National Funding Formula Delayed until 2018/19

After a lot of waiting, and tumultuous political events after the EU Referendum, at last we now know the lie of the land in relation to school funding. But even this involved a curious sequence of events.

On Tuesday 19th July, Edward Timpson provided a written answer to a Parliamentary Question about the timing of the National Funding Formula (NFF). His answer seemed clear enough:

‘We received a high number of responses to the first stage of our consultation on the principles and building blocks of the schools national funding formula. Those will inform our detailed proposals for the design of the formula, which we will put forward later this year. We must allow appropriate time to consider what would be significant reforms, and we remain committed to introducing the formula from 2017-18 so that schools can start to benefit from fairer funding as soon as possible.’

That left many of us scratching our heads as to exactly how this was achievable, given that many schools had already closed for the summer and therefore couldn’t contribute to draft responses from Schools Forums. For a department that runs schools, it’s strange that DfE often seems to forget about school holidays.

Considering the time it’s taken DfE to analyse the first stage responses (amid a change of ministers and the raiding of departments to find civil servants for the Brexit team), hitting the deadline for consulting on draft regulations in October seemed well-nigh impossible. We reasoned that the political pressure from under-funded schools must have won out, and that the consultation would have to be short.

Well, the timescales did prove impossible; the new Secretary of State Justine Greening announced on Thursday 21st July that the NFF would indeed be delayed to 2018/19.

Justine Greening

Ms Greening told the House that information on the government’s proposals for Early Years will be announced shortly (‘shortly’ being a rather stretchy term often used by DfE). The second consultation on the Schools and High Needs Blocks will be published when Parliament returns in September, along with an analysis of responses to the first consultation.

The delay means that the government will have time to run a twelve-week consultation period, in line with the usual recommended practice. This is in contrast to the first consultation, which only ran for six weeks, including two weeks over the Easter holidays. A longer timescale is a good thing, since the next set of documents are expected to be much more detailed, involving modelling of the NFF using illustrative factor values to show the potential impact on local authorities and schools.

It is important to note that the values published in the second consultation cannot be regarded as meaningful, because the final allocations for 2018/19 will depend on the data in the October 2017 census. The most likely approach is for DfE to run a test as if the exemplar values had been in place in 2016/17, which means using October 2015 data. You can see why it won’t be accurate, but it should give a flavour of the direction of travel.

The Secretary of State confirmed that final decisions will be taken early in 2017, allowing a full year for local authorities to prepare for the changes. We don’t see how values can be known this far in advance though, unless DfE holds a reserve to handle the data changes in the October census data between 2016 and 2017. They may not be prepared to take that risk.

The delay is being greeted with dismay from those who have lobbied for the changes on behalf of the lowest-funded areas. There is general concern too, because it prolongs the uncertainty for everyone. Five unions have joined together to urge the government to find extra money for schools who are under-funded, to prevent large-scale redundancies in the short term.

It is to be hoped that the delay provides some opportunity for the case for extra funding to be fully explored. However, no-one knows what the economic impact of the decision to leave the EU will be. Therefore we can’t rely on the new Chancellor waving a magic wand to avoid the unpleasant situation of taking money away from some children/schools to give it to others when the NFF is implemented.

The position for 2017/18 school budgets

Justine Greening recognised that LAs need time to prepare for the 2017/18 round of school budget setting. She announced:

‘I am confirming that in 2017-18 no local authority will see a reduction from their 2016-17 funding (adjusted to reflect authorities’ most recent spending patterns) on the schools block of the dedicated schools grant (per pupil funding) or the high needs block (cash amount).’

She also confirmed that the Minimum Funding Guarantee, which protects schools by setting a limit on how far their funding can fall from the previous year, would remain at -1.5% per pupil in 2017/18.

Local authorities and Schools Forums now need to consider how to treat the 2017/18 formula. Should they simply roll forward the existing formula in response to data changes in the October 2016 census? Or would it be desirable to smooth the transition to a NFF by making some tentative changes based on the information in the second consultation?

The big question is whether the timescale for direct funding by DfE will remain at 2019/20, as outlined in the first consultation. The two options are as follows.

a) The whole timescale slips by a year:

  • 2018/19 and 2019/20: The NFF is used to calculate LA DSG allocations and LAs run a local formula to distribute the Schools Budget (‘soft formula’);
  • 2020/21: DfE funds schools directly using the NFF.

b) The timetable for direct funding by DfE stays the same:

  • 2018/19: LAs run a local formula as above, but for one year only;
  • 2019/20: DfE funds schools directly using the NFF

One clue could be in the consultation on recoupment of funding for free schools, which was published on 21st July, the same day as the announcement on the NFF delay. The consultation document notes:

‘We will revisit how recoupment would be managed under the proposed ‘hard’ national funding formula (from 2019 onwards), when schools’ core funding is set by a national formula, in due course.’

Is this an oversight, a previously-written document that wasn’t amended for the announcement? Or does the government still intend to move to the ‘hard’ formula in 2019/20?

Politically, scenario b) above seems more likely, as Ministers will want to be able to achieve their policy aim before the end of this Parliament. However, this is only achievable if the current government doesn’t have to call an early election. There are so many uncertainties; we will just have to wait until the second consultation is published to find out which scenario the government is planning.

A sting in the tail for LA schools

The school funding operational guidance for 2017/18 has also now been published. One aspect, which wasn’t given much emphasis in the first NFF consultation, relates to the Education Services Grant (ESG).

This grant is currently in two parts:

  • Retained duties ESG – paid to LAs for functions that they undertake for all schools and academies in their area. It includes having a Director of Children’s Services, undertaking strategic planning for the education service, planning school places, and other statutory duties that are focused on children, no matter what type of school they attend.
  • General ESG – paid to LAs for functions undertaken for their own schools, and paid directly to academies for the same functions that they carry out themselves. We already know that this element is going to be cut, LAs losing all of it from September 2017 and academies having a phased reduction up to 2020.

At present, the total ESG paid to a local authority is non-ring fenced, meaning it can be spent on services other than education.

The first NFF consultation stated that the retained duties element would be transferred into DSG. It also indicated that DfE was considering whether some of the general ESG duties could be done away with. However, there was recognition that if some duties had to remain, LAs had to have some funding. So views were invited on whether LAs should be allowed to hold back some funding from DSG for functions delivered to their own schools.

A document was published on Thursday to define LAs’ current spending patterns, as a baseline for 2017/18. It stated that the retained duties ESG of £117m will be transferred into DSG from 2017/18, despite the delay in the NFF.

The new 2017/18 operational guidance now confirms that LAs will be able to withhold funding from LA maintained schools, in order to replace the lost general ESG from September 2017. The Schools Forum has to agree, but if there is a dispute, the matter will be referred to the Secretary of State for a decision. The deduction will be done after the budget share is calculated, in the same way as de-delegation currently operates.

The change will allow DfE to make a saving by cutting the grant, but it will cause a pressure for LA schools. It also means that LA schools, who haven’t had the grant in the first place, will see a reduction in their budgets from September 2017, whereas academies will continue to receive protection against significant reductions in their grant until it ceases completely in 2020.

The provisional General ESG allocations to LAs in 2016/17 totalled £389.9m. This was based on the following per pupil values:

Mainstream schools:         £77.00

Special schools:                £327.25

Pupil Referral Units:       £288.75

For a 350-place primary school this represents a pressure of around £27,000 and for a 900-place secondary school, £69,300. But the charges might not be at this level in 2017/18. DfE is considering which functions should be included; the first consultation asked for suggestions as to which duties could be removed. The 2017/18 deductions will also be for seven months rather than a full year.

So, we know a little more, but there is still so much to be decided. Watch out for information and analysis through this blog as further developments occur. You can sign up for a regular newsletter with all the current news on school funding at my other site which is a joint enterprise with Nikola Flint, who is a secondary school Director of Resources: