Funding

Background

Spending on education can be expressed in many different ways. Actual cash figures are little use on their own as they are not adjusted for inflation. However they can be useful when looking at current total spending. It is important to remember that some tables deal with UK spending whereas others only cover spending in England.

Much spending on education is spent centrally, for example on Ofsted and the Office of the Children’s Commissioner.

For local authority expenditure, central government determines an appropriate level of spending by local authorities across all their services and provides funding via the Revenue Support Grant and other grants. The money to local authorities for schools is through a ring-fenced grant to local authorities, the Dedicated Schools Grant (DSG). This is passed to the local authority for its schools from the Education Funding Agency (EFA). The DSG is divided into three blocks: the schools block, the high needs block and the early years block. The money for the academies in the local authority is then recouped from them and passed to the academies by the EFA.

Local authorities then allocate the money to schools via the local funding formula. Formulae are devised locally with government guidance and in discussion within the Schools Forum a group including local school representatives. The factors that are allowed to be used in making up the formula are fixed but only two – the per pupil basic entitlement and deprivation – must be used. The rest are optional, although 80% must be delegated according to pupil led factors, which make up the first six on the list of allowed factors below:

  • A basic entitlement per pupil (AWPU)
  • Deprivation
  • Prior attainment
  • Looked after children
  • English as an Additional Language (EAL)
  • Pupil mobility
  • Sparsity
  • Lump sum
  • Split sites
  • Rates
  • PFI costs
  • London fringe
  • Post 16
  • Exceptional premises costs

Previously, schools had several grants which were school specific such as those for standards, specialist schools or one-to-one tuition. These are now subsumed in the school’s overall grant. There is a Minimum Funding Guarantee (MFG), which means for most schools funding per pupil cannot drop by more than 1.5% per year.

The DSG has remained at the same cash level (£4,450) since 2012-13.

In addition, the Pupil Premium was introduced in 2011 to raise the attainment of disadvantaged pupils and close the gap between them and their peers. In the 2015-2016 financial year, schools will receive £1,320 for primary-aged pupils and £935 for secondary-aged pupils for each child registered as eligible for free school meals at any point in the past six years. Schools also receive £1,900 for looked after children or those leaving care for particular reasons.

Local authorities are required under section 251 of the Apprenticeships, Skills, Children and Learning Act 2009, to prepare a budget statement before the beginning of each financial year and, after the end of that financial year, prepare an outturn statement.

The Education Services Grant (ESG) was introduced in 2013 to replace the Local Authority Central Spend Equivalent Grant (LACSEG), which was paid to academies to cover the cost of the services that local authorities provide centrally to maintained schools but that academies must secure independently.

ESG is paid to local authorities and academies on a per pupil basis as an un-ringfenced grant. Local authorities receive additional funding for the “retained duties” that that they have to fulfil to both academies and maintained schools.

Data

A review of the DfE’s own spending on the department was published in November 2012. Cuts in staffing have been made.

In November 2014, the Statistical Release Education and Training Statistics for the UK 2014 was issued. This yearly publication is wide ranging in its focus. For the UK it reports that education expenditure stood at £89.5 billion in 2013-14, which was an increase of £1.7 billion in real terms. Education expenditure remained at 5.5% of GDP, the same as the previous year.

A Statistical Release in December 2014 showed the income and expenditure of local authority maintained schools (i.e. not academies). Total aggregate expenditure on education, children and young people’s services for all local authorities in England was £42.7 billion. Local authority schools held an average balance of £117,000 and 93% of schools were in surplus. It showed a decrease in spending on early years and youth services.

The DfE issues an Annual Report, which lists plans for spending on education in England. The DfE Annual Report sets out plans for 2015-2016 spending. Resource expenditure will be £53.2 billion in 2015-16; this is equivalent to a 1.0% reduction on 2014-15 baseline spending, while capital expenditure will be £4.5 billion, which is at the same level as the previous year. The Department for Business, Innovation and Skills also reports annually on its spending. Education related bodies which it sponsors include the Skills Funding Agency, the Higher Education Funding Council for England and the Student Loans Company.

A Standard Note for MPs published in December 2014 reported that levels of public spending on education in the UK reached new record levels in real terms in each year between 1996-97 and 2010-11. Spending as a proportion of GDP in 2009-10 and 2010-11 was at its highest since the mid-1970s. In 2011 UK public expenditure on education as a proportion of GDP was above the level in most other EU countries and above the OECD average. The note goes on to say that the falls in the real level of spending in 2011-12 and 2012-13 were the first since the mid-1990s, but both were still higher than in 2007-08 or any previous year. OECD 2014 Education at a Glance also shows that the UK spends above the international average as a proportion of GDP.

Current issues

In March 2012 the DfE issued a report saying that it would work towards introducing a national funding formula in the next Spending Review period (i.e. after the 2015 election). Subsequently, in June 2012, the arrangements for 2013-14 were set out in more detail. In February 2013 the DfE published a review of the arrangements for 2013-14 and a further update in June 2013.

Following a further consultation in July 2014 the DfE published funding arrangements for 2015-2016 . It said: “For the first time in a decade, funding is allocated to local areas on the basis of the actual characteristics of their pupils and schools rather than simply their historic levels of spending.”

A minimum funding level for each local authority was calculated based on factors including deprivation, prior attainment, EAL and sparsity. For most areas this meant the funding was the same as previous years but some areas got more. The report also said that changes to the allocations for high needs and early years were intended in the future.

It said: “We are determined to move as quickly as possible to a fully fair allocation of the whole DSG. We cannot do this for 2015-16 because we do not know enough about the genuine cost of high needs and early years provision and how this varies between different areas.”

Most of the disparity in funding levels between local authorities is due to the deprivation factor in the DSG. Disparity between schools also arises from the characteristics of the local authority formulae agreed with the schools forum.

In January this year a National Audit Office report on the DfE accounts raised concerns about the accuracy of its financial reports; this has arisen because of the difficulty of consolidating the accounts of thousands of academies. The Public Accounts Committee has also been critical of accounting procedures of the Education Funding Agency.

February 2015

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