National Funding Formula Revealed
After a considerable delay, the Stage 2 consultation on the National Funding Formula (NFF) was published on 14th December, just as we were all gearing up for Christmas. The classic pattern continues – DSG allocations were issued on 20th December, ensuring that LA officers had to try to fit in budget work amid the turkey and Christmas pudding to meet all the deadlines.
If you want a summary of the content of the announcement, to avoid having to read through around 400 pages of DfE’s narrative, sign up for our free funding information on our homepage – a paper will be ready shortly. Existing subscribers will receive it automatically.
In this post, we will be exploring some issues raised by the Stage 2 consultation and recommending caution about the illustrative values for the Schools and High Needs NFF factors.
Stage 2 – Schools NFF
As we predicted, despite the delay in implementation, local formulae will only continue up to 2018/19, and direct funding by DfE (the ‘hard’ NFF) will commence in 2019/20. It was clear the government would want to see this policy implemented before the next General Election.
Overall, the Schools Block NFF structure has remained the same as in the first consultation, except that the pupil mobility factor will continue. This is good news for schools that are trying to manage high turnover of pupils. However, the amount included in the NFF for mobility won’t be updated for data changes; it will be the amount paid out by LAs in 2017/18, while the indicator is reviewed.
Looking at the money that’s gone into the Schools Block NFF, one key item is the transfer of £92m from the high needs block. Pupils in SEN units and resource bases will now receive formula funding from the Schools Block. This is estimated at the first £4k of their current £10k place-led funding, but some primary schools with units might not receive this much through the NFF – a point they may want to make in their consultation response. As a result of this change, LAs will now only pay the difference of £6k per place from 2018/19, although they can still fund empty places at £10k.
An extra £184m (0.6%) has been added to the Schools Block for year 1, growing to £345m extra (1% in total) by the time all schools are on the formula. This is described as ‘above flat cash per pupil to allow gaining schools to gain up to 3%’. So it won’t provide a real terms increase for those losing out from the NFF.
Remember the illustrative allocations are calculated as if the NFF had been implemented in 2016/17. They don’t take into account pupil number increases, which might bring more funding for some schools but also a higher spending requirement.
Decisions on formula factors
Many commentators were expecting a model based on national averages, but Ministers have thought more strategically and considered the most appropriate balance to support attainment.
The key area of change is a movement away from basic entitlement (-£1.1 bn) into deprivation, low prior attainment and EAL. This is a combination of two issues. Firstly, deprivation funding has been extracted where it is currently included in the basic entitlement in some LAs with evenly-spread disadvantage that does not need differentiation.
One word of caution – Figure 5 on page 23 of the main Schools Stage 2 paper seems to double count the Ever6 funding in the figures for current FSM. It is only £440 per FSM pupil in the technical note and in the Excel files. We’ve submitted an enquiry about this, as Figure 5 could be misinterpreted.
Secondly, Ministers want to cater for the ‘Just About Managing’ families by giving priority to the Income Deprivation Affecting Children Index (IDACI). Low prior attainment is also seen as a strong indicator of children needing extra support.
The other area of adjustment is a reduction in the lump sum to £110k. This has supported both the movement of money to pupil-led factors and an increase in the sparsity pot to provide allocations to all qualifying rural schools (as some LAs do not provide this funding).
Protection of losses and capping of gains
One welcome feature is an absolute floor so that no school can lose more than 3%. On top of this is the continuation of the Minimum Funding Guarantee at minus 1.5% per pupil per year. Those gaining will see their increases limited at 3% in 2018/19 and 2.5% in 2019/20.
We have to advise you to treat this information with the greatest caution:
- The illustrative values are only for consultation purposes and could change when final decisions are announced in summer 2017. Some lower funded areas are already complaining that their expected increases haven’t materialised, so there is likely to be a fair amount of lobbying.
- The actual values will depend on the October 2017 census data, whereas the illustrative values are based on October 2015. DfE’s budget is fixed and they can’t take the risk that demographics will cause a funding pressure, so final decisions will have to take the latest information into account.
- In 2017/18 and 2018/19 LAs will still operate a local formula. There is no guarantee on whether LAs will work towards the NFF before direct funding comes in or on how they will interpret that brief. So schools will still be dependent on LA decisions by local politicians – as will academies, as their budget share element of GAG is reliant on the local formula.
- Schools need a medium term financial strategy over 5 years and there is no certainty beyond 2019/20. Anything can happen with a new spending review period and a General Election. Affordability will be reassessed each year including the MFG and capping limits.
- LAs will still be allowed to move money from the Schools Block to address pressures in SEND. This could affect the available formula pot for your area up to March 2019. If you are producing your own estimates of per pupil funding, you can use local knowledge to allow for the likelihood of this happening.
- Relying on one set of figures from DfE is not advisable – you need a back-up plan.
Stage 2 – High Needs NFF
The welcome news from the High Needs NFF is that no LA will lose any cash. Gains will be capped at +3% in both 2018/19 and 2019/20. But the cash floor factor is fixed at 2017/18.
The structure of the High Needs NFF is much as expected, but the weightings of the factors are interesting. There are three elements reserved before the NFF proxy factors come into play: a basic entitlement for places in special schools, an historic spend element, and a fixed pot for hospital education. These three account for 54.8% of the national High Needs Block quantum.
The basic entitlement for special schools is set at only £4,000 per place, compared with the £10k per place that LAs have to pay. There will be a time lag on this; it will use the January 2017 census for financial year 2018/19 allocations. So the bulk of the funding for any increase in placements will need to be found from the additional needs element of the formula.
However, after the initial reserved elements noted above, half of the remaining pot for the NFF formula (22.6% of the overall pot) is to be given out on the basis of population, which does not target funding to needs. It may account for some low-level SEND, but is unlikely to cover the incidence of highly complex, high cost needs.
So after deducting 54.8% for the reserved elements and 22.6% for population, the additional needs element only represents 22.6% of the total available. This has to be spread between existing specialist placements/top ups for SEND pupils in mainstream and new cases. It doesn’t sound as if it will go very far; unless your LA is seeing an increase in its High Needs allocation, it won’t receive anything extra for new places.
The DfE’s baselining exercise compared actual expenditure by LAs in 2016/17 with allocations of grant to the individual blocks. This exercise showed that 107 local authorities had moved a total of £364m into the high needs block, which is around 8.5%. So there has already been a significant amount of money moved out of school and early years budgets to support extra places in specialist provision; this is now in the baseline for High Needs.
The DfE has recognised that there are pressures in relation to SEND, but has decided that the solution to this is that LAs can still transfer funding from school budgets into the High Needs Block. This wasn’t expected; Stage 1 indicated the Schools Block would be ring fenced. LAs will now have to get agreement to it from a majority of schools as well as the Schools Forum.
What if schools refuse a transfer, as is likely in areas suffering losses from the Schools Block NFF? The LA can’t refuse to make provision for the children with SEND. Mainstream schools will probably have to absorb more costs, so that resources can be targeted at those with the most complex and severe needs. DfE has promised capital grants to open new special provision but won’t fund the revenue implications.
The Stage 2 consultation devotes several pages to the topic of LA strategic reviews of high needs provision, for which some one-off funding is being provided in 2016/17. It’s almost as if some distraction was needed from the thorny issue of the sufficiency (or lack) of funding.
It is right to expect LAs to keep SEND under review, and everyone should take up the challenge to improve value for money. It should be no different to mainstream education in that respect. However, it is very difficult to achieve meaningful benchmarking when needs are so individualised and the profile of specialist provision can be so different.
For example, there isn’t much transparency around the top up rates paid to providers. It is almost impossible to compare funding for one child with complex needs with another in a different LA.
The pressure on schools to improve standards is making it increasingly difficult for schools to be inclusive. In some areas, there is a doubling of requests for assessment and particularly significant increases in autism diagnoses. There has recently been some speculation on the link with behavioural difficulties being removed as a category for education health and care plans. Medical advances are resulting in more preterm births, as early as 23 weeks’ gestation, but sadly many have very complex needs and physical disabilities.
It appears that in some areas the concentration of hospital specialisms can impact on the number of special schools. Parents of children needing regular hospital treatment for long-term conditions will often move into the area, knowing that there will be expertise and specialist facilities to support their children’s education. Such areas often become regional centres of expertise. The DfE’s intention to commission research on the links between types of provision, costs and outcomes is welcomed and the results will be eagerly awaited.
While we’re mentioning health, it’s a good place to point out there is a huge amount of variation across the country in the extent to which Health partners make contributions to the cost of providing medical related support for children with SEND. Many schools can provide evidence that they are subsidising the cost of supporting children’s medical needs, and staff are being asked to carry out personal care and certain types of treatment; the boundary between medical and educational reasons seems blurred and this must surely bring risks.
It must be possible for the Department for Education and the Department of Health to work out a better system, to ensure that some areas are not penalised because of the reluctance of their Clinical Commissioning Group or Health Trust to contribute their fair share.
Post 16 SEND
The high needs system Is still disjointed across the 0 to 25 age range. There were many comments in the responses to Stage 1 about the lack of coverage for 16 to 25-year-olds in the High Needs NFF. From 2017/18, EFA’s funding for FE specialist places is being transferred into LA High Needs budgets. EFA will then recoup funding for places in FE provision on the basis of the annual place return.
However, this relies on agreement between the LA and the provider on the number of places required. If this isn’t possible, the rules say that places will be funded on the provider’s previous ILR return. Where the LA says fewer places are required there is an incentive for the provider to refuse to agree, because their funding will be preserved. Then the LA will have to pay for places it doesn’t need. That’s like having to pay at the checkout for goods that you don’t want, leaving insufficient money to go to the next shop and buy the things you need.
Responding to the consultation
It was disappointing to see that only around 1000 people responded to the Stage 1 consultation on high needs. This was much lower than the schools’ consultation. Many more people need to respond to Stage 2 if they have concerns. The deadline is March 22nd. If you sign up for our free funding information, we’ll provide some suggested points for responses in the coming weeks.
Education Services Grant
There is another threat to school budgets which not all schools might be aware of: the removal of General Education Services Grant. This is allocated to LAs for central functions that they undertake for their maintained schools, and to academies that carry out the same functions themselves. There are two issues, one for academies and one for LA maintained schools, but they are essentially two sides of the same coin.
Academies will see their ESG taper down between now and 2020. Around £62m was paid in protection in 2015/16 against reductions in the rate of ESG, linked to the time when the predecessor grant (LACSEG) was based on individual LAs’ spending. Assuming this protection is also being removed, academies will all face different levels of cuts during this period.
LA maintained schools will have a similar problem – they will face a cost pressure. The General ESG for LAs will be withdrawn completely from September 2017 but they will be allowed to ask their maintained schools to cover the shortfall, as de-delegation. It will be a decision by LA school representatives on the Schools Forum which is binding on every school. This decision has to be taken before the formula is submitted to DfE on 20th January.
NAO report: Financial Sustainability of Schools
In an interesting piece of timing, on the very day the NFF Stage 2 consultation was published, the National Audit Office published a report ‘Financial Sustainability of Schools’. It can be downloaded from https://www.nao.org.uk/press-release/financial-sustainability-of-schools/.
The NAO report examined whether the DfE was well placed to support schools and ensure that by 2020 schools will have the skills, capability and tools to manage pressures on their budgets without affecting their ability to deliver education to the required standards.
The NAO defined financial sustainability as a state where ‘schools can successfully manage activity, quality and financial pressures within the income they receive’. Overall, it found that the DfE cannot be sure that schools can make the necessary savings in ways that avoid damaging educational outcomes. The overall findings were damning: ‘Until more progress is made, we cannot conclude that the DfE’s approach to managing the risks to schools’ financial sustainability is effective and providing value for money’.
The NAO found that the DfE’s planned cash increase of 7.7% between 2016 and 2020 for Schools and High Needs DSG converts to an increase in funding per pupil of only 1.3%. Schools will need to find around 8% in savings (£3bn nationally) by then to balance their budgets. The report states that the DfE has not communicated this effectively to schools, and has not completed its work to help schools make significant procurement and workforce savings. Neither has the DfE assessed the financial impact on schools of its policy changes, such as withdrawing Education Services Grant. The redistribution of funding in the NFF will also have an impact on the ability of some schools to make savings.
So now we have a better idea of the direction of travel. But please bear in mind the caveat about the meaning of the illustrative allocations, and do your own work to consider what it might mean in the context of your local circumstances. Don’t reinvent the wheel – think about using our product ‘A Helping Hand to Secure a Sustainable Budget’ (available from our website).