Best Practice

Financial turmoil forecast for schools

School finance Government policy Whole-school issues
The DfE has set out more detail of its plans for a fairer funding system. But with no new money, there will be winners and losers. Meanwhile, schools are facing increasing costs and real-terms reductions in per-pupil funding

The need to fund England’s schools more fairly and remove the funding inequalities that exist between local authorities is hard to deny. However, as we contemplate the proposed new National Funding Formula (NFF), there is increasing concern about creating winners and losers – and that even the winners in the move to a fairer system may not find themselves as well off as they might have thought.

It was forecast by the National Audit Office (NAO) in December 2016. Its report, Financial Sustainability of Schools, warned that schools will have some tough decisions to make in the years ahead. It confirmed that mainstream schools face:

  • An eight per cent real-term reduction in per-pupil funding between 2014/15 and 2019/20 due to increasing cost pressures and inflation.
  • Savings of £3 billion, which will be needed by 2019/20 to counteract these cost pressures.

Schools should be clear, there are significant budget cuts ahead and the unions believe that the notion of “fairer funding” will simply help to disguise this fact.

As Russell Hobby, general secretary of the National Association of Head Teachers, points out: “A new funding formula is the right thing to do, but it cannot be truly fair unless there is enough money to go round in the first place.”

The NASUWT sees the NFF as potentially damaging for those who the government purports to support most. General secretary Chris Keates said: “A real danger is that the proposals will reduce or remove vital support for pupils from poorer backgrounds and those families which are just about managing.”

The consultation

The Department for Education (DfE) set out its plans for a fairer system in March 2016. Following this consultation, the DfE said there was support for its proposed structure that will split the Dedicated Schools Grant into four blocks:

  • Schools.
  • High needs.
  • Early years.
  • Central school services.

Schools now face a move to the NFF from 2019/20. This will comprise a number of factors:

  • Basic per-pupil funding (age-weighted). The current proposal is for £2,712 per primary pupil.
  • Additional needs funding, including for deprivation, low prior attainment, English as an additional language and mobility.
  • School-led funding, including lump sum, sparsity, premises (rates, PFI, split sites, exceptional circumstances), and growth.
  • Geographic funding (area cost adjustment).

The second consultation, Schools National Funding Formula – Stage 2, is now focused on the weighting to be given to the different factors within the formula. The deadline to respond is March 22 and it is expected that the DfE’s response to this consultation will be published in the summer 2017.

The executive summary published along with the second consultation claims that the national core schools budget has been protected in real-terms since 2010 and that it will continue to be protected in real-terms overall until 2020. However, the NAO suggests that this protection is not entirely as it seems.

Gloomy predictions

In Financial Sustainability of Schools, the NAO points out that following the 2015 Spending Review schools are actually entering a period of reducing real-term funding per pupil. That means that funding per-pupil will not keep up with increases in inflation.

The need for schools to find more money comes with the introduction of the national living wage, higher employer contributions to National Insurance and the Teachers’ Pension Scheme and non-pay inflation. There is also some uncertainty about central services as the Education Services Grant to local authorities is being phased out.

The DfE is optimistic as to schools’ capability of adapting to the changes. Schools are being given the responsibility of making the cuts work. The NAO report states: “The Department can demonstrate using benchmarking that schools should be able to make the required savings in spending on workforce and procurement without affecting educational outcomes, but cannot be assured that these savings will be achieved in practice.”

However, the DfE’s benchmarking takes little account of differences in size and layout of schools, different pupil characteristics and levels of attainment. Past history suggests that what schools could save in theory and what they can save in practice are two very different things. For example, the DfE had hoped that schools would save £1 billion on back-office and procurement spending. Savings that were not realised in the end.

Winners and losers

So it is in this context that the NFF is set to be introduced. It is clear that without new money in the system, the NFF was always going to create winners and losers as the finite resources are effectively reallocated. However, in the context of schools having to find £3 billion in savings by 2019/20, all headteachers will be concerned about what will happen to their finances.

According to the DfE, the balance of schools gaining to those losing out under the NFF would be favourable, with 10,740 schools purportedly gaining funding. A total of 6,487 schools will, we are told, either gain at most two per cent or lose at most two per cent.

However, schools can check for themselves. The DfE document Impact of the Proposed Schools NFF, published alongside the consultation, offers information on how the NFF might look for you if it were applied to funding levels in 2016/17 (without any of the transitional arrangements).

A useful union-compiled website goes further. It clarifies the funding forecast for individual schools in terms of both the NFF and the £3 billion in cost savings being forced onto schools.

Individual school data can be checked by entering the school’s postcode, address or name. The website displays what the overall budget change is forecast to be by 2019/20, what the difference would be per-pupil and what difference this would make to the level of teaching staff at the school.

The School Cuts website has been compiled by the NUT, ATL, NAHT, GMB, Unison and Unite and suggests that schools will experience an average loss of £339 per primary pupil and £477 per secondary pupil by 2019/20. It claims that the schools that will find themselves worst off are in disadvantaged areas.

The outlook for schools

The evidence, both from the NAO and the unions’ website, suggests that schools will be forced to make very difficult spending choices and that these may put educational outcomes at risk.

The NAO notes that the DfE does have some measures in place to manage the risk of decreased spending but it is not convinced that they will work. It states: “Until more progress is made, we cannot conclude that the Department’s approach to managing the risks to schools’ financial sustainability is effective and providing value for money.”

Schools can and will make savings, but this may not necessarily be in the best interest of their pupils or the school workforce. Some of the ways that the NAO forecasts schools will reduce their budgets is through the replacement of more experienced teachers with younger staff and by relying more on unqualified staff.

They would like to see the DfE moving faster in order to help schools manage the reductions. In the meantime the word from the DfE is that schools can do it: “We already see great examples of schools delivering high-quality education at lower cost than others, so we know from schools in the sector that this is achievable.”

The DfE points out that schools have the freedom to decide how to spend their budgets. However, this is no real freedom if budgets are so constrained that only the basic services and core requirements can be met.

Mr Hobby added: “Already heads are being forced to cut staff, cut the curriculum and cut specialist support. Schools budgets are being pushed beyond breaking point.”

Improvements to outcomes for pupils have been hard to establish for many schools. They will now be wondering how far it is possible to bend without undermining hard-won achievements of the past.

Further information