High Needs Funding – Is it Fair?
The idea behind the High Needs National Funding Formula (NFF) sounded reasonable enough: stop using historic spending as a basis for providing funding, and introduce a formulaic approach. The principle was the same as that adopted for the Schools NFF. What could possibly go wrong?
Well, our view is that the way DfE has implemented the new High Needs funding system means it is simply not responsive enough to changes in need. In this post, we assess the impact of the final High Needs NFF compared to actual trends in expenditure and placements, highlighting why the government’s decisions could pose significant difficulties for some LAs and their schools.
We took an early look at this topic in a post on February 19th 2017, in response to the December 2016 consultation on the proposals for High Needs. Please refer back to that page for more detail on the current funding system for pupils with SEND and vulnerable learners and the structure of the High Needs NFF; there are minimal changes in the final decisions compared to the original proposals.
This post will look at the latest data on trends in the number and complexity of pupils with SEND (the major drivers of High Needs spending) and will test out whether the redistribution of funding through the NFF is likely to reflect cost pressures. We will use the final decisions on the NFF announced in September 2017. Some LAs will receive very high increases when the formula is fully implemented, but others will see only minimal additional funding, which is unlikely to be sufficient if current trends in expenditure continue.
The impact of the High Needs NFF decisions could affect all types of schools and academies. Even if you are a mainstream school it is worth reading our analysis, to understand why you might be expected to provide more support for those with SEND or who are vulnerable for a wide range of reasons, or might see some of the budget intended for schools diverted to cover unfunded pressures in this area of provision and services. For some reason, there hasn’t been as much interest in the High Needs NFF as in the Schools NFF, but the consequences could be just as significant.
Historic handling of High Needs pressures
Since the creation of the High Needs Block of Dedicated Schools Grant (DSG) in 2013/14, the allocation for each LA has essentially been frozen, apart from technical adjustments for system changes and recent small additions for population growth. Allocating funding on the basis of rolls doesn’t necessarily address the incidence of the most complex and high cost needs, which can be more random. Yet population has also been chosen as a significant indicator in the High Needs NFF.
Over the last four years, LAs have been allowed to move money from the Schools and Early Years blocks into their High Needs Budgets to cover pressures. This has not been easy, because per pupil funding for those blocks has broadly been static over the same timescale. To make this work, LAs have relied upon the goodwill of mainstream schools to give up some of their funding (via the Schools Forum) for this purpose. The result of this is that LA spending on High Needs has risen well above the amount of DSG provided, forcing DfE to realign the grant when preparing for the NFF.
In our earlier blog post, we covered the extent of these transfers up to 2016/17, but DfE has now done a further exercise to match up the baselines for the new system with LAs’ 2017/18 spending plans. This means we can isolate a single year’s worth of High Needs pressures that were identified when LA budgets were being prepared for 2017/18.
The following table shows the amount transferred in and out of the High Needs Budget by LAs, comparing the four-year cumulative transfer up to 2016/17 with that in 2017/18:
It is clear from this that substantial transfers are still being made into the High Needs Budget to cover cost pressures, and the amounts going out of this area have reduced significantly. DfE has stated there will be no more DSG updates to realign the grant with actual spending; the NFF will govern all future allocations. Under the new arrangements, up to 0.5% of the Schools Budget can be transferred to the High Needs Budget in 2018/19 with the permission of the Schools Forum, but DfE has indicated that this flexibility will probably be withdrawn from 2019/20.
While some of the extra £1.3 bn investment announced in July is going to the High Needs Block, sadly it will be a much smaller share of the extra funding than the Schools NFF. The additional funding has predominantly been used to establish a minimum increase of 0.5% for every LA, thus improving allocations for those that would have faced static funding in cash under the original NFF proposals. The minimum funding was originally going to be a cash figure, but will now be calculated on the basis of the number of pupils, to make some allowance for growth.
One other change to the High Needs NFF that may help slightly is that the £4k per special school pupil will be applied to more up to date data (October 2017). However, some LAs may need to reduce their reliance on special schools, so this may actually reduce allocations in the long term. The import and export (cross-boundary) funding factor will also be updated (to January 2018). Schools need to make sure they enter accurate records of pupils in receipt of top up to maximise their LA’s High Needs allocation for this factor.
How does the High Needs NFF impact on different LAs?
We have analysed the High Needs NFF results in a relatively simple way, to identify whether the reforms are targeting money to areas with the fastest growing demand-led pressures. This analysis does not make any judgements on whether LAs are being efficient; we have assumed that Schools Forums need to be persuaded of this when asked to support any movement of money away from school budgets to support High Needs pressures.
The following analysis assumes that a fair NFF for High Needs would show the highest gains going to LAs that are experiencing the greatest increases in spending as a result of demand-led pressures, all other things being equal. These would probably be among the LAs that have had to transfer substantial resources from other blocks to make up for historic under-funding of High Needs provision and services.
While it is clearly important to avoid rewarding inefficient practice, there should be an obligation to provide adequate funding in cases where there are clearly evidenced cost pressures outside of LAs’ control, especially in a highly-regulated system like SEND and vulnerable learners.
To check how well the High Needs NFF will target funding to needs, we will take a look at the increases LAs will receive when the reforms are fully implemented. We will compare these results with the total change in planned spending across 2016/17 and 2017/18 (i.e. the extent of any transfers).
In the following table, if the biggest increases in the NFF matched the highest transfers into the High Needs Budget, we would expect to see a cluster of LAs towards the left in the top two or three rows. We would also expect lower NFF increases for LAs to the far right in the bottom two or three rows, since they do not seem to have the same cost pressures.
In reality, there is a fairly random pattern which suggests no direct link between the NFF and the need to spend, particularly among the majority of LAs that will receive between 1% and 5% extra in the NFF. This shows that LAs with significant cost pressures are not guaranteed to receive extra money in the High Needs NFF; most of those with a rise in spending greater than 20% receive less than 5% extra from the NFF.
A couple of examples from each end of the NFF table will highlight the disconnect between the funding reform policy and levels of need/expenditure:
- Bath & NE Somerset had a High Needs DSG allocation of £16m in 2016/17, and has increased spending by £5.3m and £0.6m in the last two years through transfers from the other blocks – a total increase of 36.2% (the highest in the country). Yet their High Needs NFF allocation will only increase by 1.5% under the pure formula.
- Calderdale had a High Needs DSG of £19.8m in 2016/17 but was spending £2.8m less than this, and over the last two years has removed 14% from its High Needs Block and passed it to the other blocks. Yet it will gain an extra 11.3% from the High Needs NFF.
It should be noted that overall, the national gain in the pure NFF for High Needs is 4.6% (this is on current data, but there are fewer updates than in the Schools NFF). However, the national transfer into High Needs Budgets across the last two years is 7.1%, so we are already starting from behind. This mirrors the Schools NFF, where the increased funding will not reinstate real terms cuts from the last two to three years. It’s also worth emphasising that the pure formula won’t come in immediately – gains are capped at 3% for the first two years and some LAs won’t see their true increase for some time beyond that.
We are confident that LAs with high gains from the NFF will be able to put the additional funding to good use. The issue is that due to insufficient funding being provided to handle genuine cost pressures and the inability of the NFF to target funding properly to needs, other LAs with considerable demand-led pressures will only see a marginal increase. These are only simplistic calculations, but they do suggest some shortcomings in the design of the NFF.
What’s behind the cost pressures?
Published statistics (SR48/2017) show the pattern of High Needs expenditure from Section 251 budget statements for each year between 2014/15 and 2017/18. This was a period when funding was more or less frozen in cash terms, i.e. real terms reductions, yet there is a steady increase both in the total amount and per capita spending.
Place-led funding is omitted here; funding allocations for SEN units and resource bases in mainstream schools are hidden away in the line for mainstream school budgets so cannot be extracted. We hope that DfE will change this in their review of the Section 251 format for 2018/19. Below we will show you the change in the proportion of pupils with SEND who are educated in specialist provision, which provides some context for this aspect.
There are two main aspects to the cost pressures that LAs have experienced:
- Rise in demand – increases in the number of pupils with SEN or excluded from school
- Increase in complexity of need, requiring more specialist types of provision
- Rise in demand
First let’s look at the numbers of pupils with SEN in published statistics starting from 2013 (the first year of the new high needs funding system), up to January 2017 (SFR37-2017).
What does this tell us?
- The percentage of all pupils with SEN has levelled out after a gradual reduction over the last four years. Because of the general increase in rolls, this means that the number of pupils with SEN has risen from 1,228,785 in January 2016 to 1,244,255 in January 2017, an increase of 15,470 (1.3%).
- 5,380 more pupils had an EHCP or statement in January 2017 than in January 2016, compared to an increase of 7,415 in the previous three years.
- For the first time since 2010, there was an annual increase (+10,090) in the number of pupils with SEN who did not have an EHCP or statement (i.e. were classified as SEN Support). This is a small increase but the trend is one to watch. Some of these pupils might still receive substantial funding from the LA’s High Needs Budget, depending on local practice.
Exclusions are also rising, as shown in the latest statistics (SFR35/2017). This means that LAs are taking responsibility for more pupils from day 6 after a permanent exclusion. This is likely to have caused an increase in the cost of alternative provision. While LAs claw back funding from schools that exclude, it by no means covers the cost of placements in PRUs and other AP.
2. Increase in complexity of need
Adjusting funding to allow for general population increases will only get us so far; it assumes that all pupils with statements or EHCPs cost the same to support. They don’t – within the overall total, more pupils are being diagnosed with specific types of SEND which often require higher cost specialist provision and support.
SEN statistics for January 2017 (SFR37-2017 Table 8) show the following changes in types of need since January 2016. These statistics exclude independent schools, so the totals differ slightly from the overall numbers in the section above on the rise in demand.
- The top three increases for specific needs are Speech, Language and Communication (+12,620), Autism Spectrum Disorder – ASD – (+8,391) and Social, Emotional and Mental Health (+1,863).
- Hearing, visual and multi-sensory impairment together increased by nearly 1,400 pupils, and there were 5,219 more pupils without a specialist assessment of a type of need.
- The number of pupils with Moderate Learning Difficulty reduced significantly (-13,914).
- This suggests a net increase in complexity of need.
- The proportion of pupils with ASD who are educated in special schools rose from 25.6% to 26.9%. This suggests the increase in ASD is at the higher end of the spectrum.
The table below, taken from the DfE’s ‘main text’ document for SFR37-2017, shows the trend between 2010 and 2017 for the proportion of pupils with EHCPs who attend different types of provision. There is a significant rise in the percentage educated in maintained and independent special schools (the latter potentially resulting in much higher costs).
This suggests that needs are becoming more complex and inclusion in mainstream schools is less likely. To put this into context, pupil numbers in maintained special schools increased by 4,732 to 112,114 in January 2017 compared to a year earlier. There is also a clear and steady reduction in the proportion of pupils with EHCPs who attend secondary schools.
Variation in planned and actual expenditure
There can be a significant difference between what an LA plans to spend and what it actually ends up spending, simply because the system for SEND and vulnerable learners is founded on case work and decisions for individual pupils can be taken throughout the year. The budget is for a financial year running from April to March, and LAs have to determine how much to allocate to High Needs in the December or January before this, in order to set the pot for school budgets.
The main challenge is that there will be another cohort of pupils either starting school or making a transition in the following September, and decisions on their EHCPs don’t have to be made until mid-February. So any change in the new academic year, or movement of pupils with high needs into or out of the LA throughout the whole year, can play havoc with an LA’s High Needs spending plans.
The 2016/17 Section 251 outturn statement is not yet available, so we cannot verify the anecdotal evidence from a range of LAs that this was the year when SEND pressures really started to bite. However, the Association of Directors of Children’s Services (ADCS) undertook a survey in September 2017 to develop a better understanding of the pressures on high needs funding. This provides some up to date information about the situation in different LAs.
You can read the report at http://adcs.org.uk/assets/documentation/ADCS_High_Needs_Funding_Survey_of_ADCS_Members_October_2017.pdf. Out of 152 LAs, 85 (56%) responded, covering all nine regions, and representing London boroughs, unitary councils and county councils. The table below shows the difference between the DSG received and the actual expenditure in 2016/17 for those LAs that responded:
Three main approaches were identified by respondents in managing the £130m shortfall:
- Using DSG reserves – a short-term strategy, as they can only be used once;
- Moving money from the other two blocks – but as already noted, DfE has stated this flexibility is unlikely to continue after 2018/19 (when transfers are limited to 0.5% of the Schools Block);
- Carrying a deficit forward – this would be the first call on the next year’s DSG.
This all adds up to a significant struggle by LAs to keep on top of their High Needs budgets. The additional funding has avoided funding reductions, which would have been disastrous. But the wide range of results, from +0.3% to +23.1% in the pure High Needs formula, suggests the DfE hasn’t got it right, especially considering the lack of correlation with trends in SEND incidence and expenditure.
Options to address under-funding
All LAs have now been asked to conduct a review of their provision and services in this area to find efficiency savings. DfE provided a one-off grant in 2016/17 to help with capacity to conduct the reviews, but the ability to implement recommendations will be crucial if LAs with a minimal increase in their High Needs funding allocations are to avoid significant financial problems.
Statutory services such as SEN teams and Education Psychologists play a key role in decision-making for SEND and are therefore critical to achieving changes to bring budgets under control. These services have to be funded from councils’ own resources, which have been under severe pressure from reductions in general government grants. This could pose a further risk to the achievement of savings.
An added challenge is that the pace at which change can be made in provision for pupils is relatively slow, because of the statutory requirements for SEND. The main opportunities are for newly diagnosed pupils and points of transition. The recent trend in higher diagnosis rates for very young children, especially in ASD and speech, language and communication, may cause long-term pressures which will continue, unless changes can be made in their placements at transition points.
What do Ministers expect will happen if, despite every effort by LAs to be more efficient, demand-led pressures continue above the level of funding and transfers are no longer permitted from other parts of the DSG? LAs have no choice but to provide the funding required by the statutory process.
It seems inevitable that schools of all types will be asked to absorb more costs, prove their efficiency and be challenged on overall value for money. Within school budgets an element is labelled as a ‘notional SEN budget’, from which the first £10,000 of total costs have to be paid for pupils with SEND. The use of this funding may come under closer scrutiny.
If this strikes a chord, please share the post on social media and tell your colleagues about it – we need to draw attention to the risks that the High Needs NFF approach will bring, before it causes even more pressure on school budgets.