‘The national funding formula: an easy guide’

Few would argue with the merits of a national funding formula and a fairer distribution of the current quantum.

There have been historic winners and losers in school funding and, while a move to a national formula will address this inequity, the challenge will be how we transition from one funding system to another in which inevitably there will again be winners and losers. The speed of the transition and levels of protection will be central to this debate.

But first we must understand “the science”.

The Dedicated Schools Grant (DSG) is the main source of revenue for state-funded schools in England serving 5 to 16-year-olds. It is currently divided into three un-ringfenced blocks. The largest – the schools block – should cover the core provision for pupils in primary and secondary education.

The allocation is based on historic per-pupil funding with large variations between authorities across the country.

As well as large variations in the average per-pupil funding received by local authorities from government, the onward distribution to schools use local formulae that also vary considerably in terms of the relative importance given to different factors such as deprivation, prior attainment and sparsity.

Inevitably there will again be winners and losers

This approach has resulted in significant inequities across the system, with schools in very similar circumstances and with very similar characteristics being funded very differently. The coalition government attempted to bridge the gap between the lowest and highest funded authorities by introducing a further £390 million into the system towards the end of the last parliament. However, it stopped short of a full national funding formula. Since its election, the Conservative party has pledged to introduce a national funding formula within this parliament – that is, before 2020.

Now, in the first phase of a consultation about how to do this, the Department for Education is focusing on broad principles – in other words, this phase is all about winning hearts and minds. It is also difficult to speculate about the direct impact changes to the formula may have without knowing more detail around the weighting factors that will come in phase two.

The consultation published last Monday provides a steer on the government’s current thinking, though. It shows there will be:

• introduction of a school-level national funding formula where the funding each pupil attracts to their school is determined nationally

• implementation of the formula from 2017/18, allocating funding to local authorities to distribute for the first two years, and then to schools directly from 2019/20

• ring-fencing schools block to be implicit with no latitude to move money out

• review of the future role for Schools Forum

• creation of a new DSG block for local authorities’ ongoing duties

• ensuring stability for schools through the minimum funding guarantee and by providing practical help, including a restructuring fund.

Between 2017 and 2019, local authorities will maintain a role in the distribution of funding. From 2019 that role diminishes and funding will go directly to the school.

The proposals also suggest a ring-fencing of the schools block with a separate block for local authority central services. While protecting the schools block in this way appears a positive move for individual schools, the level at which this is set and the amount destined for the central services block will be vital.

Those presiding over school budgets – school business managers, finance directors, chief financial officers – may want to consider the implications of funding moving directly to their institutions without the intervention of local authorities and a local formula. Speculating on the extent to which you will benefit or lose is near impossible until the details of phase two (expected in May), though understanding whether you are in a low-funded or generously-funded area will perhaps offer some indication of the potential impact to your current funding allocation.

The appetite for expediency in this process will determine the direct impact on schools during this parliament. It is perhaps not unreasonable to suggest that a degree of caution be exercised to ensure minimum turbulence.

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  1. Alistair Thomas

    There are some really interesting ideas in this article, not least the idea that we should wait for phase 2 … to see the detail of the fair funding formula to be able to assess the likely impact. Yes, you can’t asses impact without seeing the detail but should you wait for the detail? No. Do we imagine that the next part of the debate is going to be about the detail? In 20 years, teams of experts in 151 LAs have singularly failed to agree on the detail of education funding. Do we honestly believe that in 6 weeks of national debate we are going to achieve what the experts failed to do?

    We weren’t promised a consultation on principles but we were promised consultation on Early Years, Schools, High Needs and the imminent withdrawal of funding for education services. Actually, given the complexity of any one of these areas, it makes perfect sense to take a step back and look at the underpinning principles. Not least, if the low-funded and well-funded could agree on anything it would be on matters of principle. It becomes much harder to agree once the consequential impact of applying those principles becomes clear; of course there is also a political bonus in deferring discussion of consequences until after other politically sensitive events, but only a cynic would cite such political expediency as a driver because our only concern is the welfare of the pupils, right?

    What a shame then that the principles discussion we’ve been given is so narrow and disjointed. The principles of education go right through all phases of education. If ever there was a discussion which could include everybody from early years to Post-16 then it would be one about principles. Instead we are given another schools-block-only initiative with High Needs in a separate thread; no early years; Post-16 still out in the cold, and services up for the chop or in some weird new schools group instead of looking at the potential for services to underpin all phases. If having a limited debate wasn’t bad enough, how about holding it when most Primary heads are in the most critical point of the year budget-wise closing one year, opening the next, have it coincide with the Easter holidays and then release the first white paper since 2010 to distract everybody even further.

    If we are to understand “the science” it would be help if we started with some actual facts. Ages 5 to 16 is just the schools block. The DSG does indeed cover three blocks which includes Early Years which starts at age 3. There’s also a significant level of 2-year-old funding which is not strictly part of the DSG but has run in parallel for several years and is part of day-to-day pupil funding. The High Needs block of the DSG covers needs for Post-16. The more you know about “the science” of how education is currently funded the more you realise that it is impossibly complicated. Don’t despair however, because part of the promise of fair funding is to address all this, but it can only do this if all funding for 2 to 19 year olds is brought under one roof. That’s unlikely if we allow the government to keep looking at this through the narrow lens of only schools.

    Going back to waiting for the detail to arrive, that could be a mistake. When the government arranged the £390M top-up to the schools’ block, expert advice on how to create the perfect formula was already in existence from the likes of f40; no doubt the DfE had its own ideas too. However, they didn’t try to use any special logic and just used national averages instead. These are the collective results of funding experts from 151 counties, and the sample size is every pupil in England. What subset of expert opinion could compete with this data set? Why would the DfE start anywhere different for the national formula? In short, once the principles have agreed what factors are in/out, what type of cost adjustment, what basis for deprivation etc, the national averages will drive the factor weights. Miss your chance to contribute to the principles in play and you may have by extension lost your chance to affect the details too. The sort of detail that will be decided later is the length of transition to fair funding.

    Now if we return to the substance of this consultation, If you take a genuine step back to look at education funding from first principles, then two things quickly become apparent:
    • First, there is not a single funding formula but a funding framework with a separate formula for each phase. These formulae have common threads (actually partially identified in the government’s proposals: Basic entitlement, special factors and cost adjustment etc. These threads are the glue of the framework suggesting the potential for synergy between phases and a more consistent pupil experience across all phases. Services are formulaic too but run across the framework supporting all phases.
    • Secondly, it doesn’t matter how good the framework is, it will not achieve its full potential if it does not operate under an appropriate scheme of governance.

    Funding of education and governance of education are two sides of the same coin. By way of example, the perfect national funding formula is an illusion. A one-size-fits-all national formula cannot possibly meet specific local need. However, local education need in one area is very similar to local need in another so there is scope for a lot of consistency. Since the perfect is impossible, the best possible solution will involve compromise, say 80% national consistency, 20% tailored to local need. If you are going to tailor funding to local need (even only 20%) you need local governance, but of course local governance is scheduled for termination. So what’s to be done? Reconsider.

    The other thing with an inflexible system is that it can’t adapt to change, and yet the one thing that never changes, particularly in education, is that change is certain. The great thing about a flexible system is that you can collect all the changes every year and reset the base points. In this way the system is self-adjusting, continually improving.

    If local governance is to achieve a reprieve, then we need to revisit its terms of reference. Clearly tailoring national funding to local need is desirable. County-wide admissions coordination, capacity planning and capital development all benefit from joined-up local thinking albeit that these are incorrectly sitting outside local governance for academies currently. The most contentious area appears to be school improvement. We can’t have local government driving a school-led system can we? But could local governance broker outstanding schools to help struggling schools? Better yet, why not have education leaders oversee all education governance? Expand the concept of a school-led system to an education -led system as the ASCL advocates in its blueprint for a self-improving system and you have a solution that is truly fit for purpose.

    Education ministers tell us that we can’t have two systems, and they’re right. We have to get central government out of local governance as quickly as possible.

    Governance of education, by education, for education – the solution for both local governance and fair funding.