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

Published Monday, March 20, 2017

This Commons Library research briefing provides information about the planned introduction of a national funding formula for schools in England, due to be implemented from 2018-19. Department for Education consultations on funding reform close on 22 March 2017.

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School funding reform – a planned national funding formula

The Government is planning to introduce a national funding formula (NFF) to calculate the amount of core revenue funding that mainstream schools in England will attract in respect of primary and secondary (but not sixth form) pupils. 

There isn't currently a national formula like this. Local authority areas get different amounts of money per pupil in the Schools Block element of the Dedicated Schools Grant, or DSG. They then draw up their own local funding formulas to share the money out between schools, although they have to do this following DfE guidance.

What is the national funding formula (NFF) and how will it work?

This is the formula that will be used to calculate and distribute core revenue funding for mainstream schools in England.

There will be separate formulas to calculate early years funding and high need funding (largely this is for high-cost provision for children with SEND), as well as for some services still centrally provided by local authorities.

As well as money from the NFF, schools will also get income from other sources, including: the Pupil Premium which will remain outside of the NFF; 16-19 funding if they have a sixth form; early years funding if they have nursery classes; voluntary contributions and fundraising, to varying degrees; and capital funding for maintenance, renovations and new places, where appropriate.

When is the formula due to be introduced?

The NFF is due to be introduced in as a 'soft' format in 2018-19 and a 'hard' format from 2019-20.  In 2018-19, the formula will be used to work out how much funding a school should attract. This will then be aggregated up to local authority level and distributed according to a local authority-determined funding formula, as now. From 2019-20 the formula would be used to calculate schools' core revenue funding directly, and the role of the local authority in deciding how funding is shared out would be significantly reduced.

The Government is currently consulting on the weightings in the NFF, and its phased introduction. The consultation closes on 22 March 2017; a parallel consultation on high need funding is due to close then, too.

The DfE's illustrative figures on impact of the proposed NFF and other funding reforms

Alongside the second stage NFF consultation, the DfE has published illustrative figures showing how schools and local authorities might fare in two hypothetical scenarios under the proposals:

  • If the NFF had been implemented in full this year, 2016-17, without any transitional protections, with funding estimated using 2016-17 pupil data (2016/17 data for academies). The illustrative figure is then compared to a 2016-17 funding baseline. Figures are expressed in cash terms. 
  • If the NFF were implemented with transitional arrangements (maximum increase of 3% and maximum cut of 1.5% per pupil) as is planned, in the first year of transition, in 2018-19. Again, the figures are based on 2016-17 pupil data (2016/17 for academies). Results are then compared to 2016-17 baseline funding, and again, figures are expressed in cash terms.

These illustrative figures don’t show what any school will get in any particular year, but are intended to inform the consultation and give an idea of how the formula might work.

The DfE hasn't provided illustrations for future years beyond 2018-19, but has said that no school would see annual cuts in per-pupil funding of more than 1.5% in any one year and more than 3% overall (i.e. across more than one year) as a result of the NFF. Increases at individual schools will be capped at 3.0% per pupil in 2018-19 and 2.5% in 2019-20.

Allocations relating to the NFF in any particular year will depend on a range of variables including:

  • changes to pupil numbers and characteristics at individual schools;
  • the overall school funding envelope;  
  • any changes made to the formula post-consultation;
  • what transitional arrangements and protections are adopted;
  • In 2018-19, what local funding formula the relevant local authority adopts.

Potential impact of the NFF

The DfE's December 2016 consultation document explained that as a result of Government proposals:

  • 54% of schools would be funded at a higher level than in 2016-17. Around three quarters of those gaining would see an increase of up to 5.5% per pupil.
  • The remaining quarter of ‘gainers’ are due greater increases and consequently would take longer to attain their ‘target rates’.
  • 46% of all schools would be funded at a lower level. For the majority of these schools, the reduction would be between 1- 3% per pupil.

Groups of schools the DfE says are more likely to gain are:

  • Schools with low prior attainment.
  • Schools with pupils who live in areas with above average levels of deprivation but who have not been heavily targeted through historic funding decisions.
  • Schools in areas where funding levels have historically been low – but not every school in historically 'low funded' areas and not every 'low funded' area.
  • Small rural schools. (see section 3 of the main consultation document)

The DfE says that the main group of schools likely to see reductions are:

Those in Inner London and some other urban areas that have particularly benefitted from historic funding decisions and where underlying levels of deprivation have fallen over recent years […] The main reason that this formula would reduce funding to schools in these areas is that we are using the most recent data about relative levels of socio-economic deprivation.

Cost pressures and the wider school funding context

On 14 December 2016, the National Audit Office (NAO) published a report on the financial sustainability of schools in England. 

This said that mainstream schools, overall, would need to find £3 billion of efficiency savings by 2019-20.  This equated to a net real-terms reduction in per-pupil funding of around 8% for mainstream schools between 2014-15 and 2019-20. The NAO reported that:

  • The overall schools budget overall is protected in real terms between 2015-16 and 2019-20, but this does not provide for funding per pupil to increase in line with inflation.
  • This is partly because pupil numbers will rise significantly over the same period, and partly because schools are facing cumulative cost pressures from things such as pay rises, increased pension and national insurance contributions, and inflation.

Speaking in response to a debate of 25 January 2017, Schools’ Minister Nick Gibb said that core schools funding was being protected for the duration of the Parliament. The Government accepted schools were facing cost pressures.

He went on to say that the funding reforms were not about the overall level of school funding or the cost pressures that schools were facing, but about ending the "postcode lottery" and making funding fairer. Some of the cost pressures had “already materialised” and the DfE was providing high-quality advice to schools on better procurement, and budget management.

This note relates to England only.

Commons Briefing papers SN06702

Authors: Nerys Roberts; Paul Bolton

Topic: Schools

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