Select Committee on Education and Skills Minutes of Evidence

Supplementary Memorandum submitted by the Department for Education and Skills (DR08)

Question 86: What will be the impact of the new Local Education Authority (LEA) Funding System on Schools

  1.  In the new system, two main funding blocks, to be distributed through separate formulae, are proposed: one for schools and one for LEA functions. Each authority's share of the schools funding block will be known as its schools funding assessment. The aim is to introduce clarity around the funding being made available for schools and for LEAs.

  2.  The Government will be introducing a transparent account of school funding that authorities will send to all council tax payers. The account will compare an authority's budget for schools, with the schools funding assessment, and will include a year on year comparison. The aim is to show very clearly if the funding being made available for schools by the Government is being passed on to schools by local authorities, and so put pressure on authorities to pass on increases.

  3.  The Education Act 2002 includes a reserve power for the Secretary of State for Education and Skills to set a minimum level of budget, where she believes the proposed schools budget set by an authority is seriously inadequate. It is expected that the reserve power will only be used in exceptional circumstances.

  4.  In the September 2000 Local Government Finance Green Paper a commitment was given that no authority's schools would lose out in real terms as the new system of LEA funding is introduced. We are currently considering how best to implement this guarantee.

  5.  The consultation on the new system of LEA funding ends on 30 September. Ministers will take decisions on the final form of the system in October, and the provisional Local Government settlement for financial year 2003-04 will be made at the end of November, and finalised at the end of January.

Question 98: Use of information from the 2001 Census

  For the 2003-04 funding arrangements for LEAs the Department will be using the population figures from the 2001 national census. The sparsity indicators from the 2001 census will not be available in time. We are not planning to use any other data derived from the census in the 2003-04 arrangements.

Question 98—Measures of deprivation

  1.  The Department is committed to tackling deprivation and educational under-achievement, wherever it is found, and is playing a key role in the Government's strategies to renew deprived neighbourhoods and combat social exclusion.

  2.  The Department recognises that the use of the postcode to identify deprived individuals is inadequate as it only identifies deprived neighbourhoods. In some urban areas affluent individuals live in the same postcode as those from lower socio-economic groups. Targeting resources on these mixed postcode areas may result in help being directed to some people who do not need it. Further information about the individual is required to do determine if a household is deprived (eg on their education, income, employment, health, housing etc).

  3.  The standard indices of deprivation take a wide range of statistical information from a range of Government Departments. A list of 88 Local Authority Districts that are deprived areas is produced which is essentially the lowest geographical denominator available from the information. These are the focus of the Department's Neighbourhood Renewal agenda. The Department is represented on the project which is developing and further refining the indices of deprivation. This project, will almost certainly look at whether there is sufficient data across Government that can help define areas of deprivation in terms of smaller geographical locations.

  4.  The Local Statistics Unit within Analytical Services has been set up to help the Department maximise the quality and range of local statistics we can disseminate and to help policy colleagues link these local statistics with the Neighbourhood Renewal areas. It will help Analytical Services develop its datasets so that better local statistics can be produced and improve the Department's work on Neighbourhood Renewal issues.

  5.  The Local Statistics Unit also contains experts on mapping and Geographical Information Systems. It has helped the Department sign up to the Cross Government Agreement to access free Ordnance Survey data. This data will enhance the Department's ability to map the impact our polices and programmes are having on local areas. It will also help us share information across Government Department's to help join up policy thinking to tackle Neighbourhood Renewal.

  6.  Members of the Local Statistics Unit play an active part in cross Government meetings that play a vital role in helping promote Neighbourhood Renewal issues.

  7.  Some of the ways that the Department is addressing the question of deprivation in its main programmes are indicated below:


Nursery Education Grant

  8.  Nursery Education Grant for three year olds was introduced in September 1999. Universal funding of four year olds has been in place since September 1998. In 2000, the Government made the commitment that there would be universal funding of three year olds from September 2004. Until then, available funding is allocated to LEAs primarily according to their position on the Department for Transport, Local Government and the Regions' Index of Multiple Deprivation. Currently 65 of the 150 LEAs have achieved universal funding. The remaining LEAs are responsible for devising criteria for distributing places in their area according to social need.

  9.  This is the first Government to have specifically funded free nursery education for three year olds. In 1999-2000 £40 million was made available for this purpose. This was increased to £100 million in 2001-2002 and, over the three financial years 2001-02, to 2003-04, a further £986 million will be made available for the creation of new, free nursery places for three year olds and for other early years initiatives. £275 million of this will be available in 2002-03 to further increase free early education for three year olds.

  10.  Over 66 per cent of three year olds in England are currently able to access a free nursery education place and 170,000 free places for three year olds have been created since 1997.

  11.  Currently 65 of the most deprived LEA's offer a free place to all three year olds in their area. Recent funding increases will mean a steady increase in places for three year olds in the remaining authorities. All LEAs will be able to offer all three year olds access to a free early education place by September 2004.

Capital funding

  12.  £6 million of capital funding has been made available to aid the conversion of playgroups to enable them to provide full daycare. Areas of disadvantage are given priority. The first three million will become available in 2002-03, with the second £3 million following in 2003-04.

  13.  The Government targets capital funding at those authorities with the highest levels of social deprivation, to ensure that those children in most need receive help first. To this end, £5 million of New Deals for Schools capital funding has been distributed to the 75 most deprived authorities in England, enabling pre-schools and nursery settings to develop integrated early education and childcare places. This strategy is under continual review and such funding may be made available to a wider range of authorities in future.

  14.  Over the 2002-03 and 2003-04 financial years, we are making £40 million of capital funding available nationally to local education authorities to develop and extend local authority nursery facilities in disadvantaged areas. This is part of the Government's strategy to ensure that physical capacity does not become a barrier to achieving the target of every three year old being able to access a free nursery education place by September 2004. Whilst local education authorities must spend the capital funding allocated to them on their own buildings, they may use it enhance or create space on a school site which could then be made available for the use of settings in the private, voluntary and independent sectors.

Neighbourhood Nursery Initiative

  15.  The Department is focusing particularly on initiatives targeted at our most disadvantaged areas to address the "childcare gap" that exists between provision in those areas and the more affluent neighbourhoods. The Spending Review 2002 clearly reflects our commitment to expanding childcare services to help strengthen those disadvantaged communities.

  16.  Much of our increased childcare funding is currently supporting our Neighbourhood Childcare Initiative targeted on the 20 per cent most disadvantaged areas, and other pockets of disadvantage, across the country.

  17.  The Neighbourhood Nurseries programme is a key component of the wider Neighbourhood Childcare Initiative and was launched in 2001. At £300 million over 3 years to 2004 (£200 million revenue grant/£100 million capital grant from the New Opportunities Fund), it is the biggest ever single investment to expand childcare provision, aiming to create 45,000 childcare places in state of the art facilities in the 20 per cent most disadvantaged areas with funding channelled through local Early Years Development and Childcare Partnerships (EYDCPs). All Neighbourhood Renewal areas are in the target areas for Neighbourhood Nurseries.

Sure Start

  18.  Sure Start is an area based initiative which works with parents-to-be, parents and children to promote the physical, intellectual and social development of babies and young children under 4—particularly those who are disadvantaged—so that they can flourish at home and when they get to school, and thereby break the cycle of disadvantage for the current generation of young children.

  19.  It does this by setting up local Sure Start programmes to improve services for families with children under four and by spreading good practice learned from local programmes to everyone involved in providing services for young children.

  20.  £1.4 billion has been allocated for the first five years of the programme. The 2002 Spending Review announced funding for 522 programmes, 9 mainstreaming pilots and 50 mini Sure Start programmes in rural areas and pockets of deprivation. Programmes are funded by revenue and capital grants.

  21.  One third of children living in poverty in England live in a Sure Start area. Districts are selected centrally, based on the DTLR index of Multiple Deprivation. Sure Start areas are selected locally in response to local needs.


  22.  In the new funding system, pupils with additional education needs (AEN) will receive extra funding on top of the basic entitlement. In order to inform how large this extra funding should be, and how to identify pupils with AEN, we commissioned PricewaterhouseCoopers to research into the incidence of pupils with AEN, and the cost of meeting their needs.

  23.  On the incidence front, they asked schools to identify how many pupils had AEN, divided into several categories essentially covering English as an additional language (EAL) learning need, specific learning needs, other learning needs and social needs. There are two outputs from this part of the analysis:

    (a)  The research showed that the proportion of pupils with Free School Meals (FSM) and the proportion of pupils with EAL (as recorded on the Annual School Census) best explained the variation in reported AEN and hence these indicators should be used to distribute funding.

    (b)  That overall, about 25 per cent of pupils had AEN, although 4 per cent of these covered pupils with specific learning needs that were generally evenly distributed. This made 21 per cent of pupils with AEN that was not evenly geographically distributed. Of this, about 5 per cent was EAL related and the remainder socially related.

  24.  We have used this data to construct an index that estimates the proportion of AEN pupils in each LEA. In two of the options we have included the proportion of children in families in receipt of the Working Families Tax Credit as a deprivation indicator alongside Income Support as a wider indicator of social need.

  25.  We then need to give each pupil with AEN an amount of funding. This is derived from PwC's research into the cost of providing for pupils with AEN. Three types of costs were recorded:

    (a)  School Costs: the cost of paying for additional resources such as learning support assistants,

    (b)  Opportunity Costs: reflecting the diversion of resources such as teacher time towards pupils with AEN in place of support that ideally would be provided by a learning support assistant or similar person,

    (c)  Unmet need: the additional support schools felt that pupils needed but were unable to provide.

  26.  The first two types of cost can be classified as "met needs" ie this is the support the school is currently providing. The second cost is not a financial cost, but a "cost" to other pupils while the teacher is diverted. By funding this properly, the teacher is able to focus on the class teaching. Thus all of our options at least fund AEN at this level.

  27.  We then have a policy decision to make on how to treat the unmet need. Schools indicated that if they were able to make this provision, the pupils would benefit in their personal development and also achieve higher standards. Therefore, some of the current options include the unmet needs, capped at £1,800.

  28.  Thus we have two unit costs: one for just funding met needs and one for funding both the met needs and a proportion of the unmet needs. These costs reflect the total money that is spent/need to be spent on deprived pupils. The LEA funding system is not the only source of funding for these pupils, thus we need to adjust the unit costs to reflect other sources of deprivation funding such as Excellence in Cities.

  29.  Funding the met needs only delivers £1,150 extra per AEN pupil for 2002-03; funding the met and unmet needs delivers about £1,700 extra per AEN pupil for 2002-03.


  30.  Funding of further education is the responsibility of the Learning and Skills Council (LSC), formerly the Further Education Funding Council (FEFC). The LSC's national funding formula includes a supplement (Widening Participation Factor) to support providers teaching disadvantaged learners with a view to encouraging and broadening participation. The factor is based on learners' postcodes. In addition a number of other groups (those who are: homeless; living in hostels or residential centres; have mental health problems; travellers; whose statutory education is interrupted; have recently left care; asylum seekers and refugees; ex-offenders; full-time carers; recovering from alcohol or drug dependency; on ESF funded provision; are SRB funded; or, are basic skills learners) are entitled to this additional disadvantaged funding.

  31.  The LSC reviewed its disadvantaged funding methodology earlier this year. The LSC's National Rates Advisory Group—NRAG— (comprising representatives of post-16 learning providers and other organisations) having received an external research report advised retaining postcodes as the principle method of identifying disadvantaged populations within formula funding. NRAG in welcoming the report's recommendations were reassured that postcodes were thought to be a useful basis for determining disadvantage. Presently NRAG are reviewing the level of the current widening participation uplift to determine whether the current percentage rate is appropriate.


  32.  The Education Maintenance Allowance (EMA) pilot scheme uses assessment of parental income levels to target support on those young people who may be prevented from continuing in further education for financial reasons. The pilot areas were selected to provide information on the greatest possible impact but also to provide information data from a range of areas including rural and urban, North and South. Three indicators at LEA level were used to select specific areas although some areas were used as control areas for the independent evaluation. These indicators were deprivation, attainment at 16 and participation post-16.

Identifying EMA recipients in the existing pilot areas

  33.  Young people have to be resident within the relevant LEA area. Within pilot areas young people qualify for an EMA payment on the basis of parental income. A variety of different schemes are operating to test the effectiveness of different models. As an example one scheme pays £30 per week for income levels up to £13,000 pa, tapering to £5 per week at £30,000 pa. In other schemes the weekly payment, or the income threshold, or the bonuses may vary.

Identifying EMA recipients in the national scheme

  34.  The Chancellor of the Exchequer recently announced that EMAs would be extended across England from 2004. Young people will therefore be eligible on the basis of family income and the Department is currently considering the best way to assess this. One option is to use the Household Income Assessment being developed by the Inland Revenue for Child Tax and Working Credits. This approach may offer the most effective way to target help at those who most need it.

  35.  The family income may take account of the household in which the young person is currently living (eg possibly including a step parent) rather than the natural parents, one of whom may be absent and not contributing to upkeep. No date for this change has been agreed. The threshold levels below which the full EMA is paid, and above which no EMA is paid, following national roll out in 2004 are still being discussed.


  36.  The Higher Education Funding Council for England (HEFCE) allocates funds from DfES to individual colleges. Funding for widening participation to students from disadvantaged backgrounds is allocated on the basis of a postcode analysis using a geodemographic classifier. Neighbourhood types are mapped to categories of participation in HE, and used to weight the share of a fixed pot.

  37.  The allocation is known as the postcode "premium" although it is in fact a funding supplement and not a premium. The allocation is designed to help meet the additional costs associated with recruiting and supporting students from disadvantaged backgrounds who are currently under-represented in higher education. It recognises the extra tuition and pastoral support that students from deprived backgrounds often need.

  38.  The approach does not take deprivation into account directly and it relies on an assumption that each cluster is homogeneous in terms of participation levels.

  39.  The HEFCE are currently consulting the sector on changes to the postcode premium, including changing the basis of funding allocations from postcodes to prior attainment. The HEFCE have also been consulting on a widening participation scheme, Partnerships for Progression, and have been considering how best to target funds between and within regions. Both HEFCE's plans for Partnership for Progression and for a widening participation premium are dependent on the outcome of the Spending Review.


  40.  It is the Department's intention to continue to use the most appropriate means of identifying and addressing deprivation. The objective is to deliver services in the fairest way while recognising the different audiences and having regard to the administrative costs involved.

October 2002

previous page contents

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 17 October 2002