DfE consultation: Schools national funding
formula: stage 2
Date
9 February 2017
Author
Alan Docksey
LGiU/CSN Associate
Summary
The DfE has responded o the Spring 2016 consultation on the principles of the National Funding
Formula for funding schools, and is consulting on Stage 2 (and final) proposals for introducing the
new school funding arrangements from April 2018. Consultation closes on 22 March 2017.
This briefing will be of interest to both elected members and officers who have corporate
responsibility for their local authority as well as those with responsibility for school education, as
well as parents, school staff and governors, local employers and those with an interest in local
education provision.
Overview
The DfE responded to the March 2016 ‘Stage 1’ consultation on 16 December 2016, announcing
that the ‘hard’ National Funding Formula (NFF) will commence in April 2019 for the 2019/20
financial year, with a ‘soft’ NFF in 2018/19. The funding allocations in both those years would be
ringfenced within the DSG but proposals are made in the Stage 2 consultation to enable LAs and
schools to agree to move resources from the Schools Block to High Needs provision.
In terms of the funding formula itself, the emphasis on pupil led funding is increased from 90% to
91% at the expense of lump sum allocations. With the pupil-led funding there is an increased
focus on additional feeds factors from 13% to 18% of funding at the expense of the basic
entitlement funds. In finalising its prior attainment factors, the DfE has made adjustments for
changes in key stage assessments so that the most recent results do not skew allocations. DfE
have now proposed that a mobility factor is included but there remains concern that unless a
robust methodology and measurement can be devised it could still be omitted from the ‘hard’ NFF
in April 2019.
Allocations for PFI costs will include an inflation uplift as in the BSF contracts. The funding for
these PFI costs is in effect top-sliced within the DSG and then allocated to the relevant schools.
The application of the formula results in 46% of schools and 36% of pupils in England losing
resources and these are mainly located in Inner London and other urban areas. Those schools
losing resources are to have their losses capped at 3% of their 2016/17 per pupil allocations and
the reduction to be effected by April 2019. Gaining schools will be capped at 5.5% and will achieve
these higher levels by April 2019.
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The DfE will support schools losing resources to achieve efficiencies through its provision of
benchmarking services and procurement arrangements but has decided not to have a specific
fund or arrangements to support those who have the biggest challenge to manage. This is based
on their view that a 3% loss of resources is manageable.
The Stage 2 consultation sets out final proposals for a Central School Services Block that is per
pupil funded with 10% of resources being driven by social deprivation factors. There are caps to
the gains and losses of 2.4% and 2.5% respectively to be implemented by April 2019.
The future arrangements in the Stage 2 proposals raise questions about the role of Schools Fora
in the funding of schools and high needs and their potential replacement, to some degree, by
groupings of schools and the LA.
Although the Hard NFF will be implemented in April 2019 the Stage 2 consultation seems to
suggest that the next Parliament could extend losses and gains further.
Responses to the Stage 2 consultation must be submitted by 22 March 2017.
Briefing in full
Schools National Funding Formula Consultation Response: Stage 1
The then Chancellor of the Exchequer announced (again) in his November 2015 Autumn
Statement that there would be a consultation on proposals to introduce a National Funding
Formula for schools in England. On 7 March 2016, the Secretary of State announced a Stage 1
consultation on the underlying principles for a National Funding Formula with the details and
implications to follow in a stage 2 consultation: the timing of which was to be determined. The
timing of the Stage 2 consultation is later than expected following the Secretary of State’s
statement on Schools Funding (21 July 2016) that the inter-local authority redistribution would
commence in 2018, and not 2017 as originally proposed in the Stage 1 consultation.
On 16 December 2016, the DfE published its response to the March 2016 consultation Schools
national funding formula: Government consultation response: stage 1 and announced the Stage 2
consultation on the detailed design proposals for the National Funding Formula. This part of the
Briefing looks at the Government’s response to the consultation. There were almost 5000
responses with 4000 from school representatives; but as is usual, with the aggregate total, an
individual’s response is given the same weight as the corporate response from a local authority.
Over 120 LAs responded.
Principles
The Stage 1 consultation set out 7 principles which were expanded upon in 22 consultation
questions. The principles were:
•
•
Supports opportunity. Fundamentally the funding system should support schools and local
authorities to extend opportunity to all pupils to achieve their potential
Is fair. It should allocate funding to schools and local authorities on the basis of objective
measures of the needs and characteristics of their pupils
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•
•
•
•
•
Is efficient. It should support efficiency within schools and local authorities, and across the
system as a whole
Gets funding straight to schools. It should maximise the resources available for teaching
and learning and enable headteachers and local authorities to achieve value for money
Is transparent. It should be easily understood and justified
Is simple. It should rationalise funding streams as far as possible
Is predictable. It should ensure schools and local authorities can manage and plan for year
on year changes
To which the first principle has been amended thus:
•
A funding system that supports opportunity for all, underpinning social mobility and social
justice
The details of how these principles were to be implemented was expanded upon in the following
sections and a summary of responses relating to each chapter are set out below:
•
•
•
•
•
Chapter 1: reforming the funding system
Chapter 2: The building blocks of the national funding formula for schools
Chapter 3: transition to a reformed funding system
Chapter 4: Funding that will remain with local authorities
Chapter 5: The future of the Education Services Grant
Chapter 1: Reforming the funding system
A key outcome of the consultation was that 52% of respondents wanted a "hard" National Funding
Formula (NFF) whereby the DfE determine all individual schools' budgets rather than one where
LAs applied a local formula, the “soft” National Funding Formula. Significantly 35% were against a
hard NFF which must therefore have included many school representatives.
This chapter set out changes to the structure of the Dedicated Schools Grant. It introduced a
fourth block the “Central Schools Block” to include current centrally retained costs such as
admissions but added in the retained rate of education services grant.
It redefined the calculation of the Schools block to be the sum of individual schools’ allocations, as
determined by a national formula and requires that 100% of the block is delegated to schools. This
removes the ability of Schools Forum to vire resources between the DSG blocks.
The intention to move to a national funding formula by 2019/20 was set out but to ease the
transition Local Authorities would be allocated the nationally calculated sum for their schools but
would use their existing local formula to distribute that sum – the so called soft national funding
formula.
These proposals are all confirmed, with some refinement, by the DfE following consultation except
that there is some leeway on the ring fence of the Schools' Block up to April 2019.
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Chapter 2: The building blocks of the national funding formula for
schools
The DfE proposed that the National Funding Formula (NFF) should have four blocks that would
make up the whole that relate to the costs and needs that schools face.
The first block would be pupil-led and what schools currently recognise as the basic entitlement
funding. This is to provide certainty to schools as to what sum each pupil will attract. The only
consideration consulted on was whether each key stage should attract a different level of funding.
The proposal was that there should be rates for Reception and Key Stage 1 and 2 combined, and
KS3 and KS4 combined, and this is now confirmed. There was no consultation about the primary
to secondary funding ratio. The expectation was that the current national calculation of 1 to 1.29
would continue and this is confirmed, albeit now with some relevant research outcomes.
The second building block would be additional needs and it was proposed that this be made up of
FSM (Currently in receipt of Free School Meals), FSMEver6 (in Receipt of Free School Meals in
the last six years), and IDACI (Income deprivation affecting children index), prior attainment and
EAL (English as an Additional Language). This is confirmed, but DfE have accepted the argument
for a mobility factor by April 2019/20 for the hard NFF. Until then historic LA data will be used.
However, implementation is conditional upon robust data being obtained from all schools, and the
DfE consultation indicates some doubts as to whether this will be possible.
Low attainment and existing prior attainment factors were proposed to be retained. DfE recognises
however that changes in assessment will need to be recognised and reflected in the final
proposals. The DfE response confirms this approach.
An EAL factor was also proposed for retention (EAL3 being the preferred measure, pupils who
entered the state school system with EAL in the last three years). As respondents supported this
measure (70%) it is now confirmed for the NFF.
The third building block is school or institution based factors. The inclusion of factors for a lump
sum, business rates and sparsity were to be expected and not controversial. The inclusion of
growth in relation to expanding schools and providing funding for pupils not included on the
census were welcomed; as is the recognition of PFI (Private Finance Initiative) costs. All these
proposed features were supported in consultation and DfE will now include them in the NFF.
The proposal was to include growth on the basis of past expenditure and assumes that growth
remains constant year on year or that, where there is currently no growth, that will be the case in
the future. Although 52% of respondents rejected the original proposal the DfE felt unable to
accept LA assessments of growth for inclusion in the formula either by survey or using SCAP, the
DfE School Capacity Survey, and are to persist with a lagged approach.
On PFI costs, there was a proposal to include past costs. However, given that the standard BSF
(Building Schools for the Future) contracts in place for many of these PFI projects have RPI(X)
clauses the DfE now propose that historic costs will have a RPI(X) inflation uplift.
The fourth building block was Geographic costs and a recognition in the National Funding Formula
that some areas have a higher cost base than others e.g. London and the South East. The
proposal was that an area cost factor be applied to the funding formula factors in building blocks 1
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to 3 (with some exceptions for costs that are already being recognised at cost – rates). The area
cost adjustment (ACA) proposed was the hybrid cost adjustment rather than the General Labour
Market (GLM) model used elsewhere in government funding allocations. The hybrid model relates
specifically to teaching labour costs and uses GLM calculations for support staff costs. The DfE
have confirmed this approach for schools' funding but the cheaper GLM approach for central
services block funding. Requests to reflect housing costs were not accepted as in the Early Years
funding consultation.
The exclusion of a LAC (Looked after children) factor was supported in consultation and is now
confirmed by DfE. Such children will continue to be supported by the pupil premium plus.
Chapter 3: Transition to a reformed funding system
The Stage 1 consultation did not have an end to the transition period to the new funding
arrangements. It is now clear that not all of the gaining schools will secure all of their gains by the
end of this Parliament (in 2020). Although the consultation said there was no additional funding for
the transition, it now appears that £200m has been identified within the DSG settlement to the end
of this Parliament.
It remains the expectation that in the first stage of transition, LAs will distribute their National
Funding Formula allocation via their local formula for the period 2017 – 2019. During that period
the DfE expects that LAs will move toward the 2019/20 position for their schools.
Each LA allocation will be the sum of the individual schools’ national formula allocations after
application of the minimum funding guarantee (MFG) for losing schools or “cap” for gaining
schools. No school will lose more than 3% per pupil of its current funding and no school will gain
more than 5.5% during this Parliament, leaving the possibility that there could be further gains and
losses in the next Parliament.
The DfE had proposed, as a result of having more “accurate” allocations for DSG Blocks, that the
LA Schools Block be 100% allocated to schools with no central retention by LAs. The most
common transfers are between Schools Block and High Needs block and this is often a result of
spending decisions by schools that then creates High Needs pressures. For those LAs managing
high needs expenditure this would remove a lever that can facilitate change in addressing high
needs issues. The DfE are now proposing that in 2018/19 that if the LA’s Schools Forum agrees
with the LA on the need for a movement of funds, then the DfE would agree to relax the ringfence.
While there is no timescale for full implementation in this Parliament, the floor and cap proposals
now offer some stability at least through to 2019/20. Losers will be grateful that their losses are
limited to 3% per pupil when many had feared the possibility of much larger cuts.
Finally, in order to support losing schools, a raft of financial management advice is to be made
available through a number of routes to support governors to ask the right questions about the use
of financial resources. While this work proceeds the proposal for an ‘invest to save’ fund, to
support one-off expenditure that reduces a school’s ongoing costs including the costs of staff
restructuring, appears to have been scrapped or at least shelved, presumably because all the
demands upon it were likely to come from Inner London schools.
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Chapter 4: Funding that will remain with local authorities
This Chapter set out how the new Central Funding Block would be created, what it would cover
and how it would be funded.
The Block is to be created by combining the retained duties funding of the Education Services
Grant (£15 per pupil) and an allocation for centrally retained expenditures.
The responsibilities to be covered are:
•
•
•
•
•
•
School admissions;
Servicing of Schools Forums;
Fees to independent schools for pupils without SEN;
Education welfare services
Asset management
Statutory and regulatory duties
The DfE proposed that funding for this block be determined by a formula but recognised that
because of the variation of spend on centrally retained DSG that some transition arrangements
would be necessary. It also expected that as a result of a formula approach some LAs would
receive an allocation greater than their current spend. DfE anticipated in such a case that the
Schools Forum and LA would need to agree which other block to allocate this to rather than
increase their centrally retained spend.
In addition to responsibilities set out above some LAs have historic commitments which the DfE
expect to end and would in the short term be funded on the base of evidence provided through the
re-baselining data gathering. These are:
•
•
•
•
•
Contribution to combined budgets: costs of providing combined education and children’s
services
Termination of employment costs: premature retirement or dismissal costs for maintained
school staff.
Equal pay – back pay: costs of meeting equal pay commitments in schools
Capital expenditure from revenue (CERA): where the authority uses revenue funding to
meet capital costs
Prudential borrowing costs: for repayment of some authority loans
These proposals are now confirmed with no changes other than the announcement of a cap on
losses of 2.5% and on gains of 2.4%.
Chapter 5: The future of the Education Services Grant
This Chapter described how the commitment to reduce ESG nationally by £600m would be
achieved.
Regarding LA responsibilities, the paper was clear that school improvement will cease to be a LA
responsibility for which it is funded from September 2017. Proposals on the future arrangements
have now been made for school improvement and its funding in the near future. The DfE asked in
the consultation if there are other responsibilities that could be ended to assist LAs to manage
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without the ESG. The consultation produced nothing of interest to the DfE and no further changes
are now proposed.
LAs will therefore have continuing responsibilities in three main areas:
•
•
•
Securing that sufficient school places are available, ensuring fair access through
admissions and working with schools to develop local transport policies, and taking a lead
in crisis management and emergency planning.
Ensuring the needs of vulnerable pupils are met: identifying, assessing and making
provision for all children with SEN and disabilities; promoting attendance; and making sure
that alternative provision is available for children and young people excluded from school or
otherwise unable to attend a mainstream school; leading on safeguarding for those pupils in
un-regulated settings, educated at home, tracking children missing education as well as
those at risk of extremism; working with schools to ensure they understand and discharge
their safeguarding duties; acting as a corporate parent for looked-after children and those
adopted from care.
Acting as champions for all parents and families: listening and promoting the needs of
parents, children and the local community; supporting parents in navigating the system and
ensuring children do not fall through the gaps; supporting children, young people and
parents to navigate local SEND arrangements (such as providing information, advice and
support); and championing high standards locally.
Stage 2 Consultation
The Stage 2 consultation on the NFF is set out in five chapters:
•
•
•
•
•
Chapter 1: Our overall approach to constructing the national funding formula for schools;
Chapter 2: Detailed formula design proposals;
Chapter 3: The impact of the proposed national funding formula for schools;
Chapter 4: Implementation of the national funding formula for schools;
Chapter 5: Our proposals for the central school services block.
Chapter 1: Our overall approach to constructing the national funding
formula for schools
In Chapter 1, the DfE sets out the 13 formula factors it has agreed to include as the basis of the
NFF as a result of the Stage 1 consultation. It then sets out its approach for the relative weightings
of these factors and the financial values attached to them.
The DfE wants pupil led funding to predominate but recognises that significant funding needs to
address deprivation issues. As a result, almost 73% of funding is driven by pupil numbers rather
than 77% currently, and additional need factors increase from 13% to 18%. Overall pupil led funds
move from 90% to 91% which would not seem to be a significant change given the emphasis in
the narrative on maximising pupil led funding. Local authorities in aggregate are doing this already.
Lump sum funding falls by 1%.
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DfE has recognised in these proposals that some LAs with uniformly high levels of deprivation
have used deprivation factors less in their formulae as higher per pupil funding would still reach
schools with pupils having deprivation attributes.
The table below summarises the current and proposed make-up of the formula and the weighting
of the respective factors. More detailed points are raised however in Chapter 2
Factor
2016/17 weighting
%
2016/17 cash
£M
76.6
24369
72.5
23255
Deprivation
7.6
2424
9.3
2985
Prior attainment
4.3
1367
7.5
2394
EAL
0.9
282
1.2
388
Mobility
0.1
23
0.1
23
Lump Sum
8.2
2610
7.1
2263
Sparsity
0.05
15
0.08
27
Premises
1.8
567
1.8
569
Growth
0.5
174
0.5
167
Per pupil funding
Area Cost
Total
Proposed
weighting %
Proposed
cash £M
792
31831
32071
Chapter 2: Detailed formula design proposals
In terms of pupil led funding, the proposals represent a small change from current practice. LAs
where pupil led funding is only 86% are probably supporting premises / lump sum elements more
strongly perhaps for historic reasons. Where schools are full or growing, this should be less of an
issue; where rolls are stagnant schools may be in some difficulty.
In terms of relativities, DfE proposes to maintain the funding relativities that exist currently. This
means no change in primary to secondary ratios, and at individual formula factor level existing
relativities continue. It is also a recognition that minor changes in the ratio would move significant
sums between schools. The ratio of 1:1.29 is not of itself validated other than retaining it minimises
turbulence in the formula. Research is quoted on the relative benefits of primary and secondary
investment but the conclusion drawn is that if you invest in primary it needs to be maintained in
secondary. However, in LAs where the ratio is less than 1:1.29 primary schools will be losers
locally and similarly secondary schools with a more beneficial ratio are going to be losers.
On basic entitlement funding, this will increase as pupils move through the curriculum. The actual
per pupil funding rates are arrived at by reference to current national averages.
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Consultees should note that while the reception uplift is permissible during the transition period it
is to end with implementation of the NFF in 2019/20.
The increase in funding for additional needs factors and in particular deprivation is well argued and
in line with the "closing the gap" Government policy and as newly expressed in terms of support
for the "just managing". In recognition of the needs of the latter group some attention has been
given to the IDACI data and its use. This should enhance confidence in its use, and counter some
of the concerns around the five yearly updates of the data.
Prior attainment data is also enhanced in terms of its funding significance as it is seen to be a
good indicator of need. The proposals do recognise that there will be challenges with the changes
in KS2 assessment data and so the more recent data is being adjusted so that it does not bias
data toward the most recent year and secondly proposes the development of a tiered approach for
2019/20, following further consultation, to enable targeting to those in most need of support.
EAL is enhanced in terms of the national funding committed to it partly as a result of ensuring it
applies to all schools. The bulk of the money is allocated to primary as now (75%). Funding rates
in secondary are however reflecting the greater challenges of acquiring language skills at these
ages. Again, this reflects current LA practice.
As stated previously, DfE have proposed the inclusion of a mobility factor but there is no clarity nor
consensus on the basis of what is being measured and how it could be done consistently across
all schools. Given the continuing doubts that are expressed in the Stage 2 consultation there must
be a significant probability that a satisfactory basis will not be found and that it slips out of the
formula again in 2019/20. LAs and schools that are committed to such a factor will need to
articulate, much more clearly and assertively, how the factor could fairly operate across all schools
Given the current financial commitment is £23m nationally out of a total of £23 bn, the likelihood is
that there will be minimal national resources going into making this a robust and equitable formula
factor.
On Lump Sum payments, there is an acceptance that there should be one to recognise the fact of
fixed costs in running a school. However, the Stage 1 consultation revealed no consensus on what
that sum should be nor how it might be arrived at. Historically, LAs had assessed the lump sum as
based on the costs of a Head, Caretaker, and an administrator or combination thereof. When
national requirements forced LAs to weight pupil led elements more they could only do this by
scaling down their original lump sum calculations. More recently, the factor became one that was
varied to help secure best fit in formula changes. It now appears that the latter approach is to be
adopted nationally and as a complement to the sparsity factor where it applies.
On sparsity, the DfE propose remoteness and smallness tests before a school can qualify. Eligible
schools can receive up to £25k in primary and secondary schools up to £65k. However, there will
be tapering arrangements so that when the smallest schools grow they lose a portion of their
sparsity funding rather than all of it. Although more money is to be spent in total on this factor this
is because many schools that currently would be eligible are located in areas where there is no
sparsity factor rather than an increase in the value of the sparsity factor at school level. For
schools who might have had above average lump sum and sparsity allocations the proposed
arrangements will likely lead to an overall loss of funding. DfE are clear however that in such
instances the minimum funding guarantee will provide them with some protection.
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On premises factors, the DfE has adhered to its Stage1 proposals and in terms of the national
funding formula set this funding aside first. The only variation in the Stage 2 proposal is that PFI
contract historical payments are to be uplifted by RPI(X) as per the standard government BSF
contracts.
On the growth factor, the DfE are to persist with their preferred lagged costs approach. Growth
during the previous two years will be used to calculate the allocation for each LA area. Essentially
LAs would receive the funds in retrospect and would have to find a mechanism to manage growth
allocations over a number of years if schools were to receive appropriate sums in the years they
needed them. Potentially, LAs with low historic growth would have to fund a deficit in periods of
high growth but it is not clear how such a deficit within the DSG could be managed? The DfE
considered ONS data but felt it was not precise enough to work at school level. Arguably, given
parental preference, ONS data are a poor indicator for growth allocations at an LA level. Whilst
they considered use of SCAP returns, the DfE conclusion is that LA predictions of growth and
costs are not to be relied on as they use different prediction methodologies even if they are a
sufficient basis for allocating capital funds to meet growth in school roll pressures.
An area costs adjustment was supported in the consultation and is to be implemented using the
hybrid methodology (reflecting teaching costs). This will provide an 18% uplift to the formula
allocations in the eligible areas.
The Stage 2 consultation reveals that this formula could result in losses of up to 10% in the per
pupil funding of some schools and that this degree of change would be unmanageable. It therefore
concludes that 3% loss per pupil is acceptable in terms of fairness and stability. Conversely for
gaining schools the DfE has identified £200m that along with resources from losing schools will
allow gains of up to 5.5% to be paid out over two years. As a result of these caps and floors, 54%
of schools should be at their formula allocation entitlement by 2019/20.
Chapter 3: The impact of the proposed national funding formula for
schools
This chapter of the Stage 2 consultation provides a range of analysis as to the impact of the
formula proposals reflecting what one might expect to see in any Schools' Forum report on the
impact of changes in a local authority funding formula. The analysis focuses on winners and losers
in terms of: pupils, schools, LAs, and regions.
Some of the highlights are: 2.5m pupils will attract 2% more funding than now and 2.1m pupils 2%
less. A further 2.3m lose or gain 2% of their current funding. The losers are a very significant
number: some 36% of all pupils in the country mostly located in Inner London. The greater
emphasis on additional needs factors does mean that some pupils with a range of needs attributes
can double the funds they attract to their school from £4300 to £8500.
At school level: 54% of schools gain and 75% of those by up to 5.5%. The balance would get more
but will have to wait until the next Parliament to get it. Over 9100 schools or 46% lose and most
lose between 1% and 3% of their per pupil funding. There are a number of reasons why schools
win and lose:
•
Where the primary to secondary funding ratio is greater than the national average of 1:1.29,
2400 are set to be gainers and 2960 will lose.
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•
•
•
•
•
Schools with low prior attainment; are gainers
Schools with pupils who live in areas with above average levels of deprivation are gainers;
Schools in areas where funding levels have historically been low (gains of 3.6%)
Small rural schools (gainers, potentially 3.3%)
Schools heavily affected by PFI payments (DfE have top sliced DSG for the cost of PFI
payments and then given this money to LAs to distribute back to schools)
The highest funded schools, per pupil, are located in Inner London and then other major urban
areas. Inner London schools on average are 17.4% better funded than schools elsewhere. An odd
outcome when the ACA for London is +18% and deprivation levels are still higher than elsewhere
in the country, one have expected the differential to be higher?
The highest losers are in Inner London with some other urban areas and this is said to be
because:
•
•
•
•
these areas are, relative to the rest of the country, less deprived than they were
London benefited from Excellence in Cities and similar grants that were rolled into local
formulae funding;
The hybrid ACA model is less generous than GLM model;
Small urban schools have reduced Lump Sum allocations and are ineligible for sparsity
In terms of LA areas, 101 gain and 49 lose. In many LAs, formula variations within the range of +/2% are sought as being a manageable degree of variation in a formula re-distribution. Here 47%
of areas fall within this level of variation. As the DfE takes the view that 3% variations are
manageable then 80% of LAs fall into this range.
The DfE says that one main reason for LA areas to gain is where there were historically low levels
of funding and, in those areas, gains of 3.6% can be expected for schools. Another reason can be
where areas invested more in the High Needs Block at the expense of the Schools Block. Other
reasons for gains would be where:
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•
•
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there is widespread low prior attainment;
Social deprivation was defined narrowly
There is a high concentration of small remote schools
There are high historic PFI costs
Where areas lose, this is due to use of more up to date social deprivation data, where the Schools
Block was better funded.
On a regional basis, all regions but Inner London benefit from the changes.
Chapter 4: Implementation of the national funding formula for
schools
In respect of 2017/18, the DfE announced allocations for LAs on 20 December 2016 and LAs will
have given final allocations to their schools, i.e. the Stage 2 consultation should change nothing
for April 2017.
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In 2018/19 the ‘soft’ NFF will be introduced to determine LA allocations. Local authorities will then
determine individual school allocations. The DfE expects that LAs will move their schools towards
the ‘hard’ NFF position. The soft NFF allocations will be subject to a 3% cap for gainers and the
MFG at -1.5% will apply to allocations for losing schools. The estimates for these figures will be
available in summer 2017 with a figure provided for per pupil funding and separate figures for the
fixed school led funding elements. The Schools Block for 2018/19 will be ring-fenced but where
LAs meet defined conditions they can apply for a transfer of resources to the High Needs Block.
In 2019/20 the hard NFF will be implemented. Allocations will be calculated as per the 2018/19
timetable with allocations ring-fenced. Some further operational details will need to be confirmed
as the result of a further consultation. Given the concerns expressed about the potential impacts of
the ring fence on High Needs provision, the DfE are now proposing a new arrangement for
schools collectively to manage a pool of Schools Block resources for particular High Needs issues.
This mechanism is to be the subject of further development and consultation before
implementation along with the role of Schools Forums.
In the Stage 1 consultation, the DfE had proposed an Invest to Save mechanism to encourage
efficiency in those schools that were likely to be losers. The view now is that as the losses are
being capped at 3%, those schools (mostly in Inner London) are able to manage the change
without such support. The DfE recognises that there are cost pressures for schools they estimate
at 1.6% p.a. which they must accommodate as part of achieving £1 bn efficiencies in the school
system. DfE also point to a range of financial management support and resources that are
available and some that will become available to help support the achievement of these
efficiencies.
Chapter 5: Our proposals for the central school services block
The DfE confirms the creation of a Central Schools Services Block that incorporates DSG central
spend and the remnants of the Education Services Grant. Other than the removal of school
improvement responsibilities no other change in responsibilities will occur. Those education
responsibilities of the LA outside the DSG, e.g. home to school transport, remain as now.
The allocation will be pupil led with an indicative rate of £28.64. In addition, there will be a
deprivation top up of £11.62 for activities such as education welfare services which will equate to
10% of the total allocation. Finally, there is an add-on for area costs but based upon GLM
methodology rather than the more expensive hybrid model on the basis that teacher costs are not
relevant to central services spend.
Finally, there are a range of historic commitments such as ongoing costs of past redundancies
which will be funded on a historic cost basis but on the understanding they will over time wind
down. DfE expect savings from winding down to be reinvested in other blocks of the DSG.
As regards transition, losses will be capped at 2.5% and gains at 2.4% with the caps set annually
by DfE. There remains scope for losses and gains to be continued in a new Parliament. It is
estimated that 81 authorities will gain resources from this change. Gaining areas will be expected
to invest these resources in other blocks of the DSG in consultation with their schools.
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Comment
In the Autumn Statement delivered November 2015, the Chancellor not only announced that there
would be a consultation on a national funding formula for schools but that “we will make local
authorities running schools a thing of the past”. If LA influence over schools is reliant upon its
role in funding arrangements and the responsibility for the performance of schools, then the new
funding arrangements for School Improvement in 2017 and the outcome of the Stage 1
consultation in confirming the introduction of a "hard" national funding formula in April 2019 move
us closer to the realisation of the former Chancellor’s statement.
The drive behind the implementation of a national funding formula for schools was the apparent
unfairness that a young person with a set of attributes and needs in one part of the country would
attract a different sum of money depending where in the country they went to school. Those
allocations were driven as much by the relative spending priorities of those authorities during the
early years of local management in schools as the aggregate funding that past governments had
allocated through national resourcing arrangements. The introduction of the DSG arrangements in
2006, led by the then Schools Minister David Miliband, using legislation in the Education Act 2002,
locked-in those historic local priorities as LAs had little or no ability to amend the relative priorities
of schools and other local services in the new system. The move to a national funding formula
would be the only way to address the post code lottery that was creating so much concern.
The outcome of the Stage 1 consultation and the DfE response presents few surprises. Some will
welcome the willingness of DfE to include mobility as a formula funding factor but the range of
caveats surrounding that proposal does not guarantee a role in April 2019 funding. Unless
schools, LAs and DfE can develop a robust methodology for measurement that is equitable across
the country it could yet fall out of the system. Those who experience issues with the "mobility" of
pupils will need to apply themselves to the task.
The introduction of a floor for losing schools at 3% from 2016/17 levels may bring a sigh of relief
for some but alongside inflationary pressures the loss by 2019/20 will be closer to 7% in real
terms. The DfE are convinced that this is easily manageable through efficiency. Given the
concentration of the losses on Inner London schools, those schools may collectively feel hard
done by and may think a London wide initiative appropriate as Outer London schools are by no
means the winners that they might have expected to be. An interesting case in point is Bromley
that gained in the previous allocation of resources as a low funded borough but now sees almost
every primary school lose about 2.6% but its secondary schools gain varying amounts.
The other significant outcome of the Stage1 consultation was the recognition by DfE of the
linkages between the Schools Block and the High Needs Block. The Stage 2 proposal that there
should be a mechanism to allow LAs and their schools to agree transfers of funds from schools to
High Needs is as welcome as it was unexpected. This is discussed further in the related High
Needs Stage 2 consultation Policy Briefing. However, the idea that school partnerships with LAs
would manage this may arouse alarm bells for Schools Forum members. As in the Early Years
consultation in the area around high needs, the role of the Schools Forum in future seems in
doubt. Schools Fora in their responses to the Stage 2 consultation on the NFF and the High
Needs proposals may want to consider what their future role should be or to elicit more
understanding from DfE on their position regarding the role. It is interesting to observe that as DfE
takes more responsibility for individual schools' funding they appear to be seeking to minimise
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potential local barriers to their approaches. Some might see proposals around responsibilities and
forms of school governance in a similar vein. In any event, legislation will almost certainly be
required to define the role of the LA and Schools Forum before the new arrangements are put in
place for the ‘hard’ NFF in 2019.
Formula Factors and weightings
The components of the formula are as expected. However, the level of the basic entitlement per
pupil will be lower than many had anticipated but the greater emphasis on additional needs factors
is clearly the right thing to do if closing the gaps is to be pursued and achieved. The question is
whether given the challenges nationally is the weighting toward social deprivation and prior
attainment high enough? Also, given the changes in assessment how robust are the data in this
area and the adjustments that DfE have made. Given these uncertainties, might a lesser
dependence on this be appropriate until the data have settled?
The proposals on the lump sum appear to be driven by the need to identify resources that can be
delivered through pupil led factors rather than an objective view of costs the lump sum should
represent. In the event, the DfE have settled for it as a contribution towards fixed costs. For small
rural schools that may suffer from this change they will have some compensation through the
sparsity factor. Small rural schools will need to assess if these changes in the round still provide
the level of protections they need.
The proposals around managing the growth in pupil numbers reflect the difficulties that the DfE
have with predictive data when provided by LAs. They have rightly dismissed ONS data as too
blunt for this purpose. However, they have concluded that the only safe option is to fund after the
event. Unfortunately, schools are sensitive to the need for growth funding and need it when the
growth happens and not a year later when a financial deficit may have been incurred. Rather than
fund retrospectively, an allocation based on LA predictions adjusted in a subsequent year would
be more practical than the proposed averaging adjustment and would more likely get the right
money to schools when they need it. Given Stage 1 consultees majority opposition to the
proposal, LAs may think it worthwhile developing further proposals in this area.
On PFI costs, the proposals to use the RPI(X) in the Government’s own standard for BSF
contracts is to be welcomed. Also welcome is the clarity that the costs of PFI contracts being met
from DSG are top sliced from the total and then fed-back to the schools incurring the costs. Some
LAs may wonder if they have shared the right information on school-PFI costs appropriately.
As regards the pupil-led allocation, the proposals on recognising each key stage were never
controversial but relativities between KS1/2 and KS3/4 are. The DfE have stuck with their
contention that the national average 1 to 1.29 is right because it’s the average and any variation
would force them to validate any other chosen figure, and to manage the subsequent turbulence.
The research referred to does not answer the question about the appropriate relativity of primary
and secondary funding. The research cited appears to support investment in earlier years but the
benefits need to be sustained with investment in subsequent years.
Finally, on the formula itself, the decision to use the hybrid model will not be a surprise and it was
supported by the majority of respondents who would likely have come from non-benefiting areas. It
was interesting to see that premises costs were introduced into the early years funding formula
ACA in response to concerns from childcare providers. Given the housing crisis in London, where
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working families are becoming homeless through the rise in housing costs, would an Area Cost
Adjustment based on housing costs be better? The hybrid methodology reflects higher teaching
costs being experienced but not the costs that would be incurred to attract all the staff including
Head Teachers to those areas in need. For London authorities and schools, especially those that
lose funding under these proposals, they may want to understand better, if the ACA uplift is 18%,
and they have the highest levels of social deprivation, how is it they are only 17.4% better funded
than other schools in the country as a result of these proposals?
Transition
The move to a hard NFF in 2019/20 enables the gains and losses to be spread over two years
with the 3% losses and 5.5% gains to be achieved in April 2019. However, it is not confirmed that
change will stop there and it is clear a future Parliament could allow further gains and losses to
take place.
In the soft formula year of 2018/19, LAs are exhorted to move schools towards their 2019/20
position within the Schools Block ring-fence. LAs will have some limited control over allocations
and may want to use precious financial expertise on the High Needs and central school services
block issues where there are greater risks to LA finances rather than the Schools Block. That said,
the potential flexibility between the Schools and High Needs block may alleviate some finance
stress.
In addition to potential formula loss, there is the matter of budget pressures around costs of
employment, pension and NI costs in particular, that are estimated at 1.6% in 2018/19 and again
in 2019/20. This means in fact that DfE believe losing schools can manage losses of almost 7% in
real terms rather than the 3% quoted in the Stage 2 consultation. DfE also take the view that such
reductions do not require any special help and support.
Local Authority Responsibilities and ESG
LAs will not be surprised by the Stage 2 proposals as they are in line with those set out in Stage 1.
Some LAs will be unexpected beneficiaries and will no doubt apply these resources to their High
Needs block. No further changes in responsibilities are proposed, leaving LAs to concentrate on
any relevant buy-back schemes and the challenges posed by the High Needs funding.
A positive response to consultation was that losses and gains are to be capped at -2.5% and
+2.4% in each of 2018/19 and 2019/20 making it consistent with the Schools Block transition
arrangements.
In conclusion, schools that lose through this redistribution may well be relieved that their losses
are capped at 3% but concerned as to the help they will get to manage this. Many of them will be
relieved that they have prepared for the worst by maintaining positive balances. Conversely, there
are a large number of schools that expected to gain much more from these proposals and will only
see a 5.5% gain by April 2019. There is no doubt that the funding formula is consistent in its
treatment of pupils across the country with similar needs, for those that argue they remain
underfunded it now becomes an overall resourcing issue for DfE rather than an allocation one. For
LAs, the Stage 2 proposals offer a chink of light in the management of High Needs issues but will
groups of schools be as supportive of them as Schools Fora have in the past?
© Local Government Information Unit/Children’s Services Network www.lgiu.org.uk 251 Pentonville Road, London N1 9NG. Reg
Charity 1113495. This briefing available free of charge to LGiU/CSN subscribing members. Members welcome to circulate
internally in full or in part; please credit LGiU/CSN as appropriate.
You can find us on Twitter at @LGiU
External links
DfE: Schools national funding formula: stage 2 consultation which gives access to nine documents
and workbooks detailing gains and losses at school level. They include:
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Schools and high needs national funding formulae Executive summary
Schools national funding formula Government consultation - stage 2
National Funding Formula summary table
Impact of the proposed schools NFF
Impact of the proposed central services school services NFF
NFF Equality Impact Assessment
DfE: Schools national funding formula: government consultation response – stage 1
Related briefings
DfE: High needs national funding formula consultation: stage 2 (forthcoming)
National Audit Office Financial Sustainability of Schools (forthcoming)
NAO - Financial Sustainability of Local Authorities: Capital Spending and Resourcing (January
2017)
Academies and maintained schools: oversight and intervention – NAO Report (November 2014)
DfE White Paper: Educational Excellence Everywhere (March 2016)
DfE consultation - High needs funding formula and other reforms (March 2016)
DfE Consultation - Schools national funding formula (March 2016)
NAO – Financial sustainability of local authorities 2014 (January 2015)
Education Services Grant 2015-16 (August 2014)
Fairer schools funding in 2015-16 – DfE consultation (March 2014)
Performance and Capability of the Education Funding Agency: NAO Report (February 2014)
LGiU Blog What “We will make local authorities running schools a thing of the past” might mean
(December 2015)
For further information, please visit www.lgiu.org.uk or email [email protected]
© Local Government Information Unit/Children’s Services Network www.lgiu.org.uk 251 Pentonville Road, London N1 9NG. Reg
Charity 1113495. This briefing available free of charge to LGiU/CSN subscribing members. Members welcome to circulate
internally in full or in part; please credit LGiU/CSN as appropriate.
You can find us on Twitter at @LGiU