House of Commons - Education and Skills

Select Committee on Education and Skills Minutes of Evidence

Memorandum submitted by the Department for Education and Skills

MAIN COMMENTARY ANSWERING QUESTIONS ON SCHOOL FUNDING

Question 1. The percentage and cash change in overall SSA/FSS for education in each LEA between 2002-03 and 2003-04:

— full impact, excluding any "floors and ceilings" or other short-term limitations;

— including the effect of any floors and ceilings or other short-term limiting factors.

1. A substantial amount of funding was transferred into the Education Fornula Spending (EFS) total in addition to the general uplift of £1.3 billion. The transfers consist of £500 million transfer from DfES grant into EFS and Revenue Support Grant (RSG) and £586 million from HM Treasury in respect of the 4.75% of the increase in teachers' pension contributions. The overall increase in Education Formula Spending is £2.5 billion or 11.2% (from £22,503 million in 2002-03 for the Education Standard Spending Assessment to £25,015 million: the EFS total for 2003-04).

2. There are two ways of looking at this increase: either at the raw changes, around the 11.2% national total, or at the changes on a "like-for-like" basis. This involves making additions to the 2002-03 baseline to create an "adjusted baseline" which represents the amount of funding each authority received in 2002-03 for their SSA, their grants which have transferred, and an estimate of the pension increase. This gives a national increase on a like-for-like basis of 6.5%. The department used these adjusted baselines in calculating the floors and ceilings of Education Formula Spending Shares for 2003-04 which gave every authority at least 3.2% increase per pupil on a like-for-like basis and a maximum of 7%.

3. We have provided the increase in EFSS for each authority in both ways. Table A sets out the adjusted increase. Table B sets out the unadjusted increase. Both tables have the same format and show the following information:

(a) Column A shows the 2002-03 baseline. In Table A this is the adjusted baseline described above; in Annex B this is the SSA the authority received for 2002-03.

(b) Column B shows the 2003-04 Education Formula Spending Share before floors and ceilings were applied.

(d) Column D shows the percentage increase between column A and column B before floors and ceilings.

(e) Column E shows the 2003-04 EFSS after floors and ceilings have been applied. Floors and ceilings are applied on a per pupil basis.

(f) Column F shows the cash increase between column A and column E.

(g) Column G shows the percentage increase between column A and column E.

4. Points to note from Table B are: a school transferred from Camden to Brent, thus giving Camden a seeingly low increase; and Bexley, Haringey and Middlesbrough all had one school becoming an academy, directly funded by DfES. This makes their unadjusted increase look low. The adjusted baseline in Table A takes these changes into account.

Question 2. The estimated percentage and cash change in the SSA/FSS for schools in each LEA between 2002-03 and 2003-04 (i.e. the figure used by the Department to determine its expected "passporting" expenditure figure)

5. This information is contained within Table C. In the 2002-03 SSAs, there was no distinction between the "Schools" funding and the LEA funding, as there is in the new Education Formula. In order to calculate the increase for passporting, the department calculated a hypothetical Schools SSA for 2002-03, by splitting the 2002-03 SSA according to the 2003-04 split between the LEA FSS and the Schools FSS. Thus:

(a) Column A shows this hypothetical Schools SSA for 2002-03.

(b) Column B shows the Schools FSS for 2003-04, after floors and ceilings have been applied.

(d) Column D shows the percentage increase between column A and column B.

6. These are all unadjusted increases, because passporting needed to ensure that the full increase in funding (general EFS uplift plus the transfers of grants and for pensions) reached Local Authorities Schools Budget for 2003-04.

Question 3. For each authority, the difference between the increase in schools' spending implied by the SSA/FSS increase (after the impact of floors and ceilings) and the overall increase in formula grant (for all services) between 2002-03 and 2003-04

7. This information is also contained within Table C.

(a) Column E shows the cash increase in formula grant for each authority between 2002-03 and 2003-04.

(b) Column F shows the cash difference between column C (the cash increase in SFSS) and column E (the cash increase in formula grant). This has been done by simply taking the unadjusted RSG increase and comparing it with Q2 above. Revenue Support Grant is not the only source of funding. Providing funding for education is a shared responsibility. Central government provides the majority of funding—our plans allow for an increase in spending of £2.7 billion—but it is appropriate that local education authorities should also make a contribution and this will come mainly through Council Tax.

Question 4. For each authority, the most up-to-date information about the difference between the increase in schools' spending implied by the SSA/FSS increase for 2003-04 (after the impact of floors and ceilings) and the equivalent actual increase in the authority's schools budget for 2003-04).

8. Column G and H of Table C show the passporting figures that were published on 2 May. Column G shows the unadjusted passporting figures and column H shows the figures adjusted for authorities who saw their RSG allocation capped by the RSG ceiling.

The Department has been in dialogue with many of the non-passporters through their response to the letters the department sent out on 2 May.

Tables A - D

NOTES TO TABLE D: EVIDENCE OF IMPACT ON SCHOOLS

Question 5. What evidence has the Department assembled about the different impacts on individual schools' year-on-year funding totals as a result of: (a) changes in SSA/FSS for its LEA and (b) changes in pupil numbers. It would be helpful if the Department could provide examples of these impacts.

1. The increase in funding for an individual school will depend on a number of factors covering both central and local government responsibility. These are the increase in funding given to the school's local authority by central Government; the amount by which the local authority decides to increase its Schools Budget; the increase which the local authority decides to give to the Individual Schools Budget, as opposed to the items within the Schools Budget which are held centrally; and the operation of the local authority's formula which gives different increases to different schools, particularly due to changes in pupil numbers.

2. On Friday 2 May, the Secretary of State published a detailed analysis of LEA budgets for 2003-04. This highlighted the different decisions which authorities made and how these impacted on the funding available for schools. Table D shows the table which was published and paragraphs 5-30 below provides an explanation of each of the columns and a diagram. The funding increase given to each authority by central government varies as shown in the earlier annexes. Some authorities decided to put more money into the Schools Budget, thus passporting more than 100%. Examples are Southampton, Medway, Bexley. Other authorities put less money into the Schools Budget, passporting under 100%.

3. The next decision is the increase given to the devolved funding for schools, compared to the overall increase in the Schools Budget. The analysis in Table D shows that some LEAs decided to increase the budgets they hold for centrally provided and centrally funded pupil provision at a significantly higher rate than the increase in the budget they delegate to schools. Lastly, the result of the local formula gives a range of increases to individual schools and Table D shows the interquartile range of the school increases. Part of this variation will be due to pupil number changes.

Question 6. As well as these figures, we would like a description of how formula funding shares differ from the standard spending assessment.

4. The main principle behind FSS is the same as with SSAs: namely that the formula distributes a set amount of resources between authorities according to their relative needs. However the new Education Formula Spending Shares have a different structure, with separate blocks for the LEAs' central functions and the Youth Service, and blocks for pupil provision, known as the schools block. The new formula also uses more up-to-date indicators of need, such as pupils with English as an additional language, low-achieving ethnic groups, children in families in receipt of working families tax credit as well as children in families in receipt of income support. The amount of funding distributed on the basis of additional needs, rather than per head, is based on research by Price Waterhouse Coopers into the costs associated with these pupils, rather than spending patterns from 1990-91 as with the old SSA system.

A. HOW EDUCATION FUNDING REACHES SCHOOLS

5. Funding schools is a shared responsibility between central government and local authorities. Central government provides most of the funding for local education authorities (LEAs). The LEAs provide some funding, through the Council Tax; decide how much to spend on education in total in their area; and decide how to distribute that total spending between central services and their schools.

Central Government Support for LEAs

6. The Government introduced a new funding system in 2003-04: Formula Spending Shares, which allocate £25 billion of support for education between local authorities. Each authority receives a share which is based on its relative circumstances. Every pupil attracts the same level of basic support, wherever they live, which in 2003-04 is £2,005 for primary school pupils and £2,657 for secondary school pupils. Additional support is provided for children in deprived circumstances. There is also additional support for authorities in high-cost areas, to allow them to recruit and retain staff; and in rural areas, to reflect higher home-to-school transport costs.

7. For each authority, the support it receives is divided into two main blocks: the Schools Formula Spending Share (88% of the total nationally), which covers all pupil provision whether provided by schools themselves or by the LEA direct; and the LEA Formula Spending Share (12%) for LEAs' central functions and the Youth Service.

8. Authorities receive their funding for education, as well as other services, as Revenue Support Grant. The amount of grant each authority receives takes into account its Formula Spending Share for each of the local services which it is responsible for; and is adjusted to take account of the authority's ability to raise Council Tax.

LEAs' Schools Budgets and "Passporting"

9. It is then for authorities to decide how much to spend on each service for which it is responsible. They decide the level of the Council Tax locally; how much to spend on education; and within that, how much to spend on pupil provision (the Schools Budget).

10. All authorities were asked by the Government to "passport" the full increase in their School Formula Spending Share into the Schools Budget—that is, to ensure that the increase in their Schools Budget was at least as large as the increase in their Schools Formula Spending Share. A passporting exercise carried out in January required authorities to say whether they intended to passport in full. 130 authorities signalled they would do so.

Local Distribution of the Schools Budget

11. Having set the total Schools Budget, it is for the LEA to decide how much to spend on pupil provision that the LEA makes directly (eg for special educational needs; or pupil referral units); and how much to allocate to individual schools.

12. Finally, each LEA has its own formula to divide up the total to be allocated to schools, taking into account pupil numbers and local circumstances (for example deprivation). There will thus be variation in the increases which different schools in the same authority get. Authorities may not yet have allocated all the funding to individual schools; some may be retained for allocation later in the year.

13. The diagram at Annex B below illustrates this budget-setting process, from the total resources made available by central government, to the budgets set for individual schools.

B. ANALYSING LEAS' BUDGET ALLOCATIONS

14. LEAs are required to prepare a budget statement before the beginning of each financial year. This is called the "section 52" budget statement. Because of the reports from schools about the size of their budgets, DfES has analysed all section 52 budget statements received by noon on 1 May, and has written to all authorities so that we can be clear about how far the increases in funding assessments in 2003-04 have reached individual school budgets.

15. The Section 52 budget statement illustrates the decisions the LEA has made regarding the distribution of resources within the Schools Budget: how much is retained centrally for expenditure on pupils, and how much is devolved to schools. It provides the following information:

(a) The size of the Schools Budget, and thus how much of the increase in the SFSS each LEA has "passported" into the Schools Budget.

(b) How much of the Schools Budget has been retained centrally for items such as Special Educational Needs (SEN) or Capital Expenditure from the Revenue Account (CERA).

(c) What increase there has been in the total devolved funding for schools in each LEA (the "Individual Schools Budget" and LEA contribution to the devolved Standards Fund).

(d) The amount of funding which LEAs still have to allocate to specific schools.

(e) The actual, allocated, devolved funding for each school.

16. Budget statements will not include the £28 million grant announced on 26 March (Additional Budget Support Grant—ABSG) but they should include all other funding.

17. Despite the legal requirement for budget statements to be with DfES by 31 March, we had still not received the budget returns from four authorities by noon on 1 May. The analysis in the Press Notice published on 2 May is based on the most up-to-date returns received by DfES from LEAs; however, there is an ongoing process of checking the data with LEAs to ensure the forms have been completed correctly. Thus the published data is provisional.

18. Annex A gives a technical explanation behind the analysis in the press notice, explaining exactly what has been compared with what.

C. ISSUES ARISING FROM THE BUDGET STATEMENTS

19. The analysis in the Press Notice identifies eight main decisions made by LEAs which will have affected the budget increases received by individual schools.

Passporting. Have authorities increased their total budget for schools and pupils as much as expected?

20. Column (a) shows whether each LEA has increased its Schools Budget as much as the increase in its Schools Formula Spending Share—ie, whether it has "passported" or not. Authorities which have not passported will have a figure below 100%; those which have passported exactly will have 100%; and those which have made a larger increase to the Schools Budget will have figures above 100%.

(Figures marked with a star refer to authorities whose passporting target has been adjusted because of the ceiling placed on the Revenue Support Grant they have received in 2003-04.)

Devolved Funding for schools. Have authorities increased the funding for individual schools as fast as the funding for the services they pay for centrally?

21. Columns (c) to (f) illustrate these decisions. The analysis shows the increase in the overall Schools Budget (column c) and compares this with the increase in devolved funding for schools (column d). Column (e) shows authorities where the increase in devolved funding for schools has been given a higher or lower priority. Where authorities have placed greater priority on devolved funding for schools, column (e) will be positive. Where authorities have placed greater priority on the services they provide and pay for centrally, column (e) will be negative.

22. For authorities giving a lower priority to the devolved funding for schools, column (f) shows how much more devolved funding for schools there would have been, if the authority had instead decided to give equal priority to devolved funding for schools and central spending on pupils.

School Funding Retained Centrally

23. The difference between the devolved funding for schools and the overall Schools Budget is affected by the amount of funding the LEA retains centrally for provision for pupils—especially, pupils with SEN, pupils whose education is provided out of school, and any revenue funding diverted into capital projects.

School Funding Retained Centrally—Special Educational Needs. Have authorities increased the share of their funding held centrally for Special Educational Needs?

24. Column (g) shows at the percentage increase in the central SEN budget. Some authorities may have reduced their central expenditure on SEN, by delegating more responsibility for SEN to schools. This will make the increase in devolved funding look bigger, but schools will acquire additional responsibilities.

School Funding Retained Centrally—Education Provided Out of School. Have authorities increased the share of their funding held centrally for education provided out of school?

25. Column (h) shows the percentage increase in the central budget for education provided out of school, and behaviour support—for example, Pupil Referral Units.

School Funding Retained Centrally—Revenue Funding Diverted into Capital. Have authorities chosen to use their revenue (ie running costs) funding for capital projects?

26. Column (i) shows the cash amount of revenue funding that the LEA is planning to spend on capital projects. This is referred to as "CERA" (Capital Expenditure from the Revenue Account).

Unallocated Funding—School contingencies. Have authorities held back large sums of money for unexpected pressures during the year?

27. Within the centrally retained items in the Schools Budget, the authority may set aside some funding for allocation later in the financial year.

28. Column (j) shows the cash amount of funding under this category. This may be kept to deal with changes in pupil numbers or unexpected conditions.

Unallocated Funding—Unallocated devolved funding. Have authorities still got funding that is ear-marked for schools, but has not yet been allocated to them?

29. Authorities may ear-mark some funding to be devolved to schools, but not yet have allocated it to any specific schools, for instance because it is to be allocated on the basis of data that is not yet available. Some of this funding may have been allocated since the submission of Section 52 statements. The cash amounts held in this way are shown in column (k). (This unallocated amount includes the £28 million grant for 36 authorities announced on 26 March which authorities were specifically told not to include in their Section 52 returns.) Schools may know they are to receive some of this allocation, but in some cases schools may be unaware that there is still further funding to be allocated.

Variation in School Increases within an authority. Have authorities' local funding formulae provided a reasonable increase for every school?

30. Column (l) illustrates the range of budget increases that different schools within a single authority are receiving. The local funding formula will not deliver the same percentage increase to every school, as schools' circumstances differ. The figure in column (l) represents the difference between the lower quartile budget increase (ie a budget increase which one quarter of all schools in the authority will have received less than) and the upper quartile budget increase (ie a budget increase which one quarter of all schools in the authority will have received more than). The larger the figure in column (l), the greater the difference in budget increases between the best-provided and worst-provided schools in that authority. If the figure in column (l) is relatively high, there is a greater likelihood that those schools with the lowest increases locally will find themselves under budget pressure. Low figures in column (l) show LEAs where most schools are receiving a budget increase close to that LEA's average.

Annex A

The data in the press notice is obtained from the following information. The letters relate to the columns in the analysis table.

PASSPORTING

(a) Passporting figures based on the size of the Schools Budget from authorities' Section 52 statements. The passporting target has been revised since the January target to reflect i) the final settlement figures; ii) the final March LSC allocations; and iii) the addition of London Budget Support Grant. Figures with an asterisk are for authorities whose passporting target has been adjusted to take into account the fact that their Revenue Support Grant increase was capped through the grant ceiling.

PUPIL NUMBERS (FOR INFORMATION)

(b) Change in 3 to 15 pupil numbers. These are the pupil numbers used in the Education Formula Spending Share calculation to apply floors and ceilings. These figures are not used elsewhere in the analysis.

DEVOLVED FUNDING FOR SCHOOLS

(i) 2002-03 Schools Budget baseline agreed with LEAs for the passporting exercise; plus

(ii) 2002-03 LSC grant; plus

(iii) 2002-03 DfES income for Class Size as recorded on 2002-03 Section 52 return; plus

(iv) 2002-03 DfES income for Nursery Education Grant (as specified in the adjusted 2002-03 SSA figures used in the settlement); plus

(v) Post-16 Budget Support Grant.

In other words, the 2002-03 Schools Budget comprises all the lines from the 2002-03 S52 budget that are comparable with the 2003-04 Schools Budget lines, split where appropriate.

(d) The increase in net devolved funding to schools reflecting the Individual Schools Budget, the LEA's contribution to devolved Standards Fund and EiC specific formula grant. For 2003-04 this figure is obtained by taking the ISB (line 1.0.1), the LEA's contribution to devolved Standards Fund (1.0.3) and EiC Partnership expenditure (1.5.3). Expenditure relating to EiC grant for 2003-04 can be recorded in different places in the Section 52 statement: it could form part of the ISB (and thus automatically be included) or could be recorded on line 1.5.3. We do not prescribe what authorities will do with this funding, but it is likely it will go to schools in some form. Hence we are including the EiC grant funding in line 1.5.3 in the funding counted as devolved to schools. For 2002-03 the net devolved funding to schools comprises the ISB (lines 1.1.1 to 1.1.3), LEAs' contribution to devolved Standards Fund (line 1.1.6), the income from Class Size grant (line 1.3.3) and the EiC grant from the Department's final Standards Fund allocation figures for 2002-03.

(e) The difference between column (c) and column (d). This shows the difference between the percentage net Schools Budget increase and the percentage net increase in devolved funding for schools and identifies authorities putting proportionately more funding into their central items.

(f) The additional cash sum that would be in devolved funding if the authority had provided the same percentage increase in devolved funding for schools as the percentage increase in the net Schools Budget. This is left blank where the authority has provided a percentage increase in devolved funding for schools at least as large as the increase in its net Schools Budget.

SCHOOL FUNDING RETAINED CENTRALLY—SPECIAL EDUCATIONAL NEEDS

SCHOOL FUNDING RETAINED CENTRALLY—EDUCATION PROVIDED OUT OF SCHOOL

(h) The change in other centrally retained non-schools pupil provision. This includes expenditure on Pupil Referral Units, education out of school and Behaviour Support Implementation. The 2003-04 figures are net figures for lines 1.2.1 to 1.2.3; the 2002-03 figures are net figures for lines 1.4.5.1, 100% of line 1.4.5.2 (unless an alternative split was proposed by the LEA) and 1.4.6.

SCHOOL FUNDING RETAINED CENTRALLY—REVENUE FUNDING DIVERTED INTO CAPITAL

(i) The amount of revenue funding for 2003-04 being spent on capital items (CERA). This is line 6.

UNALLOCATED FUNDING—SCHOOL CONTINGENCIES

(j) The amount of revenue funding allocated to school-specific contingencies (line 1.4.6). This is not part of the devolved funding for schools. It may be allocated to schools later in the year as specific needs arise, such as pupil number changes, but the authority is not obliged to hand it to schools.

UNALLOCATED FUNDING—UNALLOCATED DEVOLVED FUNDING

(k) The total amount of funding ear-marked for schools through the Individual Schools Budget, or through the devolved Standards Fund, but not yet actually allocated to specific schools. It is obtained from table 2 of the Section 52 return. The figures also include the £28 million ABSG which authorities were specifically told not to include in their Section 52 budget returns.

VARIATIONS IN SCHOOL INCREASES WITHIN AN AUTHORITY

(l) Column l illustrates the range of increases in school budget share within an authority. These figures include the schools' School Standards Grant (SSG) allocation and thus these increases are not directly comparable with the increases detailed in (c) and (d). The figure shown is the difference between the lower quartile (ie the increase in School Budget Share (SBS) which one quarter of schools are receiving less than) and the upper quartile (ie the increase in SBS that one quarter of schools in the authority are receiving more than).

REASONS FOR PROBLEMS IN 2003-04

The problems in 2003-04 were due to the coincidence of a number of factors that created a high degree of turbulence and unpredictability in the system.

Contributory factors:

National

(a) The introduction of a new local authority funding system, following the SSA formula freeze, and after extensive consultation with local government and other partners. Compared to previous years, where individual LEA's year-on-year increases were tightly distributed around the national average, the 2003-04 local government settlement had more significant winners and losers than usual.

(b) Reductions in the proportion of funding for LEAs and schools provided through specific grant funding, following requests from local government and schools for a rebalancing in favour of general grant. This led to significant changes at both individual school and LEA level.

Additional costs of employment arising from increased teachers' pensions and NI contributions, and the implementation of the STRB's recommended 2003-04 pay settlement. Although these items were all covered in terms of national allocation of resources, there were differences between the distribution of additional resources and the distribution of the additional costs that these items generated.

Local

(c) Some local authorities faced particular problems in passporting the increase in their schools EFS to the School Budget, in part because of pressures on other services, and/or relatively low formula grant increases caused by the impact of changes to other services' FSS, resource equalisation and use of new 2001 national Census data.

(d) A large number of authorities faced pressures and made decisions which resulted in expenditure on centrally retained items (notably SEN and behaviour-related programmes) within the Schools Budget rising faster than the money going to schools (the individual schools budget).

(e) Some local Fair Funding formulae did not cope well in matching up the large cash increases in 2003-04 and the significant pressures that those increases were intended to cover, resulting in very wide variation in funding increases for individual schools.

(f) Timing issues, in terms of the limited time available to consider the interaction of all the changes introduced for 2003-04; and in the provision of full funding allocations to individual schools.

School

(g) There were differential pressures at school level: for example, schools with a large proportion of their budget going on teachers' pay faced greater pressures than the average with respect to the increase in pay costs. Schools with a large proportion of teachers on the main pay spine faced some pay drift through the 2002 shortening of the main pay spine.

(h) The lack of forward budgets, and relative future unpredictability of important schools' costs (eg teachers' pay), hampers schools' ability to manage their finances. Financial management in some schools needs to be strengthened, with less willingness to take an incremental approach to school budget setting.

The Department is working with local government and representatives of schools to identify changes to the funding system for 2004-05 to deliver stability and predictability, with the aim of ensuring each school can receive a reasonable per pupil settlement in 2004-05. That will address how best to ensure:

— sufficient education funding increases for every LEA;

— the right balance between support through general grant and through ring-fenced and targeted grant;

— confidence that schools and pupils will receive the money intended for them;

— the right balance between in-school and out-of-school provision;

— variations in the budget increases received by different schools within each LEA are appropriate and fair;

— workforce reform, in line with the National Agreement, can be sustained.

How to make future cost pressures—especially, on teachers' pay—more predictable (including multi-year pay settlements) is also under consideration.

PRIVATE FINANCE INITIATIVES/PUBLIC PRIVATE PARTNERSHIPS

BACKGROUND

1. The Schools PFI programme is an important part of the increased capital investment being made available to Local Authorities by central Government. The over-riding purpose of the investment is to contribute to the raising of educational standards and the Department wants schools PFI projects to play their full part in that process.

2. Schools PFI contracts are negotiated between Local Authorities and the private sector and it is the responsibility of Local Authorities to make those contracts fit for purpose and to manage their implementation. Local Authorities have powers, through the payment penalty mechanisms incorporated in the contracts, to ensure that the project is delivered according to the specification they have established with their private sector partner.

3. By bringing together the expertise of both public and private sectors, we can ensure that the focus of educational staff is on education and that properly trained and motivated buildings and maintenance staff focus on the schools estate. Schools PFI is still a developing area of policy. Whilst there have been some operational difficulties with some projects, these have been the exception rather than the rule. In most instances they have either been in outstanding minor defects and deficiencies such as are encountered in all building projects (and under PFI the financial penalties to which the provider is liable should help to ensure a prompt response) or procurement problems arising from a lack of clarity about what is and is not covered in the contract. These sorts of problems can arise however the project is funded.

DEPARTMENTAL RESPONSIBILITIES

4. Projects are in the main supported by central Government funds (although Local Authorities are also required to contribute) and the Department therefore has a responsibility to ensure that all Schools PFI projects are:

— deliverable;

— affordable; and

— represent good value for money for the taxpayer.

5. The Department is also responsible for assessing proposals from Local Authorities and deciding which should receive provisional approval and therefore financial support. This provisional approval needs subsequently (once a full Outline Business Case has been developed by the Local Authority with the support of the Department) to be confirmed by the Treasury chaired Project Review Group (PRG) before it can enter procurement. The PRG includes representatives of all central Government Departments which support Local Authority PFI projects (the DfES supports the largest number of such projects). At the final stage the Department also assesses and gives approval to the Final Business Case and confirms the available funding enabling the project to be signed.

6. The Department is pro-active in working with Local Authorities to identify the lessons that can be learned from all projects and to ensure that best practice is shared with each new project as it starts its development. The Department also continues to provide ongoing support to all Local Authorities developing Schools PFI projects and Local Authorities also have access to advice and support from the Public Private Partnerships Programme or 4ps (an organisation set up by the Local Government Association to support Local Authority PPP/PFI projects).

PFI Toolkit

7. When Schools PFI first began in the mid 1990s some Local Authorities may have been over ambitious about what could be achieved within the available funding. This approach may have contributed to unrealistic expectations and subsequent difficulties in meeting those expectations. The Department has learnt from this experience and in the last three annual bidding rounds insisted on a standardised approach to project costings and contracts. It is DfES policy to ensure that any Schools PFI project to which it gives approval is both affordable and deliverable for the public sector and realistically costed for the private sector. All Local Authorities seeking project approval are required to complete a PC based Toolkit—which uses standardised methods of establishing costs taking area guidelines and a number of other factors into account. The Toolkit outputs indicate the level of Departmental support which would be available were the project to be approved. This prevents Local Authorities pursuing projects that are likely either to fail to deliver the required outcomes or to prove unaffordable. Ensuring that more robust costings are used at the outset makes the achievement of value for money more certain. And in granting provisional approval to projects the Department now places an increased emphasis on the ability of the relevant Local Authority to deliver them successfully.

SUPPORT AND GUIDANCE

8. Because it is the responsibility of Local Authorities to negotiate the contracts, the Department's main focus in improving the overall procurement process has necessarily been to support them in this, and it has achieved a great deal in this area. It has, for example:

— supported Local Authorities' procurement costs and worked with those in the most difficult circumstances to develop their in-house procurement and contract management expertise and funded the cost of this process;

— encouraged the spread of good practice by making it a condition of support that Local Authorities are prepared to share non-confidential information with others in similar circumstances to avoid "re-inventing the wheel"; and

— worked closely with the 4ps and supported that organisation's network meetings which are designed to spread information and good practice. It has also funded a number of joint conferences with 4ps to inform Local Authorities developing Schools PFI projects.

9. Additionally, the Department has developed extensive guidance including standard contracts and standard LEA/school agreements. The use of standard contracts and agreements has resolved many of the difficulties encountered with early projects as well as leading to time and cost savings. Any derogations from the standard contract must be agreed with the Department before final approval is given. The Department is being more rigorous in ensuring compliance with standard documentation and any areas of doubt are checked with Partnerships UK.

10. The Department is currently funding the 4ps to produce a Schools PFI procurement pack which will provide a comprehensive guide to the entire procurement procedure including guidance on developing an output specification which defines exactly what is expected from the private sector provider. Lack of clarity in this area may have caused some difficulties in the past. These initiatives have resulted in a marked improvement in the standard of proposals and business cases received by the Department at the start of the process and are now having a positive effect on the later stages of procurement as expertise is increased.

Design issues

11. There has been some criticism of the design of early PFI schools, particularly in the Audit Commission report published in January this year. The Department recognises the crucial importance of design issues in new school buildings and, before the publication of the report, had already taken and is continuing to take steps to support improvements in this area. It has involved a wide range of individuals and organisations (such as the Commission for the Built Environment or CABE, and the Design Council) in the preparation of key design guidance, as members of steering groups advising on many DfES publications and as members of the Advisory Group on School Design established to advise Ministers on better procurement. It is funding CABE to provide project enablers to advise Local Authorities on design and related issues in schools PFI projects and it has recently revised the guidelines to increase areas and to take account of greater inclusion, increased use of ICT, more community use, increases in school support staff and more non-contact time for teachers. The need for good, sustainable design underpins all these changes.

POLICY EVALUATION

12. The Department is also improving its evaluation of signed projects in operation to see what lessons can be learned. In the Kirklees project where substantial difficulties have been reported, the Department funded the 4ps to produce a report. On the basis of this report, the Department has worked with the Local Authority and with the contractor towards resolving those difficulties. It has also funded the 4ps to undertake a number of case studies on other signed projects; the great majority of these case studies show a positive response from the school users.

13. The Department has sponsored two major research projects into the link between investment in new buildings and educational achievement; it is continuing to research the links between design and educational performance through the Classroom of the Future initiative which is currently funding 30 pilot projects, focusing on the creation of effective, imaginative and stimulating learning environments—the pilot projects will all be monitored and evaluated; it will shortly begin research into lifecycle costs; and a more robust evidence base, supported by comprehensive databases which can be used for evaluation and benchmarking, is currently being developed.

14. It is less than four years since the first PFI school opened. Today, services have started in more than 30 projects, and include more than 40 brand new or replacement schools. Over 500 schools are now covered by PFI agreements, representing over £1.3 billion of capital investment by the private sector. Projects involving a further 400 schools are at various stages of procurement.

TARGETS AND PERFORMANCE

1. The Department has been following with interest the work of the Public Administration Select Committee and its review of target setting. This response to the Education and Skills Committee's questions reflects many of the themes that have been discussed in that enquiry.

2. Target setting is an iterative process. The Department's Public Service Agreement (PSA) targets are normally negotiated with the Treasury at the time of a Spending Review settlement. Since the establishment of the Prime Minister's Delivery Unit in 2001, they too have been involved. The underlying purpose is to enable the public to see what the government is aiming to deliver with the resources invested.

3. DfES agrees that targets should be outcome focused: most are. And they need to reflect the Department's strategic objectives and priorities, reflecting as closely as possible the Department's fundamental purpose. At their best, they can be close proxies for key outcome goals.

4. For example, for school age children, the relevant DfES objective reflects a moral commitment to provide education that enables every child to reach the highest level of attainment they can, so that they are able to equip themselves with the skills, knowledge and personal qualities for life and work. To underpin this, schools targets establish a national framework of standards that clearly set out minimum levels of attainment that most children should reach, with higher-level targets to encourage stretch. School floor-level targets reflect the need to push up levels of attainment for some groups of schools and children.

5. When formulating targets the Department aims to consult with people in the delivery chain to get their professional input on both how a national level headline target will cascade to local level and on delivery mechanisms. For instance the Department's primary strategy "Excellence and Enjoyment—a strategy for primary schools" confirms the Department's commitment to targets and testing. But it also makes clear how important it is that schools set stretching but realistic targets which they can believe in and work towards, and that they "own". So in future the target setting process will begin with schools setting their own targets, with LEAs using performance data to challenge schools to set stretching targets. LEA targets will be set afterwards. The Department is currently considering the implications of the primary approach for targets relating to other age groups.

6. Once the text of a national level PSA target has been agreed and announced, Technical Notes are published for each target that set out precisely how and when progress will be measured. The DfES regularly reviews progress towards targets and risks to their achievement. This may lead the Department to revise targets at or between Spending Reviews in consultation with the Treasury or the Prime Minister's Delivery Unit.

7. Looking ahead to what next steps might be for providing incentives for improved performance, there are some broad lessons to be drawn from experience with target setting so far:

— Input targets may be useful to pump prime a new policy but they should be related to outputs and should not be sustained for too long; but there is a place for institutional level standards to drive quality, efficiency and effectiveness.

— DfES needs to be sensitive to perverse consequences e.g. the difficulty of working to a single figure target where pupil populations are small—in these circumstances range targets can be a helpful alternative.

— When national targets have been agreed, the way they are cascaded through the system is important. It helps if there is excellent data and information to underpin that process; the Department has far better data now for schools than it did in 1998 and that means there can be a more informed debate.

— LEAs and Head teachers play a key role in making schools targets bite, as do the Learning and Skills Council, colleges and providers in respect of targets in their area of operation. Local target levels need to provide an element of challenge and drive towards continuous improvement.

8. In summary, the Department wants to develop better ways of engaging the education and skills system in thinking through the targets and related accountability frameworks which underpin its policy goals, and, through consultation, increase ownership and improve chances of deliverability.

June 2003

1 For 2003-04 the net Schools Budget should be gross of expenditure supported from LSC income-both the main LSC grant and the LSC grant for SEN. Many authorities incorrectly filled in their form by netting off the LSC SEN income in lines 1.1.1, 1.1.4 and 1.3.5. Thus their Schools Budgets appear smaller than they really are. We have therefore added the LSC income from memorandum items 4d1, 4d2 and 4d3 to the net Schools Budget in line 1.7.1 where appropriate. Back

2 For 2003-04 lines 1.1.1 and 1.1.4 should be gross of expenditure supported from LSC income. Many authorities incorrectly filled in their form by netting off the LSC SEN income in these lines. We have therefore added the LSC income from memorandum items 4d1 and 4d2 where appropriate. Back

3 To ensure a like-for-like comparison, the 2002-03 figures for 1.4.2 and 1.4.8 should be gross of expenditure supported from LSC income. Some authorities appear to have netted off this income and we have thus added back in the LSC income in respect of these lines from the relevant memorandum items where appropriate. Back



© Parliamentary copyright 2003	Prepared 18 December 2003