Appendix 1
Public Expenditure on Education and Skills: Government
Response to the Committee's Second Report of Session 2005-06
The Select Committee's conclusions and recommendations
are in bold text. The Government's response is in plain text.
Some of the conclusions and recommendations have
been grouped for the purposes of the response
Education spending trends
1. The Government sets great store by stability
of funding; it needs to ensure that budget holders across the
education sector are aware that funding will not rise at a significant
rate over the next spending review period and beyond. (Paragraph
8)
3. The Government has already accepted that spending
increases will be more modest in the years ahead. The DfES needs
to be explicit in stating that growth in expenditure on education
and skills will slow down significantly in the coming period.
For schools that may mean growth of 2-3% a year in cash terms
compared to 5-7% growth in recent years. (Paragraph 15)
We have seen unprecedented levels of growth in funding
in the education sector since 1997. The Government is committed
to increasing the share of national income devoted to education
over the lifetime of this parliament and in the recent Budget
the Chancellor announced the Government's longer term aim for
levels of revenue and capital funding for schools.
The Government is currently undertaking a Comprehensive
Spending Review (CSR) to set priorities and spending plans for
2008-11 which is due to report in summer 2007. As part of the
preparatory phase of the CSR, the Department is undertaking a
value for money exercise to look at how we deliver better outcomes
for the resource we put in, make efficiency savings and improve
value for money across all sectors.
The overall spending limit for the CSR will be set
by the Chancellor. Ahead of this, we cannot say what the rates
of growth in funding will be for any particular area. We know
that whatever the outcome of the CSR in terms of levels of growth,
schools will need to continue to provide value for money in securing
vital outcomes for pupils, parents and society.
The Government has taken great steps to ensure stability
of funding, including unprecedented investment in education, the
introduction of multi-year budgets for schools and an emphasis
on the importance of leadership and management. These and other
measures continue to build capacity within the sector to manage
and deliver within the resources available to it and to deploy
these resources in the most cost effective way.
Education expenditure, by sector, in real terms
2. The lower level of growth in investment in
higher education compared to schools and further education is
a concern if the intention is to maintain world class higher education
in this country, including the recruitment and retention of high
quality staff. (Paragraph 10)
As the report states, the growth in funding per student
in higher education (HE) has been lower than that in schools and
further education. However, total expenditure on HE has risen
significantly over this period. The 5% real-terms funding growth
per student from 2000-01 to 2005-06 has been achieved while increasing
the number of publicly funded full-time equivalent students by
around 140,000 or just over 13%.
Reform of HE funding in the academic year 2006-07
will bring much needed additional revenue to higher education.
Government expenditure on loans for variable fees and other student
support will enable institutions to charge up to £3,000 per
year without deterring entrants to higher education on financial
grounds. Under steady state conditions, the additional income
from variable fees is expected to be around £1.35 billion.
This compares to planned HEFCE teaching funds of £4.57 billion
in 2006-07 and income from the existing standard tuition fees
of around £0.9 billion (both public and private).
4. As the school population falls over the next
few years while the post-16 population rises the case for the
16-19 phase becoming the main priority will become increasingly
hard to ignore. (Paragraph 16)
The Government's overall spending plans for all education
phases for 2008-09 to 2010-11 will be determined in the context
of the CSR. The impact of demographic changes will be taken into
account in the CSR.
Schools' funding: new proposals
5. We would welcome far greater clarity from
the Government about the precise objectives of the schools' funding
arrangements for 2006-07 and, more particularly, when a new system
comes into operation from 2008-09. (Paragraph 22)
Jacqui Smith's statement to Parliament of 21 July
2005 (HC Deb, col 128WS) set out the purpose of the new school
funding arrangements: to guarantee delivery of the Government's
commitment to increase spending on schools in every local authority
area, to provide schools with the tools to take a strategic approach
to their financial planning, to reduce bureaucracy, to ensure
stability and to enable schools to focus on raising standards
for all pupils.
The Committee expressed concern about how the new
school funding arrangements would support the expansion of popular
schools, the creation of new schools, and the closure of unsuccessful
schools. The previous system of school funding relied on pupil
numbers that were, in the case of primary schools, 18 months out-of-date.
The Dedicated Schools Grant (DSG) is an improvement on this.
It uses pupil numbers from the January preceding the financial
year for which funding is allocated: so the 2006-07 allocations
of DSG use January 2006 pupil numbers; and the 2007-08 allocations
of DSG use January 2007 pupil numbers. Changes in the pupil numbers
within a local authority area (whether the result of opening,
closing or new schools) will therefore be more rapidly reflected
in local authority level allocations of DSG.
As the Secretary of State made clear in her evidence
to the Committee, the great majority of school funding follows
pupils. So when a school expands it will receive additional funding
in the financial year after the pupils join the school roll, whether
or not other schools in the same local authority are losing pupil
numbers and receiving cash protection to ameliorate the impact
on their overall budget. Where a school is expanding significantly
in a planned way, its maintaining authority is required to make
an addition to its budget for the period before the additional
pupil numbers are counted for funding purposes; and the authority
also has discretion to make funding additions where unplanned
pupil increases cause financial pressures on a school. Authorities
are also required to make appropriate funding available to new
schools.
So far as the system of school funding from 2008-09
is concerned, the terms of reference for the review of School
funding arrangements were issued on 6 April and can be found from
the links on http://www.teachernet.gov.uk/management/schoolfunding/.
The key principles that we think should underpin the new system
are:
- recurrent funding for schools
should be distributed in a way which is equitable and makes the
best use of available resources to raise standards in every area;
- there should be appropriate recognition of the
costs of educating particular groups of pupils (eg those from
more deprived backgrounds) and of costs which affect particular
groups of schools (eg higher staff costs or costs associated with
sparsity);
- any distributional change at either local authority
or school level should be accompanied by appropriate transitional
arrangements, to ensure stability;
- local authorities in discussion with their Schools
Forums should continue to be responsible for decisions on the
distribution of recurrent funding at local level, subject to a
nationally regulated framework as now;
- local authorities and schools should be notified
of all funding streams for three years ahead (subject to the Spending
Review cycle), to enable them to plan ahead with confidence and
make best use of their resources. Recurrent funding should be
linked to actual pupil numbers: beyond that, changes to schools'
budgets within a three-year cycle due to other data changes should
be kept to a minimum;
- as a general principle, all new recurrent funding
should go into schools' general budgets to be used for the purposes
of the school, with ring-fencing of specific grants only in exceptional
circumstances; and
- the school funding arrangements should be as
transparent and easy for schools to understand as possible, with
the number of separate funding streams kept to the minimum necessary.
6. We expect to be consulted at an early stage
on the Government's plans for the new schools funding system.
(Paragraph 24)
We have offered national partners the opportunity
to comment by 31 May on the issues set out in the terms of reference
for the review of school funding: we would welcome the Committee's
views on these issues too. We also intend to consult formally
on a package of detailed proposals, probably early in 2007. We
would welcome the Committee's views at this time too.
7. We expect the Government to take both transience
and the provision of extra funding for individual pupils from
disadvantaged backgrounds into account in developing the new formula.
(Paragraph 25)
The funding mechanism for DSG will distribute funding
for personalisation to all local authorities, not just to those
with high levels of deprivation, as suggested in the Committee's
report. Moreover, the formula used by the Government to distribute
funds under the previous system (Schools Formula Spending Shares)
has always taken account of all deprived pupils, not just those
in deprived areas. But we agree with the Committee that this
funding needs actually to reach deprived schools and pupils: local
authorities need to make further progress in targeting the funding
for pupils from disadvantaged backgrounds that they receive through
Dedicated Schools Grant; and local authorities need also to take
account of the link between transience and outcomes in relation
to pupils from disadvantaged backgrounds.
That is why, as part of the follow-up action to the
joint report from the Department and HM Treasury Child Poverty:
Fair Funding for Schools we are asking local authorities to
take a number of steps:
- to review their current arrangements
for funding schools for the costs of deprivation;
- to send the Department details of their policy
and practice in this area; and
- to send the Department details of how they have
allocated the funding for personalisation within the Dedicated
Schools Grant allocations for 2006-07 and 2007-08.
In addition, the Department will be:
- issuing guidance on the available
indicators for deprivation, and the pros and cons of using them;
- monitoring progress towards local funding formulae
for 2008-11 that target deprivation adequately, through its Children's
Services Improvement Advisers;
- considering what further action is required to
achieve local consensus on the way forward where such progress
is not being made; and
- giving consideration, as part of the review of
the operation of the new school funding arrangements, to ways
in which the allocation process might be used to require authorities
to target deprivation.
The Committee will also have noted that in the Budget
on 22 March, the Chancellor announced an addition to the School
Standards Grant (SSG) of £220 million in 2006-07 and £365
million in 2007-08 for personalised learning, with a strong emphasis
on higher levels of additional funding for the most deprived schools.
Efficiency savings
8. The two main ways in which the DfES is aiming
to secure these efficiency savings, which will come largely from
schools, is through more productive use of teachers' time and
through more co-ordinated procurement of goods and services.
Despite reassurances from Sir David Normington and the Secretary
of State, we are sceptical about whether it will in fact be possible
for £4.3 billion to be found in this way. (Paragraph 29)
The efficiency target of £4.3 billion for education
is a significant challenge but the Department is confident of
meeting it. Many of the component programmes are already well
under way and there is a robust programme structure to monitor
the gains and make sure that remedial action can be taken where
necessary.
9. The Committee believes it is imperative that
the Department can provide concrete examples of where schools
(and other institutions) have achieved efficiencies that have
produced new resources to be used for productive purposes. We
will expect to see examples of such outcomes in the next two years.
(Paragraph 30)
We already have case studies and examples of how
schools and other frontline institutions are benefiting from the
initiatives that are delivering our efficiency gains and many
of these are already in the public domain on the websites of the
Training and Development Agency for Schools —www.tda.gov.uk/remodelling.aspx
and on the British Educational Communications and Technology Agency
website— www.becta.org.uk/corporate/display.cfm?section=21&id=2442.
One example of work that is in hand concerns school
transport which has been identified as a key issue for schools
and local authorities. The annual cost of home to school transport
is estimated to be £850 million in 2005-06 and is increasing
at an average annual rate of seven to ten % which many authorities
view as not sustainable.
The Department's Centre for Procurement Performance
(CPP) initial transport project is working with Departmental policy
colleagues and the North West Regional Centre of Excellence, taking
this work forward under their remit of developing a National Transport
Framework for local government, and more specifically the 'The
Journey to School' element.
Projects being developed as part of the 2006-07 activities
will include the development of a collaborative procurement framework
for schools own transport. This will allow schools a better element
of choice and value when they are making decisions about local
transport arrangements. To compliment this CPP is also looking
at regional or sub regional pilots to develop local collaborative
transport hubs.
Underlying the work of CPP is the principle that
organisations remain in control of their budgets at all times,
and any money saved through better procurement can be reinvested.
CPP will not mandate to schools. Their remit is to advise and
enable the sector to make more intelligent procurement decisions
and provide the sector with the necessary skills and information
to do so.
The Department will continue to look to identify
concrete examples to illustrate what has been achieved at the
frontline. We agree that this will be key in demonstrating the
real benefits that have been brought about through the implementation
of the initiatives.
10. Given that the increase in expenditure on
education is declining, we are concerned that too much reliance
is being placed on future savings which may be difficult to achieve.
The extent to which these savings are transparent will be crucial.
Unless the savings that the Department is saying that it will
be able to make are real savings which will fund activity, it
may find itself struggling to maintain its funding across the
sector. (Paragraph 33)
Our efficiency initiatives are not about taking money
away from the frontline, rather they are about helping the frontline
to realise maximum outcomes from the resource it is allocated.
As our efficiency programme stems, in the main, from initiatives
designed to improve the quality of provision, we are confident
that the realisation of our efficiency target will in turn improve
outcomes for children and learners.
11. We consider that there is a real danger that
efficiency savings will be claimed but that evidence to verify
those savings will not be available. (Paragraph 34)
The efficiencies are based upon rigorous modelling
and the Efficiency Technical Note has been agreed with the Treasury
and scrutinised by the National Audit Office and the Audit Commission
to determine whether it clearly sets out methods of assessment
and to identify where targeted gains appear unfeasible or particularly
high risk. We have drawn upon robust data sets using independent
evidence wherever possible and have clear audit trails to track
data through collection processing and reporting. We have done
this in the context of minimising burdens and bureaucracy on the
frontline and have sought to use data that is already gathered
wherever possible.
12. When the process is complete, we ask the
DfES to provide us with comparisons of staff numbers and functions
pre- and post-restructuring, including any outsourcing from the
Department to other agencies and expenditure on consultants. This
should provide evidence of the Department's move to a smaller,
more strategically focused role. (Paragraph 35)
The Department will continue to provide information
on its progress to meeting the efficiency target including through
the Autumn Performance Report and the Departmental Report. The
Department will be pleased to provide the Committee with any material
it needs to understand how the Department is changing to meet
its future role.
We are currently well ahead of the agreed trajectory
in terms of headcount, relocation and monetary value of efficiency
gains expected. We have met the vast majority of programme milestones.
We met our 2006 target for headcount reductions ahead of schedule.
More details of the number of staff in the Department are in
the 2006 Departmental Report, published on 16 May.
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