What does the evidence say about school funding and the National Funding Formula?

Education Secretary Justine Greening has today confirmed plans to introduce a National Funding Formula. Schools will receive an extra £1.3 billion per year which will provide schools with “the investment they need to offer a world-class education to every single child.” The extra funding will come from savings from existing departmental budgets
over the next two years.

The day before the general election in June 2017 an Ofsted-graded good primary school in Bradford wrote to parents urging them to consider a proposal to change the school day. Cuttingly Village Primary said in the letter that because of budget pressures it needs to look at cost cutting without reducing staff. They proposed cutting the teaching week down to four and a half days. The government has said that “…no school will lose funding as a consequence of moving to the new fairer national funding system” (Nick Gibb, House of Commons, 4th July 2017).

School spending covers pupils aged 5-16 and has been relatively protected in recent years. The current system sees councils distribute the dedicated schools grant based on the number of schools, the level of need and early years provision. This is known as the schools block unit of funding (SBUF) with a central schools block (CSB). The SBUF is currently allocated to local authorities by central government, but is done in a way that is heavily influenced by historical allocations of spending within each authority. It has been a major reason why some areas in a local authority can receive more money than others.

The Government plans to end unequal funding across the country. For example under the NFF a school in Barnsley could receive 50% less than a school facing similar challenges in Hackney, east London. This is because of extra funds having been directed in the past to areas of higher deprivation and need. But many argue this is based on historical levels of need which are now out of date.

In 2017 the DfE announced plans for a national funding formula for state schools in England. Currently there are 152 different local funding formulae. This will be the ‘largest shake-up in school funding in England for at least 25 years’ (IFS).  Under the plan some schools could win whilst others might lose out. The Department has said that the current funding system is ‘unfair, untransparent and out of date.’ (Source: Secretary of State for Education, Justine Greening, ‘Schools and high-needs national funding formulae’ December 2016).

A few figures (Source: IFS)

– total spending on schools in England represented just under £37billion (2016-17 prices) in 2015-16. This was 11.5% of the total public service spending in England

– £4,900 is spent on primary school pupils and £6,300 on secondary school pupils

– primary school spending per pupil has increased by 114% in real terms and secondary pupils by 90%. This is the result of successive governments prioritising school spending, with per-pupil spending rising 5% per year in real terms during the 2000s and then being protected in real terms since spending cuts took effect from 2010.

– between 2015-16 and 2019-20 spending per pupil is expected to fall by 6.5% in real terms and will be the first time schools have seen a real-terms cut in spending per pupil since the mid 90s. Primary and secondary school spending per pupil are expected to fall by around £300 and £400 per pupil respectively. (Source: The IFS, ‘Long run comparisons of spending per pupil across different stages of education,’ February 2017).

The Government has said that they are spending record amounts on school funding – £41billion in 2017 rising to £42billion in 2018. A consultation seeking views on the detailed design of the schools national funding formula closed in March 2017. Nick Gibb has said that the Government will set out its plans shortly. 

How will the National Funding Formula work: 

(House of Commons Library briefing report: ‘School funding in England. Current system and proposals for fairer school funding.’)

There are four ‘building blocks’ which will be taken into account when setting school budgets. These are:

Block A – per pupil funding. Every primary school will be awarded £2,712 per pupil regardless of location, school size or any other factor.

Block B – additional needs funding to help raise attainment for the disadvantaged – such as schools with low prior attainment, high socio-economic disadvantage, English as an additional language and schools who have a high number of pupils joining during the year.

Block C – school-led funding – including a lump sum given to every school; extra money for small or isolated schools who are not in the position to share facilities with others; money for premises such as rates and split site schools; and money for those schools who will be increasing their numbers.

Block D – geographic funding – schools will receive funding according to location recognising the difference in teacher salary according to the region.

(Further information on the break down of these blocks can be seen in this Schools Week article).

What will be the effect on schools – winners and losers? 
Analysis by Education Policy Institute (February 2017) shows that there are unlikely to be any schools in England which will avoid a real terms cut in per pupil funding by 2019-20, even after the introduction of a new schools funding formula. This could roughly equate to, on average, the loss of almost 2 teachers per school across all primary schools and 6 teachers across all secondary schools. (EPI report, ‘The implications of the National Funding Formula for schools.’ )

Individual schools will lose or gain hundreds of thousands of pounds in the first year of the biggest shake-up of school funding in England for decades.

One school for example – Nottingham Academy – will get £224,000 less in the first year of the new funding formula. Two, Loxford School in Redbridge and The Sydney Russell School in Dagenham, will be £300,000 better off amid moves to end a “postcode lottery.”

The schools that are likely to benefit will include those which have low prior attainment, those where pupils live in high areas of deprivation, schools where funding from the local authority is already low, and small rural schools.

Approximately 10,740 schools will gain, whilst 9,128 stand to lose out on funding. (TES 14 Dec 2016). Inner London schools are likely to see their budgets cut, mainly due to changes in socio-economic disadvantage. In the regions, schools in areas such as Barnsley and Birmingham will gain.

The new formula means less money for urban areas including inner London, Birmingham, Manchester, Nottingham and Coventry. Head teachers representing about 3,000 schools say the new national funding formula ignores inflationary cost pressures faced by all schools. It means every state-funded school in Southend-on-Sea, Hammersmith and Fulham, Lambeth and Camden will either have less or the same funding as now. In Birmingham, the largest education authority, 15 out of 386 schools, 4% of the total, will see funding increase. (Source: ‘Financial sustainability of schools,’ National Audit Office report, December 2016).

Pupil premium funding will not be affected.

What does the evidence say about school funding and the National Funding Formula? 

Chris Belfield, Claire Crawford and Luke Sibieta from the IFS:
“The main challenge for the school sector will be implementing substantial reforms to school funding at the same time as schools face real-terms cuts for the first time in 20 years. The proposed National Funding Formula (NFF) for schools in England will replace all 152 separate funding formulae across local authorities with one single national formula. This will lead to redistribution in funding across local authorities, but perhaps even more within local authorities, as formula factors are harmonised across local authorities.

Recognising this, the government has already planned for the transition to happen gradually over time, though the start has now been delayed from April 2017 to April 2018.
The transition is likely to be further complicated by the expected real-terms fall in school spending per pupil. Adjustments will have to be implemented through real-terms cuts to at least some schools rather than larger increases to ‘under-funded’ schools.

This will be the first time in two decades that school spending per pupil has declined in real terms across the country. It also comes at a time when schools need to recruit more teachers to accommodate a growing pupil population (expected to grow by around 7% between 2015–16 and 2019–2033). An increasing focus on academic subjects is also likely to pose a challenge for secondary schools as these include subjects that are already experiencing teacher shortages (e.g. modern foreign languages), further increasing recruitment costs.”
‘Long-run comparisons of spending per pupil across different stages of education,’ The IFS, Febriary 2017.  

London School of Economics 
The proposal for a funding formula was announced in the autumn statement in November 2015 by the then chancellor, George Osborne. Steve Gibbons, Professor of Economic Geography and expert in the economics of education at the London School of Economics has researched pupil funding. He explained what the changes could mean:

“My initial reaction is that reform to the funding rules makes a lot of sense. At present funding is determined by local authority level factors (including demographics and teacher costs). Local authorities then allocate money to schools, but not in ways that necessarily compensate schools for the specific disadvantaged intakes they face. This creates all sorts of anomalies.

For example a school in a rich neighbourhood in a deprived London borough can end up receiving high income per pupil because the borough faces high levels of deprivation and high staff costs. On the other hand a school in a deprived neighbourhood in an affluent local authority in the north could receive low funding per pupil, because there are low staff costs, and the population as a whole in the local authority is relatively well off.

As we showed in our 2012 paper on these funding differentials they have real consequences for student achievement with students in schools in a higher-funded local authority performing better than students in neighbouring schools in lower-funded local authorities.

Linking funding directly to school circumstances would help address these disparities. However, it is unclear to me how compensation would be made for different staff costs under the new system, a factor which largely explains why London schools end up receiving more revenue per pupil than schools in other cities with more disadvantaged intakes.”


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