Funding terminology

When looking at school budgets, there are several terms you need to understand.

Schools receive both delegated and devolved funding:

  • Delegated funding has no particular conditions on how the school uses it provided any expenditure supports the core purpose of the school. Small balances can be carried forward to the next financial year.
  • Devolved funding is aimed at a specific purpose and may have conditions on how it may be used. Examples of devolved funding are ‘Pupil Premium’, which has to be used to improve the achievement of pupils eligible for free school meals or looked after by the local authority, and ‘Devolved Formula Capital Funding’ that has to be spent on long-term assets such as building or equipment.
Stack of pound coins
Charts and data

Funding is also divided into capital and revenue:

  • Capital funding can be spent to acquire or improve a long-term asset such as equipment or buildings and usually includes the kitting out of new buildings with equipment and furniture. This includes major technology purchases.
  • Revenue funding can be spent to provide services and buys items that will be used within a year. Examples include salaries, heating, lighting, services and small items of equipment. Routine repairs are revenue expenditures and can include significant repairs that do not extend the life of the asset or do not improve the asset (the repairs merely return the asset to its previous condition).


2.1: Analysis of school funding

Obtain a copy of your school's budget for the last financial year.

Investigate the types of funding your school receives.

  • What proportion of the funding is delegated to the school?
  • What proportion of the funding is received as ‘Pupil Premium’?
  • What proportion of the funding is received as ‘Devolved Formula Capital Funding’?
  • What proportion of the funding is obtained from other sources such selling goods and services, lettings, charitable donations and so on.
  • Present the information in an appropriate graphical form, for example a pie chart, and comment on the effect that the pattern of school funding has on budget planning.

Sources of funding for state-funded schools

State-funded schools primarily receive public money provided from sources such as taxes. This applies to academies and free schools, which are designated as 'independent state-funded schools' as well as maintained schools. However, schools may also fund themselves with private money raised from donations, entrepreneurial activities such as lettings, or other private funds such as collections for school trips.

Funding received from the state, which may be referred to as the individual school’s budget (ISB) or their delegated budget must be spent to the benefit of the young people attending the school, and schools are required to comply with certain reporting processes for this public funding.

The funding received for school trips, donations, and so on may be kept in a separate account if the school wishes. However there are still expectations that this money is managed prudently and used expressly for the purpose for which it was collected and audited on an annual basis.

The diagram 'Funding sources for publicly funded schools' provides an overview of the various funding sources for maintained schools.


Funding sources for publicly funded schools
Teachers in a meeting

HM Treasury is responsible for determining the budgets for central government spending departments, including the DfE. This happens in a three-yearly cycle and is called the Comprehensive Spending Review. Public spending is allocated to support explicit policy objectives for which measurable targets can be set.

The DfE budget is allocated across all areas of its responsibilities. Delegated and devolved funding streams are allocated to local authorities and schools through formula funding schemes developed by the DfE. The funding schemes are under regular review and aim to provide:

  • adequacy
  • equity
  • stability
  • transparency

Local funding formulae

Local authorities, on receiving their school budget from DfE, are allowed to retain a percentage of the funding to enable them to meet their legally necessary functions and maintain core services. After deducting funding for local authority responsibilities, the remainder of the school budget is allocated to schools, using their own local formula. Local authorities may add their own contribution, raised through local taxation, to the budget allocated to schools. The local authority formula for allocating schools’ budgets must be agreed by the Schools Forum.

The money that maintained schools receive is in the form of delegated funding called the 'dedicated schools grant' and devolved funding for capital works, called the 'devolved formula capital grant'. All state-funded schools also receive devolved funding to improve the achievement of deprived pupils called the 'Pupil Premium', which is allocated on the basis of the number of pupils who have been eligible for free school meals at any time in the last six years and the number of 'looked after' pupils attending the school.

Each local authority is legally required to provide a budget statement, called the Section 52, before the start of the financial year. This statement explains the formula used to allocate the budget to each individual school and shows the funding for each school, broken down into the various formula headings. Local authorities have a statutory duty to publish their outturn statement by a prescribed date in autumn. This element of the Section 52 shows the income and expenditure of each school for the previous financial year.

Academies and other state funded independent schools have a funding agreement under in which the secretary of state enters into an obligation to pay grant funding to the school as follows:

  • General Annual Grant (GAG) is paid in order to meet the normal running costs of the school. The amount received is equivalent to that which would be received by maintained schools in the same local authority.
  • Education Services Grant (ESG) which is paid in order to meet the costs of providing services that would formerly have been provided centrally by the local authority such as education welfare service, school improvement service, music service, outdoor education and so on.

The Education Funding Agency (EFA) determines how much each academy receives. It uses the local funding formula as the basis of its calculations and it aims to ensure that academies have the same purchasing power as other maintained schools in the local authority.

Female teacher heading up staircase with students

Schools Forum

Schools Forums are statutory bodies, set up under the requirements of the:

  • Schools Standards and Frameworks Act 1998
  • Schools Forums (England) Regulations 2002 (as amended with effect from 30 December 2005)
  • School Finance (England) Regulations 2006

Membership of the forum is made up of representatives of headteachers and governors of all phases of school in the local authority as well as other key stakeholders such as the diocesan, early years and 14–19 partnership representatives. They are an advisory body with which the local authority must consult on all key funding decisions; in some instances the Schools Forum will make the final decision.

For further information on the role of the Schools Forum, visit your local authority website.

School funding reform

In 2011, the Department for Education (DfE) launched a consultation on the reform of school funding. In the Foreword to the DfE publication 'School funding reform: Next steps towards a fairer system' (DfE, 2012), Secretary of State for Education, Michael Gove, asserted that:

The current system is opaque, inconsistent and unfair with huge differences between areas.

The government’s aim is to move to a national funding formula and to simplify local funding arrangements. They wish to ensure that as much funding as possible is delegated to schools. The first steps in this reform were taken in 2013–14 when regulations were introduced to reduce the variation in local funding formulae, which had been enormous. The number of criteria or factors included in the local funding formula was reduced from as many as 37 to 10 common factors. The government also declared their intention to make changes in the Schools Forum arrangements and to give a role to the Education Funding Agency in upholding the fairness of local decision-making



2.2: Funding streams

Identify the funding streams which are relevant to your school – this will be different for local authority schools, academies, faith schools, free schools, and so on.

Refer to your budget allocation based on your funding agency's formula and identify how the funding is allocated to your school.

Identify any other significant sources of income for the school.

Consider which sources of income are determined by pupil numbers and which are based on different formulas. Analyse what would happen to your school's funding if pupil numbers:

  • rose by 10%
  • fell by 10%