11th March 2016

Analysis of the Government’s plan for fair funding in schools

The Department for Education published its’ long-awaited consultation on a new National Funding Formula earlier this week.

This first stage of the consultation focused on the ‘principles’ of a National Funding Formula (how it would be constructed; whether local authorities would continue to have control over how it is allocated to schools; and transitional arrangements). The second stage, which is likely to be published in May, will consult on the weighting of each formula factor and, we expect, enable schools to calculate their new budgets under a fully-implemented NFF.

The first stage of the consultation looks broadly as we predicted it would, in terms of both the individual factors and the move to reduce local authority control over school budgets in the coming years. There remain, of course, a number of important challenges and decisions for the Department to address over the coming months. We set out 5 of the most crucial challenges below.

  1. Deprivation funding

This is likely to be the biggest determinant of how much money is moved around the country.

The extent of the redistribution effect will depend on two things. First, the overall quantum of deprivation funding. In 2015, just over £2.5bn[1] was allocated from local authorities to disadvantaged pupils through a combination of Free School Meals eligibility, Ever-6 (for pupils who have been eligible for free school meals at any point in the last six years) and IDACI (which is an area based measure of poverty affecting children) factors.

If the Department allocates less than that £2.5bn through the NFF we can expect two things. First, that London and other urban areas will see greater losses. Second, that there will potentially be greater reliance on the Pupil Premium to plug the gap and the ‘additionality’ that the Pupil Premium has brought, since its introduction in 2011, risks being lost.

The second determinant of redistribution will depend on how the Department allocates the deprivation funding. It has proposed to use the same combination of factors that local authorities currently use, but the balance of funding allocated through each factor could have different effects.

For example, the IDACI data was updated in 2015 meaning that local areas were put into new IDACI bands depending on their relative deprivation. The Index of Multiple Deprivation (from which IDACI is derived) analysis[2] shows that the majority of areas (83 per cent) that were considered most deprived in 2010, remain in that category of most deprived, but that there have been considerable shifts in many of the London Boroughs (including Hackney, Tower Hamlets and Newham), as well as in Sandwell and Liverpool.

So the quantum of deprivation funding, combined with the new classification of relative poverty (and the weighting between Ever-6 and IDACI) could result in significant losses to London and other cities.

The Department has proposed not to include a factor for Looked after Children in the NFF, but instead increase the Pupil Premium Plus so that funding for these pupils is ‘visible and linked to clear accountability requirements’. In 2015, £22m was allocated by 88 local authorities to support Looked after Children (an average of £636 per Looked After Child across the country). Anything less than a £22m increase to the Pupil Premium plus will signify a cash-cut in support to Looked after Children.

  1. Implications on school organisation

The lump sum, the sparsity factor and the ratio between primary and secondary funding could all have a cumulative impact on small primary schools, particularly those in urban areas (or at least, not very sparsely populated).

For example, authorities such as Bradford, Brent, Greenwich, Solihull and Islington have all set their lump sums at £175,000 for both primary and secondary schools. If the DfE decide to set the primary lump sum at £128,000 (which is the current national average), some of the smaller schools in those areas would lose a significant amount and it is possible that these would not be protected under the Minimum Funding Guarantee (it hasn’t been protected to date). Schools in these areas would also not qualify for sparsity funding.

If the DfE decides to set a relatively lower primary lump sum and set the secondary: primary ratio closer to the current national average (1:28), then primary schools in areas such as Bradford, Greenwich and Islington (where the current ratios are between 1:31 and 1:33) could stand to lose on both counts. This may well be an intentional policy consequence as it could encourage a larger number of small primary schools to join academy chains, in order to achieve economies of scale.

  1. There are still a number of complex issues to resolve

The DfE has stated that it will continue to allow local authorities to adjust school budgets in 2017 and 2018 in order to address issues such as Private Finance Initiative contracts and schools in exceptional circumstances (for example, on split-sites). This seems prudent given that the immediate alternative is for the Education Funding Agency to collect premises data on all 24,000 schools. Longer term options include giving a separate pot (top-sliced from the schools’ budget) to either Academy chains or Regional Schools Commissioners, which may work once all schools are, as the DfE intends, academies. However, it is likely to result in a complex set of arrangements in the intervening period.

The Low Prior Attainment factor will also need to be kept under considerable review in the next few years. At present, the DfE proposes to continue to target funding to pupils with low attainment in the Early Years and at Key Stage 2, but reforms to assessments in both phases mean that there is no long-term solution, yet, about the basis on which this funding will be allocated.

The Early Years Foundation Stage becomes non-statutory in September 2016 and, current plans are instead to introduce a Reception Baseline Assessment. But, the pilots of these assessments have been fraught with problems about the consistency and comparability of data, meaning that allocating funding based on a national benchmark could be difficult at best, impossible at worst.

Similarly, the reforms to primary assessments mean that judging where to set the threshold for low attainment is still unclear. The DfE has already faced criticism about the effectiveness of the new assessment in measuring pupil attainment, let alone using it as the basis for national funding allocations.

For both these measures, the prudent approach would be to keep the Low Prior Attainment measure and weighting under review, but continual changes to the thresholds will almost certainly result in turbulence to schools’ budgets, potentially undermining the objectives of the DfE to ensure there is greater certainty and predictability of budgets.

  1. Transitional Arrangements

 The speed at which schools move onto a new formula will be key.

The DfE are potentially in a ‘no-win’ situation. Schools that are set to gain from the NFF will want to do so as quickly as possible, while schools that stand to lose money will need some time to reconfigure staffing, curriculum and other commitments in order to cope with those losses. While the schools budget has been described as being protected ‘in real terms’, the flat-cash per pupil settlement means that they still face rising costs (of around 8 per cent[3]) due to inflation and pension contributions.

The Department has confirmed that the Minimum Funding Guarantee (which means that no school can lose more than a set amount) will continue but it has not stated what that minimum amount will be. It also proposes to allow local authorities, in some cases, to lose more than the MFG level in order to have flexibility to address local circumstances in the next two years.

For those academies that are set to lose, the impact of parallel cuts to the Education Services Grant, means that they will be faced with a combined effect of funding cuts over the next few years. Depending on the scale of losses, the DfE might need to consider a new calculation for protecting academies that takes into account their total loss.

  1. How achievable is it to introduce this in April 2017?

The time scales for introducing the NFF are extremely challenging. Local authorities will need to know their new allocations by the summer in order to construct their local formulae and submit it to the Education Funding Agency by October. This timetable is inflexible because of the time it takes for the EFA to replicate local formulae to calculate budgets for academies and to allocate the schools block funding to local authorities by December.

This means that the Department needs to close this first consultation; analyse the responses; write and issue the second consultation (if it includes local or school-level exemplifications, then it is likely to be subject to significant scrutiny at the Cabinet Committee clearance stage); close the second consultation; analyse responses, and then clear and issue a final statement of intent ideally by the summer recess. The local and London Mayoral elections, as well as the extra period of purdah ahead of the EU Referendum add another constraint to this already tight timetable.

Overall, the analysis from the Education Policy Institute is that this first consultation appears to be a sensible framework on which to build a ‘hard’ national funding formula. As we have demonstrated however, there are still a number of important decisions to make with both practical and political implications.

[1] https://www.gov.uk/government/publications/schools-block-funding-formulae-2015-to-2016

[2] https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/465791/English_Indices_of_Deprivation_2015_-_Statistical_Release.pdf

[3] ‘English Schools Will Feel The Pinch Over The Next 5 Years’, C Bellfield and L. Sibieta, October 2015