Memorandum submitted by the Secondary
Heads Association (SHA)
SCHOOL BUDGETS
2003-04
SHA represents eleven thousand leaders of secondary
schools and colleges, with members in the overwhelming majority
of secondary schools and sixth form colleges.
We have supported the local management of schools
since the introduction in 1992. We believe that making the key
decisions at school level is both efficient and effective.
We have supported the move towards a more coherent
funding of post-16 education, related to the course the student
is following and not the institution.
We have worked hard both with government and
LEAs to ensure that the distribution of funds to schools is fair,
transparent and meets educational needs.
School leaders have been dismayed and angry
this year that ministerial promises of substantially higher funding
have gone so disastrously wrong in so many cases. The extent of
the problem will become clear when we know the figure for the
total job losses (of which redundancies are only a part).
SHA believes that the government and some, but
by no means all, local authorities share the blame for this situation.
WHAT WENT
WRONG THIS
YEAR?
1. Too many changes were made in one year
to an already complex system.
2. School leaders and governors had been
led to believe that there would be a real terms increase per pupil
(real terms increases of between 3.2% and 7% per pupil were widely
quoted last autumn).
3. In practice there was only a very small
real terms increase across the country. The difference between
the promised increase and the actual increase was caused by a
large increase in school costs that had not been properly calculated
by the DfES so that they had underestimated educational inflation.
The promised real terms increase did not materialise
4. The real increase into LEAs was about
1% across the country and in most LEAs even this did not get through
to school budgets—some schools actually received a cash
decrease with no change in pupil numbers.
5. Schools are faced with further increases
in costs to meet the workforce remodelling agenda this year and
yet few schools are even in a position to maintain the present
staffing levels, let alone make modest increases.
1. Too many changes were made in one year
to an already complex system
The changes include:
— A major review of the formula used
to calculate the rate support grant (RSG) for all local authority
services including education.
— A change in the proportion of RSG
to many authorities under the resource equalisation.
— A change in the way money was allocated
to LEAs, creating an LEA block and a schools block.
— Moving a substantial amount of the
standards funds into the core funding; some of the standards funds
had been targeted at specific needs and the formula allocation
of core funding to LEAs, or by LEAs to their schools, did not
necessarily address those needs.
— There was an increase in the employers'
contributions to teachers' pensions. Funds to cover this were
put into the core budget and distributed under the new formula,
so did not necessarily match the needs of individual schools.
— Changes made to the teachers' pay
spine in September 2002 meant that the full year effect of this
was considerable. The DfES had assumed these changes would be
cost neutral but the main spine was shortened and teachers on
the bottom of the main spine received increases substantially
above the average.
— The increases in NI contributions
and the pay agreement for support staff in school all added to
educational inflation.
— Some LEAs chose to change their local
formula for distribution to schools as well.
2. School leaders and governors had been
led to believe that there would be a real terms increase per pupil
(real term increases of between 3.2% and 7% per pupil were widely
quoted last autumn).
The government planned to minimise turbulence
in LEA funding as the new system was introduced. They established
a system of floors and ceilings. Taking into account general inflation
and the increase in teachers' pensions contributions, they then
calculated that all authorities would receive at least a 3.2%
per pupil increase (the floor) up to a 7% per pupil increase (the
ceiling). In practice they had underestimated the true inflation
in education.
No floors or ceilings were put in place for
individual schools.
3. In practice there was only a very small
real terms increase across the country. The difference between
the promised increase and the actual increase was caused by a
large increase in school costs that had not been properly calculated
by the DfES so that they had underestimated educational inflation
and the promised real terms increase did not materialise.
We estimated that an average secondary school
would need a 10.5% cash increase into its core budget from the
LEA to cover:
— Increase in employers contributions
to pensions (5.1% not the 4.7% assumed by the government).
— The increase in NI contributions.
— Teachers' pay increases including
the additional cost of shortening the pay spine.
— Increases in salaries and on-costs
of support staff.
— Inflation on non-staff costs.
— A reduction in standards funds (because
this money had been moved into the LEA core budget).
4. The cash increase into LEAs was about
11.6% across the country and in most LEAs even this did not get
through to school budgets—some schools actually received
a cash decrease with no change in pupil numbers.
There is a cash increase on average across the
country of 11.6% into LEA Schools Budgets; but with a 10.5% cash
increase needed to stand still there is little real growth in
the whole system. It is certainly not the minimum 3.2% real terms
increase promised in the autumn and used by staff and governors
in their planning.
In practice the situation in schools is much
worse than this. The Schools Budget in LEA funding has to cover
the money distributed to maintained schools (the individual schools
budget) and some central costs. The central costs include pupil
referral units and some costs associated with pupils with special
needs as well as a miscellany of small items. Most LEAs have increased
their spending on these items above the overall increase into
the Schools Budget so that the percentage increase into the individual
schools budgets is well below the increase into the Schools Block
as a whole. All this is shown clearly in Figures 1 and 2.
Figure 1: SHA funding questionnaire analysis
showing increase in individual schools budgets well below the
increase into the LEA Schools Budget
Figure 1 is taken from a survey SHA carried
out in April 2003. For this graph all the schools took pupils
from age 11 to 16 so there was no confusion over post-16 funding
(which uses a different financial year). None of the schools had
significant changes in pupil numbers. We calculated the increase
from 2002 to 2003 in the basic budget a school received from the
LEA including all standards funds and grants as well as the core
LEA formula budget. This increase is then compared with the increase
into the Schools Budget from 2002 to 2003 for the school's LEA.
The LEA line is the top line. As you can see, most of the schools
received a percentage increase well below the increase into the
LEA.
Figure 2: From Section 52 returns showing
that in most authorities the percentage increase in the secondary
Individual Schools Budgets was lower than the percentage increase
into the Schools Budget
The same pattern is shown in Figure 2. This
is taken from the Section 52 returns that LEAs make each year.
The smooth line is the percentage cash increase into the LEA's
Schools Budget arranged in order of percentage cash increase.
The other line is the corresponding increase into the secondary
individual schools budget for that authority. As you can see,
the percentage increase into Schools Budgets is about 11.6% on
average across the country. The majority of authorities have increased
their secondary individual schools budgets by a lower percentage.
There may very well be local reasons for some of the more bizarre
figures, but the picture overall is that LEAs held onto more at
the centre than expected and the increase into individual schools
budgets suffered.
In many authorities the increase into the secondary
individual schools budget was well below the 10.5% cash increase
schools needed to stand still.
However, the turbulence in the whole funding
system also affects individual schools. Schools with the following
characteristics were particularly hard hit:
— A high proportion of teachers on
the lower part of the pay scale. These staff received substantial
pay increases and will continue to receive above average pay rises
for the next few years as they move up a shortened pay spine.
— Income to the school that was heavily
dependent on standards funds. Some schools received up to 25%
of their budget through this means and were therefore very vulnerable
to any reallocation.
Many schools in London had both of these characteristics.
5. Schools are faced with further increases
in costs to meet the workforce remodelling agenda this year and
yet few schools are even in a position to maintain the present
staffing levels let alone make modest increases.
SHA has supported the changes proposed for remodelling
the workforce. We believe these will improve the education service
by enabling teachers to concentrate on the important work of teaching
and have a sensible work/life balance. This will help in both
the recruitment and retention of staff. Other necessary work in
a school will be undertaken by a properly trained, supported and
rewarded team of support staff and again this will improve recruitment
and retention of these essential people. However, we have always
emphasised the need to fund these reforms. We are very concerned
that the paper produced by the DfES purporting to show that there
will be sufficient funding over the next few years to cover this
agenda has already been shown to be based on false assumptions.
It is a matter of urgency that this paper is reworked and a sensible,
fully funded timetable is agreed.
THE WAY
FORWARD
The basic formula for assessing EFSS at the LEA
level is sound and should not be altered.
The whole system is more rational and based
on up-to-date and relevant data. There will need to be a system
of floors and ceilings during the first few years to reduce turbulence,
but this needs to be clearly time limited and to be sufficiently
robust to prevent the wild swings we have seen this year.
Basic entitlement should be related to real educational
costs.
The formula relating to pupils in maintained
schools is based on four elements:
— A basic entitlement for every pupil.
— Additional money for pupils with
additional educational needs.
— Additional money for areas with above
average costs.
— Additional money for primary pupils
in areas of population sparsity (for secondary pupils there is
additional money in the LEA block to cover transport costs).
Our main criticism is in the methodology of
calculating the basic entitlement. We recognise that the basic
entitlement will be determined by the total amount available.
In the EFSG all the members apart from the DfES wanted to look
at an Activity Led Funding (ALF) method for calculating the basic
entitlement. In such a model the cost of providing basic schooling
is carefully analysed. It means being prepared to state the average
class sizes the money will fund and many other educational variables
(such as what is reasonable to spend on books) but it does not
commit any individual school to this particular pattern of expenditure.
Many local authorities already use at least a partial activity
led model for calculating their local formula for schools. The
results can be uncomfortable and sometimes salutary, but there
are several advantages in developing the model. It makes calculating
the real cost of any proposed innovation much easier. It allows
everyone to see improvements in basic provision when funding levels
are increased and, most valuable of all this year, it allows the
real educational inflation to be estimated.
SHA was very disappointed when the DfES discontinued
the work on ALF. When the basic entitlement was produced (by taking
the sum available and dividing by the number of pupils) we worked
backwards and produced our own model. It is certainly a salutary
exercise. We used the model to calculate the real education inflation
this year. We would like to see the DfES reinstate the work on
ALF. Even if it is not initially used in the funding formula,
it still has advantages in providing a readily understandable
model.
Education funding at local level should be ring-fenced;
LEAs should be required to spend at least at the recommended level
and there should be a guarantee that increases in the basic entitlement
are reflected in individual schools budgets.
In the original green paper on local authority
funding there was a discussion on the merits of ring-fencing education
spending. In the end the government rejected this idea in favour
of persuasion. It is our view that persuasion has not worked and
that there is even more of a funding fog than before.
There are two ways in which LEAs can distort
spending:
— A local authority may decide to spend
below the recommended level on their Schools Budget. Most LEAs
spend above the recommended level. However this only makes it
even worse that the lowest spending LEA spends at a level almost
10% below the recommended level. The government's attempt at persuasion
did not touch this. This year the DfES checked that LEAs had passported
their increase in EFSS into their Schools Budgets. However, they
did so by comparing this year's expenditure with last year, checking
that there was an appropriate increase. An authority that spent
well below the recommended level last year could increase its
expenditure in line with government recommendations, still be
spending below the recommended level this year, but escape criticism.
The schools in that authority are measured in national terms on
all their "outputs" but a local decision can result
in them receiving funding significantly below their neighbours.
If the formula allocation to an LEA assumes a basic entitlement
for all pupils, it is unacceptable that a local authority can
provide below the basic entitlement.
— The introduction of an LEA Block
and a Schools Block was a definite improvement and has made the
funding system more transparent. However, the Schools Block is
an unfortunate name; it would be more accurate to call it a Pupil
Block. Not all of the funding in the Schools Block goes to the
schools. At the moment there is far too much variation in the
percentage of the Schools Block that actually goes into the individual
schools budgets. If the whole block is based on a basic entitlement,
individual authorities alter it so that some schools receive a
significantly lower basic entitlement. This is neither fair nor
transparent.
Figure 3: From Section 52 showing the
variation in the percentage of the Schools Budget that is spent
on individual schools budgets and therefore the variation in the
percentage of the basic entitlement that schools are given
Change the funding year for LEA funding to match
the LSC funding year for post-16 students (the academic year).
At present secondary schools have their LSC
funding for post-16 pupils allocated on an academic year and their
LEA funding for pupils aged 11-16 allocated on an April to March
financial year. Usually schools do not receive an indication of
their LEA budget until late in March and are required to set their
budget by April. Any adjustments to staffing are usually made
on an academic year basis. It would give everyone more time to
plan more effective budgets if the LEA allocation was moved in
line with the academic year, and with LSC funding.
June 2003
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