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Education Funding (Middlesbrough)

11 am

Dr. Ashok Kumar (Middlesbrough, South and East Cleveland) (Lab): First, I thank Mr. Speaker for granting me this brief debate. I would also like to say what a pleasure it is to see the Under-Secretary of State for Education and Skills, my hon. Friend the Member for Gloucester (Mr. Dhanda), in his place. I praise him for the good work that he has done in the Department for Education and Skills. He has been in his job for at least six or seven months, and has been doing it with great spirit. However, we shall not carry on our earlier discussion—we chatted about whether “Big Brother” has been racist—because you would rule me out of order, Mr. Cummings. I shall stick to the subject that I want to address.

I wish to focus on some instances of how funding laid down by the DFES impacts adversely on school funding for Middlesbrough local authority in my constituency. Several long-standing issues have been raised many times with senior DFES figures by Middlesbrough councillors and officers, including the lead executive member for education, Councillor Paul Thompson. Despite that, there has been no improvement in the situation, which is why I sought this debate. I am aware that Middlesbrough council has evidence of significant financial losses that have arisen from DFES policy decisions. The DFES needs to address those losses. The key issues are the financial burden placed on Middlesbrough council by the exclusion policies of the two local city academies and the grave impact that having to deal with a high number of excluded pupils has had on the council’s finances.

Middlesbrough was an early supporter of the academy model. The first city academy, Unity city academy, was operational by September 2002, while the second, King’s academy, was operational by 2003. A third academy, Macmillan city technology college, converted to an academy from a CTC in September 2005.

The key issue is that the regulations on financing maintained schools do not cover academies. Those regulations include a provision for the local authority to claw back funding when a school permanently excludes a pupil. Given their freedom from that factor, city academies can therefore exclude as many pupils as they wish, without any financial penalty. Academies will have received funding for those pupils, but the authority is expected to make provision for excluded pupils without that funding being passed on.

In the early stages of the first two academies, there was a high rate of exclusion as compared with that in maintained secondary schools in Middlesbrough. All schools face challenging behaviour from a small minority of pupils. I accept that exclusion is, at times, the only option left to keep order and prevent disruption to other pupils’ education. I have only rarely been approached by the parents of pupils involved in such exclusions, even though King’s academy is in my constituency and Unity academy takes pupils from part of my constituency. However, the fact remains—and can be proved—that the exclusion record of the two academies is far higher than that for the local education authority’s 11-to-16 sector.


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In the academic year 2002-03, there were 18 exclusions by the two academies, as compared to five by the LEA’s six maintained secondary schools. In the following year, there were no fewer than 42 exclusions by the two academies, as against 10 by the six secondary schools. In 2004-05, the comparative figures were 17 for the academies and 10 for the six secondary schools, and in the academic year 2005-06, the figures were 18 for the academies and 11 for the six secondary schools. It appears that there is basically a one-way flow.

The academies do not usually admit pupils excluded from other schools. Therefore, the pressure has to be absorbed completely by the LEA, in one of two ways. First, the LEA can place an excluded pupil in a maintained school. That brings a requirement to pay the school the pupil-led funding pro rata for the remaining weeks in the financial year, even though the authority has not received any funding for that pupil from the academy. Alternatively, an excluded pupil can be placed in the pupil referral unit, which is maintained by the LEA. Doing that means that the authority has to increase staffing and other expenditure to make provision for the additional pupils.

The second option bears a much higher unit cost than is the case for a mainstream school, because of the small size of the pupil referral unit and the staffing ratios needed to deliver specialist provision for young people with behavioural difficulties. That can be confirmed by using benchmarking data prepared from the section 52 budget statement that all LEAs send annually to the DFES, which shows expenditure on a per-pupil basis.

The statement for Middlesbrough indicates that it has the highest expenditure per pupil on pupil referral units, at £101 a pupil. Indeed, overall, Middlesbrough has the fourth highest level per pupil in the country, equal with Islington, with only Kensington and Chelsea, Hackney and Blackpool councils having a higher spend per pupil. The all-England average spend on pupil referral units is only £34 a pupil. From that, one can easily assess the impact on the LEA of the two academies’ exclusion policies.

The cash that Middlesbrough council has lost, owing to its being unable to claw back the funding, is estimated at £96,000, up to the end of 2005-06. That, of course, does not include the cost of educating the pupils who are expelled from the academies, which would be higher. That money would have otherwise been spent on improving the quality of the mainstream education provision in the town. To make matters worse, the situation is compounded by the top-slicing of £113 million in 2006-08 from the national dedicated schools grant pot to update academy funding to reflect increases in pupil numbers and to allow for start-up costs for new academies and intervention costs. That has directly reduced the amount per pupil available for Middlesbrough schools.

Despite that, however, Middlesbrough’s schools management forum agreed to an increase in the cash retained by the LEA to spend on provision for pupils, specifically to cover extra cost pressures in the pupil referral unit. In that forum, local head teachers were critical of the inconsistent treatment of academies in respect of the clawback provision for exclusions. As a
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result, the increase awarded was made conditional upon LEA officers and elected members lobbying the DFES on the matter.

The lobbying promised to the Middlesbrough council community has been carried out. In October 2005, questions were put directly to DFES officers at the northern regional education finance group. In the same month, direct contact was made with the DFES, following receipt of the draft school finance regulations for 2006-07. In reply to both interventions, the DFES response was that there was acknowledgement of the problems, but that a quick solution was not likely to emerge.

In May 2006, Mr. Stephen Bishop, a senior DFES official now in the DFES academies division, attended the Middlesbrough school management forum, where he met head teachers who demanded action on the issue. He replied that consideration could be given to amending the regulations, although he admitted that he thought that unlikely to happen. He also said that the academy funding arrangements could be changed, although he conceded that that would require reciprocal agreement from the academies, making it a remote prospect.

I am aware that the academies programme is expanding across the nation. Given that, I suspect that the issue will increase in importance and that other LEAs will start to press the DFES for a resolution. I could argue that, given Middlesbrough’s early entry to the academy model, my authority is being heavily penalised for being proactive and having responded to policy demands from the centre.

I ask the Minister to study the information in my speech. If he needs extra information, I am sure that the Middlesbrough LEA will be happy to provide it. I hope that he will be prepared to study the issue again so that it can be resolved.

I would like to make one or two helpful suggestions. One way to solve the issue would be for Ministers to consider how they could strengthen inclusion and exclusion policies in the academy sector to stop the problem at source. Alternatively, they could consider amending the regulations to allow money to follow the pupil, regardless of the secondary school sector from which they had been excluded.

I am aware of how important the academy issue is to Ministers and the Government, and I support it wholeheartedly. Removing the financial barrier, in whatever fashion, would allow for more rapid expansion of academies. If we are to build a strong and successful relationship between the LEAs and the academies, problems such as those that I have highlighted need to be arrested. The elected members and officers at Middlesbrough are deeply unhappy about what has been going on for several years. That is why I sought this debate. As a friend, I ask the Minister to respond to the issue. Those people support the Government and were pioneers in supporting the academies. I urge him to respond positively to my concerns.

11.13 am

The Parliamentary Under-Secretary of State for Education and Skills (Mr. Parmjit Dhanda): I congratulate my hon. Friend the Member for Middlesbrough, South and East Cleveland (Dr. Kumar) on securing this debate. I
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look forward to having a discussion with him later about whether there has been racism in the “Big Brother” house.

This debate is something of a first, in that both speaker and responder are fluent—in my case, fluent-ish—in Punjabi. However, you will be pleased to hear that we will be conducting affairs in the Queen’s English, Mr. Cummings.

I am pleased that my hon. Friend has introduced this debate. He has raised valid concerns, and in a moment I shall explain the point that we have reached in dealing with the issues. Not least from our conversations down the years on education, I know that he has a close interest in schools in Middlesbrough, having been for many years an elected councillor there.

Middlesbrough is an area in which our policy of school diversity can be seen in action. It has three academies among nine secondary schools, including, as my hon. Friend said, two of the first academies in the country, Unity and King’s. The third academy, Macmillan city technology college, has one of the highest contextual value-added scores in England. The academies in Middlesbrough have observer status on the local schools forum, and a range of other ties with authority schools. Those ties are especially important in respect of the issues that particularly affect academies. We want the whole local community of schools in Middlesbrough to prosper through working together.

A flourishing community of schools is one in which all pupils can be properly educated and any behavioural problems can be tackled at root, rather than the pupil being passed from school to school like a hot potato. As my hon. Friend said, for many years funding has been deducted from maintained schools if a permanent exclusion takes place. There is a statutory deduction at a rate fixed nationally. Some authorities make another discretionary deduction at a higher rate to provide a further disincentive to schools that should be trying harder before resorting to the ultimate sanction of exclusion. Such deductions, however effective, are not the complete answer because prevention is much better than cure.

We are promoting local partnerships of secondary schools to improve behaviour and tackle persistent absence. Such work can reduce the need for permanent exclusions. We need to design policies to improve pupil behaviour in the first instance. We have made it clear that we expect all secondary schools, including academies, to join such partnerships by September 2007. That is particularly important in the context of this debate, and early indications from pathfinder partnerships in 19 local authorities have been very encouraging.

Last year, through its schools forum, Middlesbrough drew attention to the implications of the fact that the exclusion rates of two academies were consistently higher than those for the authority’s six secondary schools. In part, that arose from the process of conversion. The schools that precede academies often have considerable problems, so the rate of exclusions from an academy anywhere in the country will often, certainly initially, be higher than that for other schools. I do not say that that is in any way desirable, and I hope that the work to which I have alluded will reduce that effect.


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If a pupil is permanently excluded, the authority is responsible for educating them, either at home or in a pupil referral unit, until he or she is admitted to another school. Obviously, that has costs. Middlesbrough has pointed out that its central expenditure on pupil referral units has increased to such an extent that it has had to seek approval from its schools forum to breach the normal limit on central expenditure. My hon. Friend mentioned the figure of £101 per pupil, the fourth highest nationally. Such increases mean correspondingly less money for schools’ delegated budgets.

In turn, that has meant that more attention has been focused on deductions. It is important to point out that the statutory deduction—the only one that Middlesbrough imposes on its schools—can make only a relatively small contribution to the cost of educating the excluded pupils, whether at home or in a pupil referral unit. The key to the problem, from a financial and educational standpoint, is a reduction in the incidence of exclusions in the first place. With that in mind, I am glad to hear that this month Middlesbrough and the academies have been discussing a package of support for the pupils deemed most at risk of exclusion.

Whatever the situation in Middlesbrough, however, we realise that there is unease more generally among local authorities and others about the fact that academies are not participating in the normal deductions regime for permanent exclusions. As always, my hon. Friend effectively makes the case for Middlesbrough, but I am also aware of concerns in other parts of the country, such as Ealing.

The issue raises questions of equity, which is at the core of this debate, especially when our policy for academy funding is firmly that it should be based on equivalence with maintained schools. Unfortunately, the deductions system for maintained schools cannot simply be extended to academies overnight—primary legislation is required—nor can the Department unilaterally change the terms of the funding agreements with academies, as they have the nature of contracts, with all that that entails.

Moreover, changing the funding agreements would not enable academies to receive extra funding for previously excluded pupils whom they then re-admit. They do not have a deduction for pupils who are removed, but neither do they receive money for pupils coming in. However, we propose to undertake a consultation exercise this year in which we shall put the facts to academies and local authorities, and seek views on whether a change should be made and on the best way of achieving it. My hon. Friend has stimulated the debate very well. He explained why the matter is of concern to local authorities, and I am sure that Middlesbrough will play a big role in the consultation.

I do not want to anticipate the contents of the consultation document, but if the exercise suggests that change is necessary, it will be carried through. I hope that my hon. Friend will take heart from that. We will reinforce the message about reducing the need for permanent exclusion, so that the debate is not reduced to one that is simply about shuttling money around the system. It is about real pupils and their lives. I hope that that provides some positive news for my hon. Friend to take to his colleagues in Middlesbrough.


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I am aware that my hon. Friend also has concerns about funding generally, and about special educational needs, so in the remaining moments I shall address some of those as well. Since April 2002, the Learning and Skills Council has been responsible for funding school sixth forms. Statutory responsibility for placement and funding decisions for individual post-16 pupils with special educational needs rests with local authorities and schools, which are supported by the LSC through its funding arrangements.

The LSC allocations for SEN are based on 2000-01 expenditure figures, but they are uprated by inflation and by changes in the overall 16-to-18 population of the authority concerned. We are aware that Middlesbrough has expressed concern that its 2007-08 SEN allocation shows a very small increase. In fact, the increase is just 0.42 per cent. It arises because the cash increase of 3.7 per cent. applied to SEN allocations, which is in line with the minimum funding guarantee, is almost cancelled out by a decrease in 16-to-18 numbers in Middlesbrough of 3.28 per cent.

Not unnaturally, authorities have been concerned that the basis for SEN allocations does not take account of changes in provision and local practice. In October 2006, the LSC published its national strategy for learners with learning difficulties and/or disabilities, “Learning for Living and Work”, which included plans to work with local authorities and 14-to-19 partnerships to understand the SEN arrangements and to develop a new approach to funding.

On 5 January, we published jointly with the LSC a consultation document, “Delivering World-class Skills in a Demand-led System”. Again, my hon. Friend may wish to show the consultation to colleagues in Middlesbrough on his return. It includes proposals on a common approach to 16-to-18 funding, including funding for learners with learning difficulties and special educational needs.

We are moving towards a new system from 2008 onwards, and I hope that Middlesbrough will want to help to ensure that it reflects local authority needs. I am sure that my hon. Friend will encourage his local authority to be involved in the process.

Also on grants and funding, the three-year leadership incentive grant, which was worth £135,000 per eligible school in 2005-06, ended in March 2006, as was planned for that three-year grant. To enable schools to plan for sustainability, they were made aware when the grant was introduced that it would end after three years.

From 2006-07, the Government have introduced new funding intended to focus on secondary schools with the most deprived pupil intakes. Secondary schools with at least 20 per cent. of their pupils eligible for free school meals at the time of the January 2006 school census will receive £120,000 in 2006-07 and a further £125,000 in 2007-08. Schools previously receiving the leadership incentive grant that are not eligible for the new money will receive transitional funding. I know that that affects schools in and around my hon. Friend’s constituency.

Seven of the nine secondary schools in Middlesbrough, including the three academies, will get full funding in each year. Two schools will receive transitional funding, as they did not have at least 20 per cent. of their pupils
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eligible for free school meals at the time of the January 2006 school census. I acknowledge that any school that moves above the 20 per cent. free school meal threshold in January 2007 may feel that it should get £125,000 as well, but to ensure stability the allocations for schools have been announced for 2006-07 and for 2007-08, based on the January 2006 data. I thought that it would be useful to put that information on the record, as I know that it affects Middlesbrough schools.

To adjust the allocations to take account of the January 2007 school census would cause turbulence. Funding is from a fixed pot, so for some schools to gain funding, others would have to lose. That would mean that some schools that receive the full £120,000 in 2006-07 would not be certain whether the funding would continue in 2007-08, and that would undermine the Government’s aim of stability and predictability in school funding. Therefore, we do not intend to revise allocations on the basis of the January 2007 census. School organisations have emphasised to us many times the importance of stability in funding.

I hope that my hon. Friend appreciates from my remarks that we take seriously the issues that he has raised and that we hope to make good progress on them all, not least exclusions. I hope that my contribution to this debate reassures him that we are actively involved with officials in Middlesbrough on these matters. It is an ongoing process. We are very much aware of his concerns and appreciate the fact that he is raising them again in Parliament, and we look forward to working with and consulting him and schools in Middlesbrough in the coming months.

11.29 am

Sitting suspended until half-past Two o’clock.


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