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School funding in England. Current system and proposals for 'fairer school funding'

Published Wednesday, January 11, 2017

This note provides background on the planned introduction of a national funding formula for schools in England, now due to be implemented from 2018-19. Information on reaction to the proposals can be found in sections 3 and 4.

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What is the issue?

The average amount of per pupil school funding individual local authorities in England receive from the Government varies considerably. Funding is distributed onwards to schools using local funding formulas, which give different weights to different factors, meaning that different schools, even within the same area, receive different levels of per pupil funding.

Critics argue that these disparities are unfair, and that funding should more closely reflect area, school and pupil characteristics.

What is the current Government proposing?

The Government is proposing the phased introduction of a new national funding formula from 2018-19. Originally, the intention was to introduce the formula from 2017-18.

The Coalition Government began reforms, holding a number of consultations and allocating some additional funding to the ‘least fairly funded’ areas. However, they stopped short of introducing a national funding formula.

First stage consultation – March 2016

In March 2016 then-Education Secretary Nicky Morgan announced the first of two major consultations on further funding reform. This proposed a national school funding formula to include a basic per-pupil amount, and factors reflecting pupil characteristics, school and areas costs. The precise composition of the formula, and weighting given to the different factors is the subject of a second consultation –see below.

The Government intends that most funding – with the exception of high need funding – will eventually be given directly to schools and not routed through local authorities, as now (in the case of maintained schools).

‘High need’ funding largely supports special educational provision. For this funding, the Government is also proposing the introduction of a national formula which will be used to allocate money to local authorities. However, for at least the next five years, funding allocations would continue to be calculated, in part, on the basis of LAs’ planned high needs spend in 2016-17 and not solely on assessed area needs, in order to ensure stability.

Reaction

There was widespread welcome for the principle of moving toward a more transparent distribution of school funding. Some expressed concern about the detail and implementation of the proposals, and the potential for areas that are now comparatively ‘well-funded’ – including much of London and some other urban areas – to lose funding.

Delay to introduction of national funding formula announced July 2016

Again, reaction to the announced delay was mixed. Some commentators have welcomed the fact that the Government has listened to sector feedback on proposals, but others have argued that schools in ‘low funded’ areas cannot afford any delay and need extra interim funding.

Second stage consultation of December 2016

On 14 December 2016, the DfE published the second stage of its consultation on school funding reform. This confirmed the intention to introduce a ‘soft’ national funding formula from 2018-19, and a ‘hard’ formula from 2019-20. The DfE has proposed limits on gains and losses in 2018-19 and 2019-20.

Impact for individual schools, constituencies, and local authority areas

Alongside the consultation documents, the DfE has published tables of figures illustrating potential impacts for schools and local authorities. The DfE is clear that these are not actual allocations for schools or local authorities in any particular year, and are for illustrative purposes only, to inform the consultation. See section 4.1 of this note for further information on interpreting this data.

How are English schools funded now?

The Dedicated Schools Grant

The main source of revenue for state-funded schools in England is the Dedicated Schools Grant (DSG). In 2016-17 total DSG is worth £40.7 billion. This is notionally divided into three non-ringfenced blocks, the largest of which was the Schools Block at £32.7 billion, or 80% of total DSG, in 2016-17. The Schools Block is intended to cover core provision for pupils in mainstream primary and secondary education up to the age of around sixteen.

Schools Block allocations are largely calculated based on how much an area received per pupil in the previous year, subject to some adjustments. A key factor, therefore, in how much areas receive per pupil is how much they received historically.  

Local funding formula

Local authorities don’t distribute school funding straight on to their maintained schools; they apply a locally-determined funding formula first. There is some variation between local formulas in terms of the relative importance given to different factors like prior attainment, deprivation and sparsity. The local formula is also used in part to determine academy schools’ funding.

The wider school funding context

Schools in England report that they are facing rising cost pressures, especially from increased staffing costs.

In the November 2015 Spending Review, the Government said that the core schools budget would be protected in real terms over the Spending Review period, and that per pupil funding levels will be maintained in cash terms. Funding for the pupil premium would also be protected in cash terms.

Savings of around £600 million would be made from the Education Services Grant (ESG). This is additional funding given to academies and local authorities for services such as human resources, school improvement and education welfare services.

The Institute for Fiscal Studies (IFS) estimated in April 2016 that there would be at least a 7% real terms reduction in per-pupil spending between 2015-16 and 2019-20, or about 8% if changes in the costs likely to be faced by schools were also accounted for.

National Audit Office report on school finances: December 2016

On 14 December 2016, the National Audit Office (NAO) published a report on schools’ financial health:

This reported that the department’s overall schools budget was protected in real terms, but did not provide for funding per pupil to increase in line with inflation. Mainstream schools in England would be required to make £3 billion of savings by 2019-20, to counteract cost pressures. This equated to an 8% real-terms reduction in per-pupil funding for mainstream schools between 2014-15 and 2019-20.

This note relates to England only.

Commons Briefing papers SN06702

Authors: Nerys Roberts; Paul Bolton

Topic: Schools

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