Listen to this story Members can listen to an AI-generated audio version of this article. 1.0x Audio narration uses an AI-generated voice. 0:00 0:00 Become a member to listen to this article Subscribe Councils in England are struggling to finance new school buildings because of rising construction costs and insufficient cross-subsidies from new housing developments. Pupil numbers are declining nationally, creating challenges in many areas. But extensive housebuilding in some parts of the country, particularly in shire counties, means new schools are needed. A Leicestershire County Council report earlier this month said it had injected £19.3 million of discretionary funding since summer last year to support urgent projects for school places. The council estimated ten schools were likely to need additional funding in the medium term. “The department is urgently reviewing the position and options to reduce the costs and funding shortfalls”, the report said, adding that it “remains a significant education and financial risk” to the council. As a result, the council has produced a standardised school design with a reduced specification and proposed phased delivery to mitigate the impact of capital shortfalls. Among the reduced specifications are reduced class areas and two-storey builds to minimise footprint. Leicestershire blamed rising construction costs and inadequate funding from the section 106 agreements by which housing developers fund the infrastructure that new housing requires. Methodology change The council also pointed to reduced basic need funding from the government following a change in methodology, as well as planning delays and unexpected planning conditions. Leicestershire’s report said shortfalls in legacy section 106 funding agreements had arisen because of construction costs rising faster than the indexing applied to developer contributions. It also pointed to “abnormal costs associated with new school sites” not being “adequately reflected in historic agreements”. The cost of recent requirements such as zero-carbon measures and sprinkler systems also “were not anticipated when contribution levels were originally established”. The new basic need methodology, which took effect last year, brought in minimum thresholds of required places for funding to be provided. It discounted pupils forecast to arise from housing developments, a key driver of pupil growth in Leicestershire. The report said that “efforts to lobby the DfE have been unsuccessful”. Other councils face similar problems. Earlier this year North Northamptonshire estimated a £52.5 million funding gap for four new schools after accounting for grants and section 106 contributions. “Discussions are ongoing with the Department of Education on how these schools should be funded,” a council report said. “Due to the funding gap, these schemes cannot be included within the capital programme at this time.” Out-of-date agreements Graham Cheatley, the deputy leader of North Northamptonshire Council and its executive member for finance, told Schools Week that many of the section 106 developer contributions were agreed “several years ago”, in some cases more than a decade before the schools were due to be built. “While all section 106 contributions are index linked to reflect inflation, the funding levels were based on estimated project costs at the time and do not always account for subsequent increases in construction costs, changes in design requirements, site-specific challenges or the inclusion of additional facilities such as SEND or early years provision. “As a result, the cost of delivering some new schools is now considerably higher than originally anticipated, creating a funding gap between the contributions secured and the current cost of delivery.” He added that developers sometimes could not afford to up their contributions. The council was working with the DfE and other partners to try and resolve the issues. Last November, a South Gloucestershire report warned the funding of proposed projects to meet demand for new school places was “a serious concern” because of reduced basic need funding, insufficient cross-subsidies from housing developments such as section 106 contributions and construction costs increasing “extraordinarily” in the past few years. Rising costs Significant delays have meant project costs have risen. “A school that will be delivered for 2026-27 is much more costly than a school completed by 2021-22”, the report said. “Where possible in future the onus should be put on the residential developer to build out the new provision as part of the development rather than the cost and time risk for delivery sitting with the council. Ian Boulton, co-leader of South Gloucestershire and its cabinet member for education, said funding challenges had not cancelled, delayed or downgraded projects. Reviews of individual schemes reflected changing patterns of demand and pupil forecasts. A Warwickshire County Council report from last autumn, which estimated a £12 million funding shortfall, said the council was considering mitigations that included requiring developers to build new schools as part of housing schemes. Another option was to postpone school-building schemes if housing “has not come to fruition to support cashflow at the time of approval”. “Financing the future programme presents a significant challenge to the council with no obvious solutions,” the report said.