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Education funding

Overview

In December 2010 the government released details of three separate financial settlements that all affect the level of funding schools will receive in 2011-12.

The most significant of these was the funding settlement for schools .This included details of the Dedicated Schools Grant (DSG) allocated to each to local authority, the level of the Minimum Funding Guarantee (MFG) for schools, the rate of the new pupil premium, some changes in funding for academies and capital funding plans. This announcement did not, however, cover funding for pupils aged 16-19.

Details of the funding for 16-19 year olds, including arrangements for equalising funding between schools and colleges, were included in a statement issued by the Young People’s Learning Agency (YPLA) and this will of course be of particular interest to schools with sixth forms and sixth form colleges .

Schools’ budgets will also indirectly be affected by the funding allocations made to local authorities by both the Department for Education and the Department for Communities and Local Government (DCLG) .

This policy briefing explains the main points of each of these announcements and provides advice to school leaders on managing their budgets in a time of financial constraint.

Funding settlement for schools for 2011-12

The context

The coalition government’s Comprehensive Spending Review announced in November provided the overarching framework for determining how much funding schools would receive for the four years from 2011-12 to 2014-15. There were two main building blocks:

  • spending per pupil was to remain flat in cash terms - ie, it was to remain at 2010-11 levels with no annual increases to allow for inflation, though as the number of pupils across the country rose so the amount of cash would increase; and
  • second, in addition to this basic flat cash allocation a Pupil Premium would be introduced.

Level and allocation of Dedicated Schools Grant (DSG)

The flat cash allocation to schools is being delivered through the DSG which is allocated to local authorities which, following consultation with schools via their Schools Forum, distribute it to schools.  

Local authorities will receive the same amount of funding per pupil for their DSG as in 2010-11.

However, this per pupil allocation will include grants for schools that have previously been ring fenced for specific purposes. So the DSG for 2011-12 will include grants such as School Standards Grant, Specialist Schools funding, Extended Schools allocations and Ethnic Minority Achievement Grant -they will all be mainstreamed into the DSG on the basis of the way they are currently distributed.  

Pupil numbers are falling rapidly in a few local authorities and so the government is continuing to operate a ‘cash floor’ of minus 2 per cent for local authorities. This means that no authority will see the level of its DSG drop by more than two per cent in 2011-12 compared with the level in 2010-11.

Local authorities will be required to take account of the previous level of the specific grants received by schools (that are now being mainstreamed) when allocating funding to schools. The intention is to avoid unnecessary turbulence in schools’ budgets.

A Minimum Funding Guarantee for Schools is being retained. No school will receive a cut in its budget of more than 1.5 per cent per pupil before any pupil premium is added. The guarantee excludes sixth form funding. Local authorities in consultation with Schools Forums may choose to provide a greater level of protection and provide a higher Minimum Funding Guarantee.

From 2011-12 the government is stopping the double funding of pupils registered at Pupil Referral Units and schools.

Ministers are retaining arrangements whereby local authorities which have less than 90 per cent of their three year old population taking up the free entitlement will be funded as if they are.

The pupil premium

A pupil premium based on eligibility for Free School Meals (FSM) will be introduced from April 2011. It will be paid to local authorities via a specific grant based on January 2011 census figures for FSM pupils in all years from Reception to Year 11.

The pupil premium for the first year will be £430 per eligible pupil. The premium will apply not just to FSM pupils in maintained schools and academies but also to deprived pupils in non-mainstream settings who are publicly funded and to children who have been looked after for more than six months.

A separate premium of £200 per pupil is being introduced from April 2011 for children whose parents are in the armed forces.

Teachers’ salaries

Although the government has introduced a two year pay freeze for all public sector workforces from 2011-12, it is honouring the three-year pay award recommended by the School Teachers’ Review Body. The third and final part of the teachers’ pay award will be implemented from September 2010.

The Association of School and College Leaders (ASCL) has pointed out that the DSG funding for this financial year (2010-11), which provides the basis for the flat cash budget carried over into 2011-12, only includes funding for seven months (September 2010 to March 2011) of the 2.3 per cent pay rise. In 2011-12 schools will have to fund the increase for a full 12 months. ASCL calculates that this equates to the DSG base budget being in cash terms 0.6 per cent below what it would have been had the pay increase been funded for a full 12 months.

Capital funding

Devolved Formula Capital (DFC) for schools has been reduced from £559 million in 2010-11 to £185 million in 2011-12.

All schools will get the same rate of DFC, whether they have been ‘modernised’ or not: it equates to £4,000 per school plus a per pupil sum which is weighted for the type of pupil (£11.25, £16.88, £33.75 for primary, secondary and SEN pupils respectively).

However, ‘Basic Need’ capital funding has been doubled to £800 million to reflect the need for additional places as a result of the rising birth rate. In addition over £1 billion has been allocated to local authorities and to the locally co-ordinated programme for Voluntary Aided schools to help with the capital maintenance of the schools estate.

Overall impact of the funding settlement

The overall impact of the funding settlement on schools’ budgets will depend on how local authorities distribute money to schools. However, the Institute for Fiscal Studies (IFS) estimates that the schools settlement for 2011 implies an average 0.75 per cent real-terms cut ( i.e after allowing for inflation) in funding per pupil across schools.

The pupil premium means that less deprived schools will see larger cuts, with one-in-six pupils in schools, according to the IFS, seeing real-terms cuts of 2 per cent or more. However, more deprived schools will see smaller cuts, and one-in-four pupils in schools seeing real-terms increases in 2011. A few very deprived schools will see real-terms increases of 2 per cent or more.

Funding for academies in 2011-12

The funding settlement for academies broadly replicates that for maintained schools with academies continuing to be funded at levels equivalent to other schools in the same local authority with similar characteristics.

Minimum Funding Guarantee

The Minimum Funding Guarantee (whereby no school sees more than a 1.5 per cent reduction in its budget before the pupil premium is applied) also applies to academies’ budgets. The guarantee applies to an academy’s overall budget - excluding sixth form funding, Local Authority Central Spending Equivalent Grant (LACSEG), VAT and insurance grants but including grants that have been mainstreamed.

Local Authority Central Spending Equivalent Grant (LACSEG)

LACSEG is a process for reimbursing academies for services for which they are responsible but which are not delegated to other maintained schools in the area. As signalled in the schools’ White Paper, The Importance of Teaching, the government proposes to undertake a fundamental reform of LACSEG for 2012-13, but for 2011-12 has decided to keep changes to a minimum.

For early academies LACSEG calculations of budget items were made on a gross basis and included any income that the local authority might have earned and spent. The government recognised that this could lead to higher amounts than were justified for some budget items and moved to a net funding system for later academies.

The government is now moving to a net calculation for all academies based on:

  • reducing funding on relevant budget items to reflect the general reductions in government funding for local authority budgets;
  • excluding central local authority school improvement grants from the calculation because they are ending in 2010-2011.

In order to avoid undue fluctuations in academies’ LACSEG allocations in 2011-12 the government has introduced a protection arrangement. No academy will receive less than 90 per cent of the LACSEG amount it would have received without these changes.

The YPLA is calculating what these changes mean for individual academies and will be writing to them in due course setting out their indicative budgets.

Funding for 16-19 year olds in 2011-12

Overall position

In 2011-12 a total of £7.6 billion is being made available to fund education and training places. This represents a 1.5 per cent increase in cash terms (i.e. not including any allowance for inflation) on the amount available in 2010-11. However, the increase in the number and proportion of 16-19 year olds participating in education and training means that the average unit cost of funding per learner will go down rather than rise in 2011-12.

The overall position is further complicated by a number of changes that the YPLA is making to the way funding is allocated to schools, colleges and other providers.

Increased focus on deprivation

The proportion of funding in the national funding formula which addresses deprivation is being increased. In 2011-12 an additional £150 million will be allocated to support students living in the most disadvantaged areas of England and those who are disadvantaged by other circumstances.

This money will not be ring-fenced, so schools and colleges will have the freedom to employ the strategies they consider will best support their students to increase their attainment.

The £150 million is being found from redirecting funding that currently supports the provision of guided learning hours (glh)  for the Curriculum 2000 entitlement for all full-time learners. The entitlement is being reduced from 114glh to 30glh. In addition the requirement to deliver specific activities through enrichment funding is being removed. Providers will be able to continue - as far as resources allow - with those activities that learners value most and that contribute to improved retention, attainment, achievement of qualifications and successful progression.

(Guided learning hours (glh) are defined as all times when a member of staff is present to give specific guidance towards the learning aim being studied on a programme. Guided learning hours include lectures, tutorials and supervised study).

Ending the disparity in funding for 16-19 year olds

The schools’ White Paper, The Importance of Teaching, set out the government’s commitment to equalise funding between schools and colleges and to manage the convergence carefully. In 2011-12 the following changes are being made:

  • funding all providers at one national rate, protecting the change so that resources are reduced gradually over the period of the Spending Review;
  • staging the removal of the Teachers’ Pay Grant (post-16) paid to local authorities to cover pay progression and other pay benefits in schools that are not paid separately to other providers;
  • removing the additional payments to schools for teachers’ pensions not made to other post-16 providers; and
  • reducing the national funding rate for Apprenticeships funded by the Department for Education by 2 per cent per year to reflect the better efficiency of the sector in delivering Apprenticeships to employers and the growth in planned numbers and budget.

Transitional protection

In order to smooth these changes and enable schools in particular to manage the change there will be a limit in 2011-12 on the reduction in the average funding per learner. No provider will suffer a reduction of more than 3 per cent per young person in learning.

It may be possible to move the 3 per cent floor to nearer 2 per cent. The exact figure will depend on the final estimates of recruitment. The YPLA will confirm the exact amounts for transitional protection and unit of funding early in 2011.

Transitional protection will apply over the Spending Review period.

Longer term review

A consultation in 2011 will look at how the funding formula for 16-19 year old learners can better support the coalition government’s aims of aligning targeted support for young people with the pupil premium and the National Scholarships Programme in Higher Education.

The review of the funding formula will also take account of the recommendations from Professor Alison Wolf’s review of vocational qualifications.

Local authority funding in 2011-12

Local government finance settlement

The 2011-12 financial settlement is much tougher for local authorities than for many other parts of the public sector. The average cut in local authorities’ ‘total spending power’ is 4.4 per cent and a significant number of authorities face a reduction of 8.9 per cent.

The authorities that have been hardest hit are those in areas of deprivation where targeted ring fenced funds, such as the Working Neighbourhood Fund, have been abolished.

Early intervention funding

The government has decided to end a whole series of individual grants aimed at increasing life chances for children and young people. Instead the funding has been amalgamated to form a new Early Intervention Grant (EIG).

The grants that are being abolished include specific funding for Sure Start, Connexions, the early years workforce, teenage pregnancy, positive activities for young people and targeted mental health in schools.

The total funding available for the EIG will be £2.2 billion in 2011-12 - that is 10.9 per cent less than the combined value of the grants absorbed into EIG.

EIG will not be ring fenced - local authorities will be free to decide how best to respond to local needs and target early intervention across the age range. However, the government has indicated that authorities will be expected to provide free early education for disadvantaged two-year olds and short breaks for disabled children and maintain the existing network of Sure Start Children’s Centres, accessible to all but identifying and supporting families in greatest need.

The end of other education specific grants

In order to maximise the frontline funding for schools the government has decided to end a series of ‘non frontline’ grants made to local authorities that supported school improvement and other school-related services. The value of these grants in 2010-11 was over £550 million .

The funds withdrawn include funding for School Improvement Partners, Assessment for Learning, School Development Grant, primary and secondary national strategy co-ordination and extended school start-up costs.

School music and school transport are also included in the list for losing funding  - but on both these issues Ministers have said that they expect to make announcements in the new year on continuing funding allocations when reviews that are currently under way have been completed.

Managing school budgets in a time of financial constraints

The challenge of managing budgets when they are, at best, only increasing marginally and, at worst, significantly lower, will be new to many school leaders. There are no ‘quick fixes’ but the following seven ‘Ps’ provide a useful route map for addressing the challenge.

Personnel

School leaders need to have access to the expertise of a high quality school business manager (SBM) who can help school leaders plan and manage their school’s finances. Schools are increasingly recognising this and including SBMs or bursars on the school leadership team.

The National College is providing training for and accreditation of SBMs. It is also supporting the development and appointment of SBMs who support clusters of schools .

Projections

Schools need to understand the combined implications of all the changes across the 3-19 age range. Most immediately they will need to make some sort of assessment of their budget position for 2011-12, though a complete picture will only emerge after their local authority and/or the YPLA have confirmed final allocations.

The Department for Education has, for example, has published calculators to help schools work out how much pupil premium they will receive and whether they will be benefit from the Minimum Funding Guarentee .

Projections also need to be longer term than the immediate year ahead. The shape of schools’ spending for the Spending Review Period has now been clearly set out. School business managers should be able to project forward their school’s or schools’ allocations right up to 2014-15.

The confirmation of the third instalment of the pay award for teachers, coupled with the announcement of a two year pay freeze for public sector workers, also provides a reasonable degree of medium term certainty on staff costs - the biggest element by far in schools’ budgets.

Planning

A temptation that inexperienced leaders often succumb to is to deal with budget problems by making across the board incremental budget reductions. For example, a 2 per cent budget reduction is required so all departments are given the target of making 2 per cent savings.

That may be the right thing in certain circumstances but school leaders need to check that adopting this approach is reflecting the broader priorities and challenges of the school. For example, if a school knows it has to improve its language teaching will a budget cut impair its ability to recruit the right calibre of head of department, invest in CPD or appoint an expert teacher?

Across the board cuts provide a seemingly easy solution, but school budgets too often reflect years of accumulated decisions rather than the current needs of a school. Spreading the misery fails to address the hard question of what the funding priorities really are.

So there needs to be a good fit between a school’s budget and its development plan. The Department for Education has provided a tool that helps schools to cost their school development plan .

Planning also needs to take account of how much to keep in and take out of a school’s balances. For example, relying on school balances to plug a gap in a school’s revenue budget is a short term fix rather than a sustainable strategy. Equally accumulating high levels of reserves without there being a clear strategy and rationale for doing so is also not good practice.

People

Around 80 per cent of a school’s budget will typically be spent on staff - for smaller primary schools it will often be more. Schools often think that there is little they can do about this, even when pupil numbers fall.

But schools can examine their data to see whether they are overspending the proportion of revenue funding available for staff or have pupil to teacher or adult to learner ratios that are not covered by the revenue for the year group or course.

They can also access the Department for Education benchmarking tool to compare the cost of their leadership structures and their average year group or departmental staff costs with that of other similar schools.

Performance

An increasing number of schools, particularly at secondary level, are relating spending to performance. They are calculating the cost of departmental inputs and then relating that to attainment levels and using that as the basis for comparison with other schools.

The Audit Commission has a tool for example, in which schools enter data on staff and non-pay costs, performance in value added measures and point scores at key stage 4. The tool then calculates the cost of each subject in the school and compares costs with performance.

Procurement

Schools are being expected to generate up to £1 billion in procurement and back office savings by 2014-15. This is coming at a time when the role of local authorities in providing or commissioning services for schools is diminishing and when an increasing number of schools are moving to academy status with greater control of their own budgets.

Recent research ( Financial efficiency in schools, Department for Education Research Report RR007, 2010), reveals that school leaders find it difficult and time-consuming achieving greater efficiencies from procurement.  But collectively schools are spending £9.3 billion on support services and functions.

A good starting point is for a school leadership team to review a list of everything that the school is buying in and then identify higher and lower priority areas, based on the potential to achieve better value for money.

Factors that will help to identify which areas to focus on first include contract expiry dates (ie. a school may not be able to change supplier in the short-term if it is tied into a contract), the level of spend and the potential for making savings by benchmarking the school’s unit costs with those of other schools.

Partnerships

Working with other local schools and colleges or with other schools in a federation or chain can potentially deliver a wide range of benefits:

  • leadership posts and costs - particularly for small schools - can be shared and reduced (Better together: exploratory case studies of formal collaborations between small and rural primary schools, DCSF Research Report RR162, London DCSF)
  • specialist posts, both teaching and learning and support function posts, can be shared between schools
  • CPD can be organised and funded jointly;
  • a cluster of schools can afford to employ a procurement expert who can maximise economy of scale to deliver savings across a range of services;
  • partnership provides a more secure context in which to innovate and adopt new and more costs effective ways of working.