DfE proposes DSG rule change as town halls brace for £230m schools overspend

The government is consulting on a move that would stop councils from using their general resources to plug deficits in school funding, as town halls brace themselves for huge overspends this year.

A consultation today proposes changes to the arrangements for the dedicated schools grant, the ring-fenced money councils receive to fund the schools in their area.

The government’s intention is that DSG deficits should not be covered from general funds

Under current rules, councils can fund all or some of their overspends on the grant from their general resources, or carry some of those overspends forward to the next financial year.

But the government has announced that its intention is “that DSG deficits should not be covered from general funds but that over time they should be recovered from DSG income”. These deficits should be covered by future funding increases instead, the consultation states.

According to the document, DSG overspends recorded in previous years were “small”, but pressures on the high needs budget have led to “more and larger overspends in recent years”.

Recent data on council budgets shows that about half of all authorities experienced a DGS overspend at the end of 2018-19, amounting to £250 million on total.

The national net overspend, taking underspends in other authorities into account, was £40 million in 2018-19. By the end of 2019-20, it is expected to reach £230 million.

According to the Department for Education, additional funding announced by the education secretary in August “will help many local authorities to bring their DSG accounts into balance”.

However, ministers acknowledge that “a number of authorities will already have substantial deficits at the end of 2019-20 and will not be able to recover them immediately”.

The proposed rule change seeks to stop councils from making spending reductions “in other services that they would not otherwise make” to cover these deficits in school funding.

The DfE has held discussions “about changes that we might make to the DSG conditions of grant and the regulations in order to create certainty that local authorities will not have to pay for DSG deficits out of their general funds”.

“The proposals we are now making following these discussions are described below, and are intended for implementation from the start of the financial year 2020-21, so that local authorities would take them into account in setting budgets for 2020-21.”