School Funding: Broken Promises
On July 17th 2017, Justine Greening announced an additional £1.3bn investment in school revenue funding for 2018/19 and 2019/20, making some guarantees about increased funding for every pupil and every school. In this blog post, we tell you why we believe that announcement was misleading.
You might think that the operational guidance that was published on 4th August at https://www.gov.uk/guidance/pre-16-schools-funding-guidance-for-2018-to-2019 is only of interest to local authorities (LAs). This isn’t the case; it tells us what rules LAs have to abide by in 2018/19 when passing funding to schools, and it represents a trail of broken DfE promises for schools.
Here is the text of the Secretary of State’s July announcement:
‘the additional investment we are able to make in our schools will allow us to do several things, including:
- Increasing the basic amount that every pupil will attract in 2018-19 and 2019-20;
- For the next two years, this investment will provide for up to 3% gains a year per pupil for underfunded schools, and a 0.5% a year per pupil cash increase for every school;
- We will also continue to protect funding for pupils with additional needs, as we proposed in December.
Given this additional investment, we are able to increase the percentage allocated to pupil led factors, something I know honourable members were keen to happen. This formula settlement to 2019-20 will provide at least £4,800 per pupil for every secondary school, which I know Members in a number of areas will particularly welcome.
The national funding formula will therefore deliver higher per pupil funding in respect of every school, and in every local area. These changes, building on the proposals that we set out in December, will provide a firm foundation as we make historic reforms to the funding system, balancing fairness and stability for schools. It remains our intention that a school’s budget should be set on the basis of a single, national formula, but a longer transition makes sense to provide stability for schools. In 2018-19 and 2019-20, the national funding formula will set indicative budgets for each school, and the total schools funding received by each local authority will be allocated according to our national fair funding formula and transparently for the first time.’
Technically, the government is providing funding to LAs to make the two main guarantees appear possible: a minimum +0.5% per pupil and at least £4,800 per secondary aged pupil.
However, the operational guidance for 2018/19 tells a different story. It provides some valid reasons why it might not be possible for LAs to deliver the guarantees for some schools, through no fault of their own.
What we’ve discovered on reading the guidance is that there is no guarantee that every school will receive an increase of at least 0.5% per pupil, nor will LAs be required to provide a minimum £4,800 per pupil for every secondary school.
Let’s take a look at the reality of what LAs are being asked or permitted to do, starting with the 0.5% increase, then the £4,800 secondary guarantee. We will then explain why LAs may not be able to deliver either or both of these in 2018/19.
A 0.5% a year per pupil cash increase for every school
On seeing this announcement, you might have expected that DfE would set an increase of 0.5% as the level of the Minimum Funding Guarantee (MFG). When the MFG was first introduced in 2004/05, it did in fact guarantee a minimum percentage increase, and it was only in later years that it changed to a negative value, to limit losses from formula changes to 1.5% per pupil per year.
The new guidance tells us that in 2018/19, the Minimum Funding Guarantee will remain at the current level, meaning that it will still be possible for a school to lose up to 1.5% per pupil per year, and up to 3% per pupil over the next two years.
This is inevitable, because most LAs will be changing their local formula in order to work towards the NFF factor values. Any redistribution as a result of these changes could easily disadvantage some schools, while redirecting more funding to others.
DfE has also decided that LAs will have flexibility to set an improved local Minimum Funding Guarantee of between 0% and minus 1.5% per pupil. Their ability to do this will depend on what is affordable, in the context of funding shortfalls that we will explain later.
At least £4,800 per pupil for every secondary school by 2019/20
Let’s now turn to the question of the £4,800 per pupil guarantee for every secondary school with pupils in KS4. Firstly, some commentators thought this referred to the basic entitlement element within the formula. We felt that would cost too much, and it was likely to be total per pupil funding, which the guidance has confirmed is the case.
The Secretary of State’s announcement implied that LAs would be required to pass on the extra funding to deliver the secondary school guarantee. But this is not the case. While the funding will provide for the guarantee by 2019/20, the guidance on how LAs can run their formulae takes a rather unexpected approach. In Table 1 of the guidance, which lists the allowable factors in 2018/19, it is clearly shown as an optional factor:
‘Minimum level of per pupil funding for secondary schools
An optional factor
We will confirm the full national funding formula for 2018 to 2019 and 2019 to 2020 in September. The formula will provide local authorities with per pupil funding of at least £4,800 for all secondary schools that have pupils in years 10 and 11 by 2019 to 2020.
The purpose of this new factor is to allow local authorities to implement this policy locally. It will allow them to set a transitional minimum amount of per pupil funding in 2018 to 2019, as a step towards £4,800 in 2019 to 2020.
Where local authorities choose to use this factor, any capping and scaling cannot take the school below the minimum value set in the local formula.’
This means that LAs will need to make a judgement on whether they can afford to include a factor to guarantee their secondary schools a minimum amount per pupil. As with the 0.5% increase, it will depend on how much money the LA receives from the NFF – those with significant gains will obviously find it easier to deliver. It could also be affected by how much it costs to protect primary schools from any reductions, as each LA moves its formula towards the NFF values.
Later in the guidance, we are told that more information about how the minimum level will apply to middle schools and all through schools will be published along with the consultation response in September.
It also mentions that DfE will set out the arrangements for a minimum level of funding for primary schools in September. We are struggling to see how this would work, and we can’t find a reference to it anywhere else in the document. Presumably it would need an amendment to the permissible factors, if it involves the same approach as the secondary guarantee.
How many schools are below £4,800?
An analysis of the latest available data for 2016/17 school formula allocations to individual schools and academies shows that 95 out of 150 LAs have some secondary schools with total funding below £4,800. In total, 861 secondary schools, or 37% nationally, are in this position. At individual LA level the percentage varies, with twenty-six at 50% or more, and the highest being 79%.
On the basis of the 2016/17 data, it would cost £175.5m to meet the guarantee if it was all achieved in one year – but we should bear in mind that the funding is being staggered across the two years, and DfE hasn’t said how much will be provided in 2018/19. The data for 2017/18 is not yet available, but with static funding it’s likely that there wouldn’t have been much change.
It is interesting to examine the ratio of primary : secondary per pupil funding for the LAs that the DfE is trying to direct funding to, compared to those whose secondary schools do not need an uplift. The national ratio of 1:1.30 means that for every £1 a primary pupil receives, a secondary pupil receives £1.30. The higher the ratio in an LA, the more likely it is that primary schools are underfunded, although that also depends on the total funding an LA receives. For example, some highly-funded London LAs have a high ratio but their primary schools are also very well funded.
|LAs with some schools below £4,800 per pupil||
|LAs with all secondary schools above £4,800||
The pattern of the average ratio in the above table indicates that LAs whose secondary schools all receive more than £4,800 per pupil have generally (though not exclusively) chosen to favour secondary schools to a greater extent than those with some schools below the £4,800 threshold. The guarantee therefore appears to be less about the total amount of funding received, and more about local decisions on how the funding is distributed between the sectors.
This means that LAs that have given more funding to primary schools will now be given additional grant by DfE to provide an uplift to their secondary schools. Conversely, where LAs have prioritised secondary schools and have a lower level of primary funding per pupil, they will not receive the additional support outside of the NFF decisions. We will have to wait and see whether the reference to a minimum primary amount will address this.
Why might the guarantees not be deliverable?
The majority of Dedicated Schools Grant (DSG) Schools Block funding will be driven by allocations for individual schools using the NFF. This will be based on formulaic factors including pupil numbers, deprivation and low prior attainment, with the final NFF values due to be announced in September. These individual school-level allocations will be aggregated at LA level. It is this element that is benefiting from the extra investment.
However, there is another funding pot that is then added to each LA’s NFF calculation to determine the total Schools Block baseline allocation. There could be some significant shortfalls in this element of funding for some LAs, which might wipe out the benefit from the NFF settlement and prevent them from being able to provide the increases that the Secretary of State promised.
This pot includes funding for items such as pupil mobility, rates, Private Finance Initiative contract costs, split site funding and (crucially, as we will see below) pupil number growth. These items will be funded on historic spending, i.e. at exactly the same level in cash terms as each LA’s planned spending in 2017/18 (which may or may not be the same as the actual spending by the year end).
If costs for these items rise in 2018/19, there will be a pressure which will have to be found from within the total Schools Block allocation. This could dilute the amount available for school budgets and prevent some LAs from delivering the guarantees that DfE says are being funded.
The total of the NFF and historic spend pots will be converted into per pupil funding amounts for primary and secondary pupils, using current pupil numbers, and then multiplied by October 2017 pupil numbers. LAs will not know their final Schools Block allocations until December, but they have to produce a local formula in time to submit the results to DfE by 19th January 2018.
Pupil Number Growth
The issue of pupil number growth will cause particular problems for many LAs in balancing their funding formula for 2018/19, because they will not receive funding for pupils unless they were on roll in October 2017. The issue is not so much extra pupils in existing schools with their full complement of year groups, because those schools already have to absorb the costs from September to March (LA schools) or the full academic year (academies) within their normal allocation. The reason for this is that budget shares are also calculated on October 2017 census data.
The problem will arise where new schools are being created. The following paragraphs in the guidance show that LAs will have to make specific allocations for pupils joining new schools or new year groups, even though funding has not been received for them:
‘53. Where a new school is due to open, the regulations require that local authorities should estimate the pupil numbers expected to join the school in September and fund accordingly, again explaining the rationale underpinning the estimates.’
‘54. Under these regulations local authorities should estimate pupil numbers for all schools and academies, including free schools, where they have opened in the previous seven years and are still adding year groups…’
‘96. The costs of new schools will include the lead-in costs, for example to fund the appointment of staff and the purchase of any goods or services necessary in order to admit pupils. They will also include post start-up and diseconomy of scale costs. These pre and post start-up costs should be provided for academies where they are created to meet basic need. ESFA will continue to fund start-up and diseconomy costs for new free schools where they are not being opened to meet the need for a new school…’
The funding calculated on the basis of these rules will be recovered (recouped) by DfE from the LA’s Schools Block allocation in order to pay it to the academies and free schools.
This is a continuation of the current practice, but there are two differences that mean some LAs may face more significant problems in setting school budgets for 2018/19:
- As higher rolls are moving up the age range, there are likely to be more new schools in the secondary sector, where the cost per pupil is higher because of subject specialisms/smaller class sizes. Every new school also means an extra lump sum (up to £175,000) needs to be provided, as well as other costs such as rates and sparsity funding (for rural schools) if relevant criteria are met.
- Paragraph 86 of the guidance states: ‘Where growth funding is payable to academies, the local authority should fund the increase for the period from the additional September intake through until the following August.’
ESFA will recoup (deduct) this funding from the LA’s DSG allocation to pay to the academy. This is a problem because as well as the LA having to hand over funding it hasn’t received for pupils in new academies and free schools, it is being asked to pay for an extra five months: April to August 2019. The LA only has to fund its own schools for the financial year up to March 2019.
It is therefore clear that where new schools are opening, the shortfall in funding from DfE has the potential to interfere with the Minister’s guarantees.
Impact of the NFF on both guarantees
We have already mentioned that changes to the local formula could cause losses for some schools. Here we explain this in a little more detail.
While the future of direct school funding from DfE (the ‘Hard’ NFF) hangs in the balance, possibly because DfE realises it’s a poisoned chalice, most LAs and Schools Forums will want to work towards the national values once they are announced in September. After all, this is the whole point of the funding reforms: to rebalance the distribution of funding to address historic quirks and inequalities. Schools with unjustifiably lower funding levels are struggling to handle the cost pressures that have arisen since 2015.
Of course, every LA has a different starting point, and therefore the journey towards the NFF could look very different in each area. Where a particular factor is a long way away from the NFF value, LAs will need to decide the pace at which they want to move towards the DfE’s figure. That is where schools will end up over time, so it makes sense to start the transition and spread any turbulence over a longer period. Schools due to gain will be lobbying for their improved funding sooner rather than later.
This is why the Minimum Funding Guarantee has remained at a maximum loss of 1.5%, to restrict losses due to formula changes. It does not protect a school against falling rolls.
One other issue that will add to the tensions is the differential, or ratio, in per pupil funding between primary and secondary schools, which we have already mentioned in looking at the DfE’s secondary school per pupil guarantee. Each LA’s starting point will determine how primary or secondary schools are affected by local formula changes.
But there is one other change in store for 2018/19 that could cause further turbulence. The guidance for 2018/19 tells us that LAs will in future receive separate Schools Block allocations for primary and secondary pupils. This could change the funding received, depending on the balance of pupil numbers, including where pupil number growth is occurring. Previously new pupils would have attracted the average Schools Block per pupil funding level; now it will be the sector specific value.
Hopefully you can see why the pressure to work towards the NFF values in the formula could easily result in some schools seeing a reduction, or at best a static position in their per pupil funding for 2018/19.
As we have demonstrated, there could be a number of schools that do not receive an increase of 0.5% per pupil in 2018/19 and some secondary schools whose total funding will remain below £4,800 per pupil.
This will be due to several factors that are outside the LA’s control:
- elements outside the NFF not being adequately funded
- the restrictions LAs are working within when balancing their local formula
- a requirement to provide funding for new schools, including for a longer period in relation to academies, when the LA hasn’t received funding for those pupils.
It’s impossible to know whether DfE has thought this all out in advance, deliberately couching the statement in terms that led every school to believe they could count on an increase, but knowing that LAs might not be able to deliver it.
Clearly the government recognises that some local flexibility is needed to allow LAs to manage the progression towards the NFF and cover cost pressures that are not funded. But when schools and interested organisations such as teaching unions realise the smoke and mirrors around the announcements, we predict a further outcry. We await the announcement of the final NFF values in September and the additional information that has been promised in order to make more sense of it all.