School funding at the crossroads
Now that the National Funding Formula (NFF) has finally arrived in the form of real funding allocations, the impact is starting to be felt. I’ve been speaking at national conferences and regional events lately, and many of the delegates have highlighted their struggles to set a budget, even schools that have managed to build up reserves in the past. It’s clear that even for those gaining from the NFF, the extra funding isn’t enough to compensate for the last two to three years of unfunded pressures, so anyone receiving minimal increases or even a reduction is clearly facing a mountain of a task.
ASCL recently published the findings from a survey which elicited views from 238 school business leaders (see it here). There is a link to the full results at the bottom of the article. Half of the leaders who responded said they were running an in-year deficit, and 60% predicted they would be in deficit in the next financial year.
Yet every time someone complains that funding for schools is insufficient, the government trots out its mantra: ‘there is more money for schools than ever before’. With a sustained increase in pupil numbers, we’d hope so – but the sector knows it is not enough to cover all the cost pressures. Blogger Mike Cameron has dissected the DfE’s response to the ASCL survey in a post entitled ‘Nine Lies’ which you can read here.
If there’s plenty of money around, then why is the Education Select Committee holding an inquiry into school and college funding? The Committee wants to find out if there’s a better way forward rather than lurching from one Spending Review period to another, and is asking how much should be allocated to the sector. Now that’s an opportunity we shouldn’t miss, don’t you think?
The next Spending Review (SR) starts in April 2020, which is why DfE can’t provide any information on funding beyond 2019/20. The timing of this inquiry is important, given that government departments will already be starting the warm-up to the race for resources from the Treasury for the next SR period. If there’s to be a better way of getting resources to the education sector, this is the time to get it agreed.
We sent a draft inquiry submission to our newsletter subscribers last week; you can sign up for this and future newsletters on current funding topics via ‘Click here to receive our regular newsletter’ on our homepage. Our draft provides a detailed set of comments and suggestions for how the different aspects might be improved, and you are free to take elements from it for your own responses – if Members receive a huge volume of submissions, they might get the message. We’d advise you not to submit it unaltered though, as multiple copies might be discounted.
Here are our headline themes under each of the four questions as a taster:
What the Department for Education’s priorities should be for the next Spending Review period as they relate to schools and colleges
- The fundamental question for the next SR period and beyond is what role the government expects schools and colleges to perform, in order to fund them appropriately to do it. DfE should either expect schools and colleges to provide a core education and ensure statutory services have the capacity to do the rest, or else schools and colleges should be funded properly to provide and/or commission support for physical and mental health, social care functions and early help.
- The DfE must move to transparent, evidence-based policies, underpinned by a firm understanding of what works and how much it costs. New burdens must be funded in full.
- A high priority must be attached to achieving stability of funding and communicating the government’s future intentions across a period that allows schools and colleges to produce genuine and realistic medium-term financial plans.
- Putting High Needs funding on a stable footing must also be a high priority.
- DfE needs to reassess how to create the right financial incentives for schools and colleges to cater for all aspects of pupil characteristics, aligned with an accountability framework that doesn’t penalise schools which are highly inclusive.
- It is absolutely crucial that a new and consistent understanding is achieved of what all the Health bodies are responsible for in relation to High Needs costs.
- Every area of DfE’s own spending must be scrutinised and minimised, to get more funding to the front line.
- The Spending Review process needs to address teacher recruitment and retention, while helping schools and colleges to achieve sufficient capacity and funding to enable all staff to access appropriate training so they can tackle the current and future challenges.
- Capital funding also needs to be prioritised (i.e. not raided to supplement the revenue settlement, as DfE has done to find part of the extra £1.3 bn for 2018/19).
Whether the spending review cycle is the best mechanism for determining overall expenditure on schools and colleges, and what that level should be
- The spending review cycle is not the best mechanism for determining school and college expenditure requirements.
- The level of funding must provide a genuine real-terms increase to cover cost pressures as well as extra pupils.
- The Schools Block of Dedicated Schools Grant needs extra funding for transition towards the pure NFF, in order to direct funding more quickly to previously under-funded schools.
- Where capital funding is available for particular types of provision (e.g. SEND capital funding), the revenue settlement should provide sufficient revenue funding to sustain the future ongoing costs.
- DfE needs to address some key problem areas that are causing financial difficulties in schools because they take up disproportionate amounts of the available funding (e.g. PFI, Apprenticeship Levy, and for academies, MIS licensing and LGPS contributions).
The effectiveness of targeted funding such as the pupil premium, and its relationship to core education funding
- As long as schools remain on a trajectory towards the NFF, i.e. not on the pure formula, there would seem to be a case for retaining the Pupil Premium as a separate fund. Merging it with the NFF would risk considerable instability of funding for vulnerable learners.
- We have no wish to return to the days of multiple ring-fenced grants, all with different eligibility criteria and outcome measures.
The practical implementation of the national funding formula
- A medium-term funding approach is needed to guide schools in the likely levels of transition towards the NFF, regardless of Spending Review periods.
- An early review is required of the High Needs NFF to ensure that it provides a fairer distribution of funding in line with changes in needs.
- In preparing for the Hard NFF, DfE should reassess whether Multi Academy Trusts should still be able to pool and redistribute General Annual Grant and reserves. If so, LAs should have the same ability in respect of LA maintained schools.
- A decision should be made on how savings within the Central School Services Block (CSSB) will be treated from 2019/20 onwards, as historic commitments unwind. There will be little incentive for Schools Forums to reduce expenditure if it will be taken centrally by DfE or redistributed nationally.
- Care must taken to avoid volatility and detriment when deciding how historic spend items within the Schools Block are to be converted into NFF factors.
- The Early Years funding arrangements for nursery schools must be reviewed urgently to prevent closures of good and outstanding provision.
What has actually happened to school funding in 2018/19?
We are intending to add some facts and figures to support our own response to the Education Select Committee. I realised a while ago that it wasn’t possible to identify the real change in per pupil funding for the Schools NFF across all local authority (LA) areas. The per pupil statistic is an important aspect, as it cuts through the noise about pupil number changes. It can be used to test out the real-terms changes in funding, as part of schools’ forward projections of their available resources. It is also the basis of the funding guarantees and limiting (capping) of gains.
Although we have had a few clues along the way, the government hasn’t been entirely transparent in its claims that all schools will ‘attract’ an extra 0.5% per pupil in 2018/19. By this, it means that in the grants to LAs, it has allocated at least an extra 0.5% per pupil for every school. However, as the funding is still distributed via a local formula, under DfE rules which still allow a reduction of 1.5% per pupil and local decisions on capping of gains, it’s entirely possible that individual schools might not get that result. On the other hand, many schools have gained significantly more than 0.5% per pupil from the NFF.
Regular readers of our blog will know that the 0.5% ‘guarantee’ only actually applies to the factors within the NFF, and that we have identified the main reasons why LAs might not have been able to replicate the NFF, even if they wanted to:
- In addition to the NFF factors, there is another pot which DfE awards at LA-level based on historic spend in 2017/18. If actual costs are known to be higher in 2018/19, this will eat into the extra 0.5%. The areas with a cash freeze are rates, split sites, some exceptional factors, pupil number growth and pupil mobility. PFI costs have been uplifted by 3.8%.
- Schools Forums may have given LAs approval to transfer up to 0.5% of the Schools Block allocation to the High Needs Budget, to cover cost pressures.
The problem is that the figures have been presented in a variety of ways, based on different data and covering different components of the funding system.
The final decisions published in September provided a percentage change in per pupil funding at individual school level, but this only related to the NFF factors, and excluded the historic spend factors which are only available at LA level. By showing an increase of at least 0.5% for every school, this raised expectations which might be dashed for the reasons mentioned above.
The DfE has said that the starting point for pupil numbers in the baseline is the data in LA returns for the 2017/18 funding formula, plus the SEN unit/resource base pupils for whom funding was transferred into the Schools Block in 2018/19 (they now qualify for core funding, and place-led funding from the High Needs Block has reduced accordingly, from £10k to £6k per place). Any pupils for whom reception uplift was previously paid have been deducted.
As I couldn’t find the SEN unit/resource base pupils anywhere in the published information, I asked DfE for this data aggregated at LA level and they provided it. This allowed me to do my own calculation of the per-pupil baseline to compare with the overall total of per-pupil funding awarded to each LA. I need to put a caveat on this calculation, as it’s possible that for the basic rolls, DfE may have used an element of the LA returns that isn’t in the published data. I’ve used the basic entitlement pupil data for primary, KS3 and KS4 as the starting point.
I’ve verified the 2017/18 Schools Block baseline for each LA using the NFF Summary Table published by DfE in September 2017, and replicated DfE’s pupil number calculation for the per pupil baseline. For 2018/19, I used the DfE’s published Schools Block allocations file which separates out the NFF factors from the historic spend allocations. I added together the primary and secondary pupils from the same file, averaging out the funding per pupil to match the basis of the 2017/18 baseline.
What does my analysis show?
In considering the NFF results, we need to bear in mind that the figures do not represent the pure formula, but the 2018/19 transitional stage, and that they provide an average per LA. Within each LA’s decisions on the distribution of funding, there will be schools that don’t do that well, sustaining a loss of up to 1.5%, and others that do much better; some LAs might not need to cap gains. As we don’t know the individual school allocations yet, I thought that looking at LA-level average changes would be helpful as an early indication of what the reforms have meant in the first year.
My main findings are:
- Overall, in cash terms an extra £1.075bn, i.e. 3.3%, has been added to the Schools Block pot in 2018/19 compared to the adjusted 2017/18 baseline.
Some of this had already been committed in the current Spending Review up to 2020, to cover projected pupil number increases, so it isn’t fully dependent on the extra £1.3bn announced for the Schools and High Needs Blocks across 2018/19 and 2019/20. It also includes a 3.8% uplift for PFI contractual inflation, which might not cover the full increase in some areas.
- However, the cash changes vary across local authorities, from a loss of 0.2% to a gain of 8.4%. This is a mix of NFF outcomes and pupil number changes.
- Levels of funding per pupil have changed from an average of £4,526.60 in 2017/18 to £4,629.92, an overall percentage change of 2.3%. The outcomes across LAs vary between an increase of 0.6% and 7.1%. This is mainly due to NFF outcomes.
- The difference between the cash change and the per pupil change is largely due to an increase of almost 71.5k pupils nationally, or 1%. Within this net figure, 17 LAs experienced a reduction in rolls overall, 11 of which were London councils. Overall, the change in pupils ranged between a decline of 1.2% and growth of 3.2%.
- The gap between the lowest and highest per pupil funding across the LAs has narrowed, as shown below. This is to be expected, since the purpose of the NFF is to achieve convergence for similar schools by lifting up underfunded schools and reducing higher levels of funding. It could take a very long time for all schools to reach the pure formula, unless there is a serious injection of cash to speed up the increases for underfunded schools.
- There are some interesting regional differences in the movement of funding between 2017/18 and 2018/19, a combination of the NFF outcomes and pupil number changes.
- On average, 97.3% of 2018/19 Schools Block allocations per pupil comes from the NFF factors, and 2.7% from historic spend factors, which we’ve already seen is an area of risk in terms of not delivering the 0.5% NFF minimum increase. The historic spend factors range from 0.7% to 9.8% of the total Schools Block funding received. Those at the higher end of this range face a higher risk of turbulence in their allocations as DfE starts to roll out a formulaic approach for these items from 2019/20 onwards.
- I tested the impact of removing PFI costs from both the baseline and the 2018/19 results, since these are unavoidable commitments for the schools in the 86 LAs concerned. Overall this made a minimal difference to the LAs involved (at most a reduction of 0.1% in the cash and per pupil outcomes), and no difference to the national percentage changes.
What this means for schools
Now we know what the LA-level allocations are in terms of the per-pupil change, i.e. an average increase of 2.3%, how does this relate to the pressures schools are experiencing?
The Institute of Fiscal Studies (IFS) has highlighted that after a sustained period of rapid increases in school funding, the period 2010/11 to 2015/16 brought a cash freeze in per pupil allocations. This led them to project a real-terms reduction in funding of 6.5% between 2015–16 and 2019–20. This is total funding, i.e. ignoring the redistribution between schools as a result of the NFF, but it was before the extra £1.3bn was added to the Schools and High Needs Blocks.
The average 2.3% increase per pupil may not be enough to cover pay awards, the Apprenticeship Levy, and incremental drift, let alone catch up with recent years of unfunded pressures. The National Audit Office report ‘Financial Sustainability of Schools’ estimated pressures in 2016/17 and 2017/18 at around 5.3% as the figure below shows, increasing to a cumulative 8.7% by 2019/20. At present we still don’t know what the increase in the TPS employer contribution rate will be in 2019/20.
As the IFS report said, the main challenge for the school sector will be implementing substantial reforms to school funding at the same time as schools face real-terms cuts for the first time in 20 years. The reality is that for some schools, an increase of 2.3% will not be realised.
As the Education Policy Institute’s latest report, ‘School Funding Pressures in England’ reveals, an increasing number of schools and academies are going into deficit. Over the four years up until 2016-17, the proportion of LA secondary schools in deficit nearly trebled, expanding to 26.1% of all such schools. The proportion of LA primary schools in deficit stayed at around 4% per cent until 2015-16, but in 2016-17, it increased to 7.1 per cent. The ASCL survey indicates things will get much worse when 2017/18 balances are revealed, although this information isn’t published for academies.
These are difficult times for schools. So much effort is being wasted by school leaders, ESFA and LAs on creating and monitoring recovery plans, when this capacity could be redirected to improving outcomes for learners if sufficient funding was provided to the front line.
The actual LA formula decisions and allocations won’t be published until much later in the year, so it will be some time before we can really see the outcomes for individual schools. But hopefully my analysis provides a useful first step towards understanding what’s happened in the initial phase of the NFF. Let’s hope that the Education Select Committee receives so many considered submissions that it gets a very strong, clear message that funding needs to catch up with cost pressures if schools and their pupils are to thrive, not just survive.