday – so much for workload reduction…). You can read it at: https://www.gov.uk/government/news/new-funding-to-support-children-with-special-educational-needs. But is it enough?
The devil is in the detail – only £250m of it is revenue, and it’s split evenly between 2018/19 and 2019/20. The bad news is that the DfE has taken its default position of distributing it on population, which fails to support the areas of highest need, as I showed in last month’s post on the high needs funding crisis. The government is systematically eroding funding for areas that need it the most.
The other £100m is capital funding to ‘create more specialist places in mainstream schools, colleges and special schools’. How much will the mainstream element be, and will it be true inclusion, or segregation? Will revenue funding enable this to be properly supported on an ongoing basis?
We’ll have to wait for the answers to all these questions. But we welcome the recognition that emergency funding is needed; it’s a start at least.
My last post focused on High Needs funding, so this month I want to return to core school funding. It’s clear that we now have to pin our hopes on the 2019 Spending Review for any improvement in grant; this will determine how much money schools will have from 2020 onwards.
The House of Commons Education Committee is continuing to conduct its inquiry into school and college funding, linked to the SEN inquiry. You can find out more here: https://www.parliament.uk/business/committees/committees-a-z/commons-select/education-committee/inquiries/parliament-2017/school-and-college-funding-inquiry-17-19/, where there is a link to the most recent evidence session on 27th November, on Parliament TV or in transcript form. The question is, will the government listen when the Committee reports?
New information on the state of school budgets
It seems like only yesterday that the government was predicting that schools needed to save £3bn between 2016/17 and 2019/20, as reported in the National Audit Office report ‘Financial Sustainability of Schools’ in December 2016 (here’s the link: NAO financial sustainability). Now we’re about to embark on the last year of that phase.
We’ve recently seen the publication of actual spending on education for 2017/18, which includes information about local authority maintained school balances at 31 March 2018. You can find this at: https://www.gov.uk/government/statistics/la-and-school-expenditure-2017-to-2018-financial-year. It includes a narrative analysis and a set of detailed data tables.
It’s not possible to compare the figures exactly from one year to the next, because some LA schools have converted to academy status. But we can draw some conclusions. For example, the number of LA schools reduced by 6.6% in 2017/18, but the total revenue balance reduced by 8.3%.
The following table summarises the main movement in surpluses and deficits:
The Guardian has provided an analysis of some other aspects of the data, at: https://www.theguardian.com/education/2018/dec/06/third-of-maintained-english-secondary-schools-in-the-red.
The DfE page already mentioned also contains a file showing school-level expenditure, which enables you to see whether individual schools balanced their budgets for 2017/18 or not. I’ve done a quick skim of this file, and found the following:
- Overall, 6,703 out of the total of 15,050 schools (44.5%) spent more than their income in 2017/18, i.e. incurred an in-year deficit.
- Within this, there are differences in the proportion of schools with in-year deficits between the sectors: 56% of secondary schools, 43.7% of primary schools and 41.1% of special schools
The data indicates the position is getting worse for many schools, particularly in the secondary sector. This is despite action already having been taken by a lot of them to reduce costs.
Of course, there is a problem with this information: we can’t compare it with academy balances. This isn’t only due to the timing difference of the financial year versus the academic year basis of the accounts. DfE’s publication of balances focused on academy trusts as the legal entity, rather than individual academies.
Recently, the National Schools Commissioner Dominic Herrington said: ‘We’re not on the verge of a funding crisis’, claiming that ‘If you look at the percentage of academies that have deficits last year, I think it was 5 or 6 per cent, it was a small number. It’s not on the verge of insolvency or bankruptcy.’ If you want to see the rest of his interview with Tes, go to: https://www.tes.com/news/exclusive-were-not-verge-funding-crisis-says-dfe-schools-tsar.
You’d think he would get his facts right. The published data he referred to only related to Academy trusts in deficit: https://www.gov.uk/government/statistics/academy-trusts-with-a-revenue-surplus-or-deficit-2016-to-2017. There are more academies in deficit than this, but they are part of trusts with an overall surplus, so are not obvious in the published commentary. We could do with reporting being on a more level playing field; this is rather misleading.
Another interesting tool appeared recently: constituency-level data on schools funding, published by the House of Commons library. It’s particularly useful because it presents funding levels in real terms (i.e. to take account of inflation) between 2013/14 and 2017/18.
Schools Block allocations per pupil for England across this four-year period have increased by only 3.8%, but many constituencies are showing real-terms reductions. You need to click to the second page to see individual school-level data. The tool is at https://commonslibrary.parliament.uk/social-policy/education/schools/constituency-data-schools-funding/.
The financial planning challenge
We talk a lot about strategic financial leadership in our books and blog posts. A fundamental part of this is financial planning. Academies and many local authority schools are required by the ESFA or their LA to submit three-year budgets. This isn’t only for the funding body’s benefit; it’s a tool that will enhance your journey towards financial sustainability.
But how do you know how much you will receive in funding over the next three years? This is the missing piece of the multi-year budgeting jigsaw; without an estimate of future grants, how do you know that your medium term spending plans are going to be affordable?
I often work with schools and academies in financial difficulty, and in some cases the root of the problem is that leaders haven’t considered how funding might change in the future. It’s mainly because they don’t know how to begin to forecast it. They are therefore caught on the hop when data or funding formulae change and they inevitably don’t take action early enough to prevent a deficit.
A deficit can occur very rapidly and easily, but it can take a long time to get out of it. In most schools, a huge proportion of the budget is tied up in staffing, where consultation and notice periods slow down the timescales for change.
Being in deficit dominates everything else; plans for improvement have to be tempered by what is affordable. The school is unable to invest in initiatives that would either enhance provision for its learners or would help to achieve savings in the long run.
Moreover, you will attract attention from your funding body, whether that is the local authority or the Education and Skills Funding Agency (ESFA). You will be required to construct a recovery plan and be subjected to regular monitoring visits to ensure you are on track to achieve it. If you are an academy, you will almost certainly see the withdrawal of delegation during this period, as ESFA’s published Financial Notices to Improve demonstrate. This will leave you unable to take important spending decisions without referring them to the ESFA.
What’s the solution?
To prevent a deficit and get your school budget on the right track, you need a high-level, broad-brush method of forecasting how much funding you’re likely to receive over the next three years. Given that no one provides you with multi-year funding forecasts, you need to find a way of achieving this yourself.
There’s a lot of pressure on leaders to be right, with an expectation of accuracy in your multi-year budget planning. But there are so many variables in the funding system that this simply isn’t possible. Because of the timing of the next review of school funding in the 2019 Spending Review, at present we have no way of knowing what decisions the government will take on the national pot from April 2020 onwards.
The introduction of the National Funding Formula (NFF) also brings complications. While local authorities still run their own local funding formulae, their decisions and those of the local Schools Forum will dictate how the grant is distributed between schools. Some are working towards the NFF and others aren’t.
But you can’t let the scale of the challenge put you off. There’s no magic money tree in sight right now, so you can’t afford to wait for a miracle to happen; that will only increase the risk of a deficit. It’s far better to control the things that you can influence, rather than waste your thoughts and time on the things you can’t control. If you haven’t looked at your future funding yet, then now is the best time to start.
Our suggestion is to use scenario planning in order to forecast your future funding. This is a helpful and flexible tool for presenting options that might happen in the future, in order to stimulate debate about how an organisation would respond in different situations and develop plans that prevent or address problems.
The technique has many benefits, but the main ones are:
- Demonstrating financial sustainability to funding bodies and interested partners;
- Highlighting uncertainties in your future funding – managing expectations;
- Opening up a debate about the assumptions underpinning your scenarios and how you would respond to different funding levels;
- Enabling quick wins, by having a ready-made strategy in place to take advantage of serendipitous events;
- Supporting school improvement by establishing your priorities for future funding;
- Creating a meaningful three-year plan of action rather than a box-ticking exercise.
How to forecast your funding
It’s important to keep the process at a high level, which will help to keep expectations realistic. When boiled down to its simplest form, your future funding really consists of two elements: the amount of funding per pupil and how many pupils you have.
The first stage is to think about what the range of possibilities might be for each of these. What’s the worst progression of funding per pupil and rolls that you might face across the next three years? What’s the best, and what would a middle way look like?
For per-pupil funding, your LA should have discussed their plans for the local formula with the Schools Forum (at least until DfE imposes direct funding in the ‘Hard NFF’, whenever that happens). The government has also published indicative information on the predicted impact of the NFF, although caution is needed in interpreting this. For pupil numbers, you’ll be able to use your local knowledge of families, demographic change and any plans for expansion by neighbouring schools.
Make sure you debate and test out the assumptions with colleagues to get their support. Record the reasons for your choices; you might need to come back at a later date and revise your options, as further information becomes available.
Then you can start to map the three options for per pupil funding against the three possibilities for rolls. Examine them to understand the differences between them, before selecting three of these combinations as the final best, middle and worst-case scenarios for your core funding, then add in other sources of funding such as Pupil Premium, nursery or post 16 funding, and SEN funding.
Debating which three final scenarios to choose might reveal some important issues about your knowledge and level of confidence in future pupil numbers or per-pupil funding changes. The idea is simply to achieve three scenarios from highest to lowest, so you can explore what you would need to do to balance the budget well in advance if any of these were to happen. This will help you to avert a crisis; having to take emergency decisions is not a pleasant experience for anyone.
The discussions you’ll have throughout this process are an effective way of getting engagement; people will have different views about what is important, and if they think it’s under threat, they may come up with really creative solutions that you might never have thought of. The process can strengthen relationships as everyone pulls together to try to identify a way forward in a considered, organised approach.
Using the scenarios as the basis for a multi-year budget
Once you’ve arrived at a final set of three scenarios, you can feed the funding into your budget software and compare your current multi-year spending plans against the funding forecasts. Does this produce a potential deficit in any (or all) of your scenarios? How can you respond if it does?
You might be lucky enough to see a surplus. Check first that your funding forecasts are realistic, and not over-optimistic, and that you haven’t missed out any areas of expenditure in your budget plan. If it’s true, consider how you can invest it wisely to achieve improvement in a value for money sense.
Once you know the extent of any savings that you need to achieve in order to produce a balanced budget for each of the scenarios, your review of the budget becomes much more meaningful. Don’t forget our second book in the series of school funding guides: ‘Leading a School Budget Review’. It’s available at Amazon: Leading a School Budget Review. It considers the cultural issues to address when leading a fundamental review of your budget, outlines a process to follow and provides a template for guiding the review in every area of your budget.
A blueprint for your funding forecasts
This blog post has only allowed us to skim the surface of what’s possible with this approach. If you want to know more about how to construct your forecasts, you’ll be pleased to hear that the next book in our series will be ‘Forecasting Your School’s Funding’, a guide to the whole process of scenario planning. It’s currently with our supportive team of beta readers, and we plan to publish it in January.
The book explains the impact of the National Funding Formula and considers the local authority and Schools Forum decisions that can affect your future funding. We then guide you in detail through every aspect of how to build your scenarios, importantly showing you how to make sense of all the available information to develop your assumptions for the model. This will inform your choice of percentage changes in funding and rolls over the three-year period. The book culminates in advice on the production of your school’s Financial Sustainability Plan, as a means of explaining to colleagues, your funding body and interested parties the ways in which you are preparing for the future.
For maintained schools, this approach will provide evidence of compliance with the relevant section of the School Financial Value Standard (SFVS). For established academies, this will be a huge help in completing your three-year budget forecast return (BFR) each July. For new academies, it will form the basis of your first In-Year Budget Return (IYBR) before you are required to complete the full BFR.
Readers who are experienced in Excel can skip the activities in the book and develop their own model using the principles that we explain at the start of each chapter. Those who prefer to be guided through the detailed setting up of the model will find comprehensive instructions for every step. The book will provide a link to download a pdf of screenshots from our sample model, so you can follow it along and check your own workings.
Following our process will enable you to evidence that you have made robust assumptions to underpin your plans for a sustainable budget or a recovery plan for an existing deficit. Missing out the funding forecasts leaves you with an aspirational budget plan that might not be achievable if the money doesn’t appear.
If you want to be kept informed about the launch of our book, go to our home page and click on the heading ‘Click here to receive our regular newsletter’ just above the picture of our books. You’ll also receive a run-down of government announcements and media news on the topic of school funding, with links, which saves you hours of trawling the internet to find out what’s going on.
We hope our new book will help you to take control of your financial situation and identify a way forward that maximises your chances of a sustainable budget. That’s the key to delivering excellent education for your pupils and achieving value for money. We are in challenging times, but a professional and robust approach will help you to survive.
We hope you have a lovely Christmas and a peaceful New Year, so that you can return at the start of 2019 feeling refreshed and ready to face the next set of challenges in this fascinating world of education. You have so much to offer the next generation.