School funding reforms: a crash course

The changes

School funding has changed. On 1 April, new local funding formulas came into effect. The changes are considerable. There are fewer factors in the new formula, and significant changes to how funding for special schools and special units attached to mainstream schools are calculated.

Funding for schools is first distributed to local authorities via the Dedicated Schools Grant (DSG). Local authorities then distribute the majority of that money to schools via an agreed local formula. The first part of the process – the calculation of the DSG – has been the subject of much angst over the years, largely because the methodology for calculating it is lost in the mists of time.

Indeed, in giving evidence to the Public Accounts Committee in late 2011, the then permanent secretary at the Department for Education, Sir David Bell, said in talking about the DSG distribution methodology: “Madam chairman, you were too generous when you said that our funding formula in the Dedicated Schools Grant goes back to 2005. The truth is that, actually, it is based on historical decisions made in the 1980s and before, because essentially what has happened is that it has just been rolled forward and rolled forward.”

This method of allocation currently results, according to the DfE’s own evidence, in “per pupil funding in schools with similar characteristics varying by as much as 40 per cent”.

During most of 2011 and the early part of 2012, the department consulted about proposed changes to both the DSG distribution formula, and local formulas. Ministers decided after consultation that, while accepting that the way in which the DSG is calculated is not fit for purpose, it was good enough for another three years.

However, they determined that councils did have to make significant changes to their local formulas, which affect every state-funded school. Whether it is a small community primary or a large secondary academy, a school’s revenue budget is calculated according to the relevant local authority formula. This budget determines how many teachers a school can employ, what sort of curriculum it can offer, and what additional services it can afford to buy in.

The timescale was tight. The DfE announced final details on 28 June last year and local authorities were expected to revise, model and submit details of the changes by 31 October 2012, resulting in some hectic local modelling and consultation through the summer and autumn.

The factors

Local authorities had to move from more than 30 allowable factors to just 10 standard factors. These are: pupil numbers; deprivation; looked-after children; prior attainment as a proxy for low-cost special educational needs; English as an additional language; pupil mobility (the number of pupils who enter the school outside the usual admission time); lump sum; split sites; rates; and private finance initiative contracts. Permission to add in exceptional premises factors could also be sought from the DfE. As with the existing formula, the majority of the funding must be driven by pupil numbers.

The overarching factors chosen are relatively sensible and indeed existed in most councils’ formulas already, but the DfE also placed restrictions on how they could be applied. For example, local authorities were previously free to decide how to allocate funding for deprivation and what indices to use. That is no longer the case. The DfE has determined that only free school meals or the Income Deprivation Affecting Children Index could be used to allocate deprivation funding.

This may not seem like a major change, but if an authority previously used one of the other deprivation indices, the swings can be alarming – one secondary school saw a £400,000 funding drop just as a result of this decision.

Lump sums

The other big headache has been the “lump sum” factor. A local authority has to apply the same level of lump sum to all schools –primary, secondary, small and large. But it costs more to educate each pupil in small schools. In a funding formula driven by pupil numbers, authorities have generally used other factors to ensure small schools had enough money to pay for the teachers and building upkeep. The lump sum could be any amount up to a maximum of £200,000.

When the same lump sum has to be delivered to all schools, there is a tricky balance between providing sufficient funding to small schools and “over-funding” them at the expense of the other schools. There is a longer-term debate to be had about the sustainability and desirability of maintaining a multitude of small schools, but for 2013/14, local authorities had to come up with a workable solution. Surprisingly, Devon, a rural authority with a large number of small schools, has ended up with one of the smallest lump sums.

Protection for schools

Schools should be largely protected from significant swings in their budgets by the protection mechanism known as the Minimum Funding Guarantee. This caps reductions in school budgets to 1.5 per cent of the per-pupil funding they received in the previous year. This cap will continue until 2015.

In addition, schools forums, which are usually a mixture of headteachers and governors, had to decide whether certain elements previously held back as central services items – such as insurance or behavioural support services – should continue to be treated in this way.

If forums have decided that items should be delegated to schools, this may have an impact on the services the money previously funded and they may no longer be viable. In some cases it may only be once the service disappears that schools realise it was valuable, and possibly more expensive to procure from an external body.

The local decision-making process

National Governors’ Association members who sit on their local schools forum reported that the starting point for most local authorities was stability of funding. This is perhaps not surprising when the way in which the total DSG is calculated has not changed. Authorities looked to introduce the new formula in such a way as to ensure schools received a similar amount of funding to previous years (allowing for changing pupil numbers).

They also sought to ensure that there was minimum reliance on the protection factor. In other words, they wanted schools to be funded according to the factors in the formula as soon as possible so that when the transitional protection is removed there is not a sudden drop in funding for any one school.

Special educational needs

Each mainstream school will receive, as part of its overall budget, a “notional special educational needs budget”. It is notional because it is not a separate factor in itself – but is calculated via the other factors. Each school’s budget notification will have a line setting out this “notional budget”. This is not new. Schools already have a notional SEN budget, even if some did not realise it. Schools are expected to use this money to meet a proportion of the costs of pupils with expensive SEN. These high-cost pupils usually have statements, but for the purpose of the new funding regime, the DfE rule of thumb is that they are pupils whose additional needs cost more than £10,000.

Under the new system, the DfE is recommending that mainstream schools be expected to meet the first £6,000 of costs for pupils with high-cost special needs. This means there will be no additional funding from the local authority for a pupil whose needs are assessed to cost up to £6,000 – the school must find it from its existing funding. Only when the pupil’s needs are assessed as being over £6,000 can the school seek additional funding.

Some councils will have a slightly different amount for the “notional SEN” costs to recognise the fact that each individual authority’s formula was different in 2012/13 and that in some cases councils already expected schools to meet this or a higher proportion of costs.

Special schools

All special schools will be funded under what is called the “Place Plus” system. Special schools will receive £10,000 per pupil place and then will have to negotiate top-up funding – the costs over and above the base £10,000 funding required to meet the pupils’ needs. There is no “local” formula here: all special schools and units will be funded in this way, although the size of the top-ups will vary. Alternative provision will also, for the first time, have formally delegated budgets based on the Place Plus approach.

The top-up funding will be negotiated with the local authority responsible for placing the pupil, which may or may not be the authority in which the school is situated. Councils and schools were encouraged to agree general top-up levels before 1 April. In some areas, local authorities are banding together to agree overarching top-up levels to ensure some consistency of funding.

There is already concern from special schools that the interaction between the agreed number of places they will be funded for, any additional pupils over this limit they admit during the year, and the calculation of the Minimum Funding Guarantee means that they may end up struggling to balance the books. This could have a dramatic impact on the level of education they can offer their pupils.

The high-needs budget has been rising for years and the number of children, particularly the number of children with profound and multiple needs, has increased. Local authorities are concerned that the way in which the high-needs funding for individual authorities has been calculated means that they too may have to take hard decisions on funding.

Pupil Premium

The Pupil Premium is paid on top of a school’s formula funding. From 2013/14, it is increasing to £900 for pupils on free school meals and looked-after children. It is payable for pupils who are currently claiming meals or have claimed at any time in the last six years, and to children who have been in care continuously for six months or more. This is to recognise the fact that when pupils get to secondary school, the drop-off in those claiming (although still probably eligible) is marked. In addition, it picks up those children from families on low incomes who move in and out of eligibility. There is no payment for those who are eligible but, for whatever reason, simply do not claim.

The Pupil Premium is aimed at disadvantaged pupils with the specific aim of closing the gap in attainment between those pupils and others. Governing bodies are required to publish details of how much funding they receive for the Pupil Premium, what it has been spent on, and, crucially, what the impact on their pupils’ educational progress has been.