31st March 2021

The National Funding Formula: consideration of better targeting to disadvantaged pupils

The Education Policy Institute (EPI) has been commissioned by the Cabinet Office to produce a paper for its Commission on Race and Ethnic Disparities. The research informs the final report published by the Commission on 31st March 2021. 

The EPI paper provides a summary of the current school funding system in England including the origins of the national funding formula (NFF) and how its current formulation distributes funding across the country and different demographics.

It draws on data from EPI’s annual report to explore which areas of the country have the largest disadvantage gaps, how these have been affected by recent reforms to school funding, and how they relate to measures of disadvantage in the NFF – and hence whether funding can be better targeted to these areas under the current structure of the NFF. It concludes by considering how funding could be better targeted to address disadvantage gaps.

Summary of findings


  • The introduction of the national funding formula represented a significant change in the way that schools in England are funded. Reforms to school funding between 2003 and 2011 locked in many historic funding decisions and this had meant that funding continued to be targeted towards those areas that were deprived, and tended to be underperforming, at the turn of the century, rather than directly addressing need.
  • When it was introduced in 2018, the NFF was designed to address some of these inequalities in school funding. But the reforms did not necessarily address inequalities in opportunity.
  • Through the NFF and subsequent initiatives such as ‘levelling-up’ school funding, the government has weakened the link between funding and need. While there have been large differences in funding across schools and local authorities, recent policies have meant that pupils from more affluent backgrounds are attracting larger increases to funding rates compared to those from more disadvantaged backgrounds.
  • Furthermore, there is only a weak relationship between the areas that have seen the largest increases, and the size of the disadvantage gap. Because of an additional weak relationship between measures of deprivation in the NFF and attainment gaps at local authority level, varying the amounts in the NFF that are associated with deprivation is unlikely to lead to a shift of funding from areas with small attainment gaps to those with the largest.
  • Depth of poverty is a key driver of attainment. While there currently no direct measures of depth of poverty, incorporating a persistent disadvantage factor into the NFF would go some way to shifting funding towards those areas with the largest disadvantage gaps. But the pattern is not uniform. Some of the areas with the largest gaps would be unlikely to gain by much and others could even lose out.
  • Area-based classifications such as the ONS’ neighbourhood ‘pen portraits’ might be another way to better target funding towards those communities where attainment is lowest without introducing perverse incentives on schools.