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School Funding
12.31 pm
The Secretary of State for Education and Skills (Mr. Charles Clarke): With permission, Mr. Speaker, I should like to make a statement about the funding of schools in the years 2004–05 and 2005–06. I am placing the details in the Library. On 17 July this year, I set out to the House the principles that I would follow to restore confidence in the school funding system, deliver stability in school budgets and give certainty for head teachers and governors. I promised a further update in the autumn.
Responsibility for school funding is shared between the Government, local education authorities and the governing bodies and head teachers. We all want to ensure that schools can plan and manage their resources effectively to achieve the highest possible standards. I want today to express my appreciation of the commitment of all the education partners to those ambitions and for the very constructive way in which representatives of schools and local government have worked with us. I am confident that that will continue.
As I said in July, I intend to support schools in three ways: a minimum increase in every school's budget; additional resources to help every LEA to support schools with additional pressures; and targeted transitional support to help all schools to achieve balanced budgets. I promised to introduce for 2004–05 and 2005–06 a minimum per pupil funding guarantee for every school, taking account of the average cost pressures facing schools in those years. I intend to achieve that by increasing both LEA core funding and the funding received from Department for Education and Skills grants.
My officials have examined the relevant cost pressures, including increases in teachers' pay, where we have assumed an inflation-led settlement. Those pressures naturally vary between schools. However, following extensive consultation with our education partners, my best estimate for next year is that the combined effect of those factors on the average school will be about 3.4 per cent.
Each school receives funding through LEAs in two main ways: funding directly related to pupil numbers and funding related to fixed costs. We have concluded—again, after careful consideration with our education partners—that pupil-led elements should rise by 4 per cent. per pupil and fixed elements also by 4 per cent. in cash, so a school whose pupil numbers stay the same between 2003–04 and 2004–05 will be guaranteed a 4 per cent. per pupil increase in its overall budget next year.
A school whose pupil numbers decline will receive a funding increase of more than 4 per cent. per pupil to help cover fixed costs. However, because of declining pupil numbers, the number of primary schools with reduced cash budgets—and, therefore, possibly staff numbers—will be significant, as there are around 50,000 fewer primary pupils this year, with a similar reduction next year. Secondary schools with falling rolls will be in the same position.
Schools whose pupil numbers are increasing will be guaranteed at least a 4 per cent. increase for all their existing pupils. Those schools will be guaranteed a rise of at least 4 per cent. in their cash budgets and an overall per pupil increase of at least 3.4 per cent.
I said in July that we would consider carefully the position of very small schools. Those will receive an increase of at least 4 per cent. if their pupil numbers do not change. However, our general approach may not be appropriate for very small schools with much higher than average fixed costs. Therefore, funding for schools with 75 pupils or fewer will be determined according to their LEA's own school funding formula. For special schools, whose funding is normally based on places rather than pupil numbers, the guarantee will be a minimum 4 per cent. increase in funding per place. LEA funding for specified costs, such as rates, will continue to be funded at cost and will be apart from the guarantee.
The 4 per cent. level at which I have set the minimum schools guarantee already takes some account of cost variation around the 3.4 per cent. average. I stress, however, that that guarantee represents only the minimum increase that a school might receive next year. Across the country, many schools will receive per pupil increases of more than 4 per cent., since the overall increase in education formula spending will be more than 5.5 per cent. per pupil. The final budgets will be determined by LEAs, in conjunction with school forums, after the local government finance settlement has been announced, but today's announcement should—subject to pupil numbers—give schools an early indication of the minimum increase in their budgets. For 2005–06—the year after—my expectation is that the minimum schools guarantee will again be at least 4 per cent. for a school with unchanged pupil numbers. I will keep that under review and will announce the final figure in due course.
Other elements of schools funding will also be increased on the same basis. Thus the Learning and Skills Council will increase all its funding rates for school sixth forms by 4 per cent. in 2004–05, and it will also increase current school sixth forms' allocations for the period April to July 2004 by 4 per cent. Similar arrangements will apply in 2005–06.
The changes to the standards fund caused significant problems for some schools this year, so in July I undertook to reverse the cuts that had previously been announced for the next two years. That additional spending is reflected in the standards fund allocations that are being issued to local authorities today. In 2004–05 schools will generally receive a cash increase of 4 per cent. on this year's standards fund allocations. There will be some limited exceptions: those include grants where the amount of funding is directly related to actual costs; specialist schools, where I increased the funding rate in September this year and will make a further increase to £129 per pupil in 2005; and grants, where funding is being especially targeted for policy reasons. For example, we are uprating the ethnic minority achievement grant by 4 per cent., but are also taking the first steps towards a fairer distribution under which no school will receive less EMAG in cash terms in 2004–05 than they are receiving this year.
Moreover, next year, schools will receive either a 4 per cent. increase in their per pupil school standards grant, or the value of their announced SSG band for 2004–05, whichever is higher. Both standards fund and school standards grant will be uprated again—in line with the minimum schools guarantee—in 2005–06. I am also adding resources to revenue support grant to reflect in
LEA baselines the budget support grants paid to some authorities in 2003–04.The total additional funding to maintain and uprate the standards fund and school standards grant, and to mainstream the budget support grants, will be £435 million in 2004–05 and £520 million in 2005–06. I am placing full details in the Library.
I can also confirm that threshold pay costs will be fully funded next year. As at present, schools will be able to draw down well over £500 million from my Department on a demand-led basis. In addition, the £205 million that we have allocated this year for performance-related pay will be uprated at least in line with the headline pay settlement for next year. If proper arrangements for point 3 of the upper pay scale can be settled, further resources will be allocated in September 2004.
The schools guarantee must of course be backed by adequate resources for local education authorities. Next year I will therefore set the minimum increase in the schools formula spending share at 5 per cent. per pupil by contrast with the 4 per cent. guarantee for schools. Again, that is a minimum—most increases will be higher. The provisional SFSS increase for each authority will be confirmed at the time of the local government finance settlement, but we expect the ceiling increase to be at least 6.5 per cent. per pupil.
As I said in July, every authority will receive sufficient grant in each of the next two years to cover its formula increase in education spending. Given that commitment, my right hon. Friend the Deputy Prime Minister and I will be writing to authorities to set out the Government's clear expectation that every LEA passports in full its SFSS increase to a matching increase in its schools budget, unless there are wholly exceptional circumstances. I have statutory powers to require LEAs to set a minimum schools budget and I will be ready to use those powers if necessary.
I also expect local education authorities' spending on their central education budgets to rise no faster than spending on schools. I am confident that most LEAs will concentrate on increasing schools' delegated budgets over the next two years, but the draft regulations that I have issued reflect my determination to achieve this. Under my proposals, LEAs will be able to seek an exemption in exceptional local circumstances, but the generality is clear. I will confirm the minimum increase in SFSS for 2005–06 next autumn, but if the minimum schools guarantee were 4 per cent., I would expect the minimum increase in SFSS to be around 5 per cent. again.
My proposals have been drawn up to support schools, but that support will not be at the expense of other services. In line with the commitment that I made in July, the Government will provide additional resources for other services, including children's social services, to support spending in those services. The full details will be announced as part of next month's local government finance settlement.
My statement in July emphasised my commitment to sustaining school work force reforms. That commitment stands, and I see it as important. Much progress can be made by schools managing their total
resources—people and money—more strategically and working in different ways. Over the next two years, the increase in resources for schools, through schools formula spending share and Department for Education and Skills grants, and including the additional resources that I am confirming today, will provide headroom over the average cost pressures that schools face to help schools to make the most of the national agreement.Primary responsibility for maintaining sound financial management rests with schools themselves and their LEAs. I acknowledge that LEAs need more flexibility to help schools to balance budgets over the next two years, so I am amending the regulations to enable LEAs to target their resources at schools with particular problems, whatever their source. It is the responsibility of LEAs to use that flexibility. I expect them to do so, and am confident that my expectation will be fully shared by the communities that they serve.
However, I do recognise that there are a limited number of cases where balancing budgets is beyond the capacity of individual schools and LEAs in the short term. That is most likely in the LEAs that have received the lowest increases in education formula spending and DFES grant between 2002–03 and 2004–05. For those LEAs, I therefore propose to make a targeted transitional grant available over the next two years, and I am issuing indicative figures today. These assume that grant will be available to take the increase in funding for all authorities over the two-year period from 2002–03 to 2004–05 up to a minimum of 12 per cent. per pupil—well ahead of our best estimate of unavoidable pressures for those years. I estimate that that will cost around £120 million and benefit around a third of LEAs. The final allocations will be confirmed at the time of the local government finance settlement.
However, that additional resource will be provided only when I am convinced that the LEA has made every effort to support its schools from within its own resources by passporting its SFSS increase in full, directing its resources to delegated schools budgets as far as possible and intending to target schools in greatest difficulty. It will be a condition of grant that each LEA prepares, with the schools concerned, a costed and credible plan to bring its schools' budgets into balance by 2006–07. In 2005–06, I propose to make further grant available to the same authorities at around half the level of that provided in 2004–05. Again, I will confirm detailed figures next autumn.
LEAs with increases between 2002–03 and 2004–05 greater than 12 per cent. per pupil should be able to resolve local difficulties within their own resources. However, I recognise that there are individual schools that spent above their income this year and may therefore face difficulties in getting their budgets back into balance. So where an LEA can put forward a compelling argument that additional transitional funds are needed in the short term, above and beyond those already available to the LEA, to avoid real damage to children's education, I am prepared to consider bringing forward DFES grant payments. So the LEA will have funds available in 2004–05 for that purpose, with the expectation of a consequential reduction to what they receive in future years. I will confirm the maximum amount that I might be prepared to make available to each LEA in that way following the local government finance settlement, but I expect the calculation to be
based on a maximum grant of £300,000 per authority, or 0.2 per cent. of the authority's total education resources in 2004–05 if that is higher. Such grant would be subject to conditions similar to those for the targeted transitional grant.I am confident that the measures I have outlined today will help to create stability for schools. We will do all we can to help LEAs work with their schools where necessary to get budgets back into balance over the next two years. That is because, for any school, an annual excess of spending over income is not sustainable. I acknowledge that getting back into balance may mean difficult decisions. Where school spending varies significantly from the average—where 80 per cent. is spent on staff costs and 20 per cent. on non-staff costs—or from their income, they need to act to get back into balance.
It is therefore vital that schools are well able to plan and manage their resources effectively. More and better support for schools is needed in achieving that, so I am announcing that my Department has commissioned KPMG to work with the National College for School Leadership and the head teacher associations to design and develop a varied menu of support and guidance to help schools' budget management. That support will be available from the turn of the year and it will prioritise schools in those LEAs that are in receipt of the targeted transitional grant.
The proposals I have announced today are designed to help restore confidence in the school funding system and increase stability in school budgets. I am very grateful for the help and advice we have received from our education partners. I have set out the framework for the school funding system over the next two years. It is now for LEAs to address the needs of every school and for heads and governors to ensure that the resources they receive are used effectively. We all share responsibility for school funding and we must continue to work together to get it right. I commend the statement to the House.
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