27.The main source of revenue for 5–16 school funding comes from the dedicated schools grant (DSG), which is notionally divided into schools, early years, and high needs funding blocks. Since the introduction of the National Funding Formula (NFF) from April 2018, the size of each block has been determined by a specific formula. The formula for schools included a set of 14 weighted factors to calculate funding distributions. For the year 2019–20 the basic per-pupil funding was weighted at 73.%, whilst the additional needs and school-led funding accounted for 17.6% and 8.8% respectively.
Fig 4: Department’s graphic on factors in the schools National Funding Formula (not to scale)
Funding for factors in italics will be allocated to local authorities in 2019–20 on the basis of historical spend. Source: Department for Education.
Fig 5: National Funding Formula: graphic representation of weightings
* Minimum per pupil funding: 0.6% (£187m) / ** English as an additional language: 1.2% (£407m) / *** Mobility: 0.1% (£21m) / **** Sparsity: 0.1% (£25m) / ***** Premises: 1.9% (£641m)
Source: Education Committee analysis using Department data
28.The NFF represented a substantial change from previous years, when funding allocations were chiefly determined by looking at local authority spending in the previous year, which in turn was based on central Government allocations that were themselves largely influenced by the characteristics of the local authority in the early 2000s. This approach resulted in significant regional variations, some of which were intentional (for example London weightings) whilst others appeared to be more the result of accumulated historical decisions. An overhaul of the funding system was pledged by the Conservative Government in 2015 and in the 2017 Conservative Party manifesto.
29.The NFF was accordingly introduced to make funding more transparent, and address funding variances between schools and pupils with similar characteristics. Announcing the policy, then Secretary of State Justine Greening said the NFF would direct resources to where they were most needed and address “manifest unfairness” under the existing system:
for the first time, the resources that the Government are investing in our schools will be distributed according to a formula based on the individual needs and characteristics of every school in the country.
30.To provide stability for schools and local authorities during the transition period, the Department planned for local authorities to continue setting a local formula to determine funding distribution and individual school budgets in their areas up to 2019–20. Under the so-called ‘soft formula’, local authorities continue to play a role in shaping the size and allocation of budgets to schools. The next stage in the NFF policy plan involved moving to the ‘hard formula’, under which a single national formula would set school budgets. This would have the effect of largely cutting local authorities out of the allocation and distribution process. This would require legislation, however, and its implementation has been delayed. The Department confirmed the soft formula would continue in 2020–21.
31.Our evidence on the intentions behind the NFF was largely positive, though views on the level of local flexibility were more mixed. We heard from councils that the current soft formula could capture local complexities and provide flexibility for appropriate interventions much better than the hard formula. The National Education Union also supported a soft formula, arguing that “no ‘hard’ national funding formula can account for, quantify or respond to every local circumstance”. The Local Government Association said that a future formula would need to include an ongoing element of flexibility allowing councils to adjust distributions “if that produces better outcomes for schools and pupils”. On the other hand, we heard that existing local flexibilities had led to different decisions being taken by different local authorities in objectively similar circumstances. The National Association of Head Teachers (NAHT) believed that a continuation of the soft formula risked perpetuating funding anomalies within a distribution system that was based more on location than actual levels of need.
32.More widely, our evidence highlighted deep concerns about the level of funding required to make the new system ‘fairer’, as opposed to purely redistributive. In particular, we heard that age-weighted pupil unit (AWPU)—which comprises the bulk of the NFF spend—and the lump sum were too low; allocations were not based on assessments of need levels or operational costs; and there was little clarity around what the lump sum and AWPU were intended to cover. Regarding the budgets set for schools, Luke Sibieta from the IFS explained that different decisions were taken among local authorities on the weighting of primary and secondary school funding, though the underlying reasoning was not always clear. The Department had then replicated the average of these local formulae to minimise turbulence:
they took that decision because they were not aware of any evidence that it should move one way or the other. It does not necessarily mean it is the right level.
33.The funding formula was also criticised for providing insufficient financial increases to schools in historically underfunded areas. These issues, together with the inclusion of historical factors within the NFF, did not appear to support the Government’s contention that the new system offered a “fairer” funding model. When questioned on this matter, the Minister for School Standards maintained that the NFF was
a much fairer way of distributing funding because previously we were basing the distribution of funds to local authorities on historic[al] data [ … ] the first thing is that we are [now] basing the national funding formula on current, up-to-date data.
34.He acknowledged that the age-weighted per pupil funding formula was “broadly speaking, roughly the aggregation of 150 local formulae”, which were adjusted slightly to account for issues such as low prior attainment. Regarding adjustments to the weighting, he argued that
if you think then that the 73% of the national funding formula that is the age-weighted pupil unit is too low and you think it should be 75% or 80%, the beauty of the national funding formula is that we can have this debate nationally.
35.Given the concerns over the insufficient size of the total funding pot in question, however, we highlighted the amount of money that went into seemingly disparate Departmental projects and asked whether this would not be better spent on increasing the core funding pot to aid financial stability and strategic planning. The Minister said such funding announcements typically arose when the Department became aware of spare money mid-financial year, or during the roll-out of national programmes. He stressed that the Department would be “presenting the best case possible to Treasury for the future years of the spending review”. Regarding the delayed roll-out of the hard formula, the Minister said the intention was to move to a hard formula “eventually”, but that local authorities would continue to distribute funding up to 2020–21 in the interests of providing flexibility.
36.We fully support the intentions behind the National Funding Formula (NFF), and it is clear to us that maintaining a degree of local flexibility is important. We are nevertheless concerned that the so-called ‘soft’ formula continues to be based on local historical rates that perpetuate the anomalies it was supposed to remove. These historical factors hamper the NFF’s potential to act as a truly redistributive tool.
37.The Department should bring forward legislative proposals to implement a ‘hard’ National Funding Formula for schools as soon as a parliamentary majority is available. We encourage the Department to investigate how best to address outliers whose individual circumstances might not be accurately captured by even the best-designed funding formula.
39.The Department must raise the AWPU for the next spending review period. The Department must also commit to revising the AWPU again following a comprehensive review of the real-world costs of school education, as recommended in Chapter 7.
40.The Department’s intention to secure consistent funding across schools via the NFF has been further complicated by the organisational structure of multi-academy trusts (MATs). In 2018 the Department published figures on academy trust finances indicating that financial assessments of MATs were being conducted on the trust level, rather than at the individual academy level. The Department said this was “because trusts are the legal entities responsible for academies, including their finances”.
41.As the Education Policy Institute highlighted, however, trusts pooled resources and allocated school funding levels for individual academies with little Departmental oversight. This undermined a key feature of the NFF’s redistributive approach, and weakened the transparency and consistency that the policy was intended to provide. School Financial Success said there was “no justification” for allowing MATs to continue with this freedom whilst removing it from local authorities under a hard formula, and called on the Department to reassess its position on MAT funding policy.
42.The lack of clarity over MAT funding systems was also criticised. MATs have typically funded their core operations by top-slicing a percentage of the budgets from schools within their trust. Concerns have been raised in the past about where this money came from. There have been multiple cases of MATs increasing their service charges when their schools were already in deficit, or including Pupil Premium funding in the management fee. The NASUWT union said the freedoms and flexibilities of the current funding framework meant there was “no guarantee within the system” that education funding would be spent to the benefit of pupils, and criticised the “inadequate level of DfE scrutiny and therefore public accountability of spending by academy trusts”. High profile cases of asset stripping, whereby MATs transferred substantial financial assets from schools to themselves before collapsing, have raised additional worries around appropriate levels of oversight.
43.We had further concerns about the wider issue of accountability within MATs, given that Ofsted had neither the powers nor the capacity to inspect individuals MATs or give them ratings. A 2017 report by our predecessor committee criticised the lack of formal inspection and accountability under Ofsted’s policy of conducting batched inspections of individual schools within trusts over a single week. We also wrote to Lord Agnew in early 2018 outlining our ongoing concerns. Since then, HM Chief Inspector Amanda Spielman told us on 7 March 2018 that she “absolutely” believed Ofsted should be empowered to inspect MATs, and that “accountability systems need to reflect the way that the system actually operates today”.
44.In December 2018, Ofsted said it would amend its approach to inspecting schools within MATs, conducting inspections across one or two terms and working with MAT leaders to “evaluate the educational effectiveness of the MAT as a whole”. In evidence to us in February 2019, the HM Chief Inspector re-iterated her call for MAT inspections, arguing that the recent changes did not go far enough:
if decisions about behaviour policy or curriculum or how teachers are trained and supported is happening at a level above the school in an organisation then that for me is where the conversation needs to be.
[… The] summary evaluations that we have introduced in the last couple of months [ … ] take us a step in that direction but there is still space to do something that gets to the critical points, decision-making points in an organisation, more quickly and more easily.
45.The Department must ensure that multi-academy trusts (MATs) are properly held to account over their internal operations, the way they fund themselves, and how they distribute funding to schools within their trust. We are not convinced that the current framework is adequate. The Department should confirm in response to this Report whether, under a hard funding formula, MATs would continue to maintain discretion over allocating funds to schools within their trusts. If they would, the Department must explain how it intends to ensure this system does not undermine the NFF’s core aim of providing equitable and consistent funding across schools.
46.Ofsted should be granted the powers and resources to conduct inspections at MAT level. The Department should also require MATs to publish detailed, accessible data on their website showing how they fund themselves, where this money comes from, and a breakdown of what it is spent on. These publications should be combined with performance indicators to support oversight by authorities and parents.
53 For 2018–19 onwards, the Government introduced a fourth block, the central schools services block, which is funding allocated to local authorities to carry out central functions on behalf of pupils; it was created by combining two previous funding streams.
54 The early years block which was allocated on a national funding formula basis for the first time in 2017–18. See Department for Education, , September 2017, p7
55 For further information on these factors, see: Department for Education, , September 2017, pp 11–21. For the unit values, total funding and proportion of spend through each factor in the 2019–20 formula, see: Department for Education, , July 2018, p10
56 Department for Education, , July 2018, p5
57 Department for Education, , July 2018, p10
58 Education and Skills Funding Agency, , December 2015, p4
59 Institute for Fiscal Studies, 21 September 2017
61 Conservative Party, , 18 May 2017, p51; and Department for Education, , September 2017, p3
62 , 14 September 2017, vol 628 cols 1024–7
63 Department for Education, Department for Education, , September 2017, p8
64 Department for Education, , September 2017, para 10
65 Department for Education, , July 2018, para 5
66 The Local Government Association () paras 2.4, 6.1; Hampshire County Council () para 3.2; Staffordshire County Council () para 11; National Education Union () para 6; County Councils Network () para 41; UNISON () para 4.3
67 National Education Union () para 6
68 The Local Government Association () para 6.1
69 NAHT () para 30
70 f40 Group of Authorities () para 7.1; Grammar School Heads’ Association () para 5; Northamptonshire County Council () paras 2.3–2.7; NAHT () para 32; Cambridgeshire County Council () para 2.6; Morris Education Trust () para 3.3; Cambridgeshire Schools Forum () para 8
72 Hampshire County Council () para 3.1; North Yorkshire County Council () para 2; National Education Union () para 39; WorthLess? () paras 10–11
73 Q472; Essex County Council () para 11; f40 Group of Authorities () paras 2.1, 4.1; Hampshire County Council () paras 3.1, 3.6
81 MATs are single legal entities that run more than one academy – typically between one and ten, though some cover 40 or more schools.
82 Department for Education, , July 2018, p1
83 Education Policy Institute, , 27 July 2018
84 School Financial Success () paras 13–15
85 Schools Week, , 17 May 2019
86 Schools Week, , 27 May 2016
87 NASUWT, , 30 May 2018, para 4
88 NASUWT, , 30 May 2018, para 11
89 Education Committee, , 15 January 2018
90 Education Committee, , Seventh Report of Session 2016–17, HC 204, 28 February 2017, para 27
91 Education Committee, , 15 January 2018; , 15 February 2018
92 Education Committee, , HC 341, 7 March 2018, Q621
93 GOV.UK, Ofsted blog, , 13 December 2018
94 Education Committee, , HC 341, 5 February 2019, Q1782
Published: 19 July 2019