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Issues for colleges in the national school funding formula and high needs reform

19 June 2019

The Department for Education has published two consultations on a new national funding formula for schools and for pupils/students with high needs. The consultations run until 17 April 2016 and ask a number of technical questions about the content of the new formulae. DFE promises a second stage consultation in summer 2016 to give enough time for implementation of the new arrangements for 2017-18. The introduction of new formulae will be disruptive because there will be losers as well as winners. DFE makes a number of promises to limit disruption including: the changes will be introduced in stages over several years. The existing systems will remain partly in place for the next two years (2017-18, 2018-19). the minimum funding guarantee (MFG) will remain in place which protects schools from annual losses. DFE invites views on the consultation on the level of the MFG. there may also be a cap on gains made by winners from the new formulae. The consultation documents published this week do not provide any detail on the likely funding rates for the new formulae or any modelling to explain who the winners and losers will be. This information won't be published until the decisions about the structure of the formula have been decided (ie in the summer 2016 consultation). The planned changes do not directly affect DFE's 16-18 funding formula which has operated nationally for both schools and colleges for many years. Colleges will nevertheless be affected by the changes in the following ways: schools - changes to local school budgets could have an impact both on the performance of their Year 11 pupils and also on their ability to continue to cross-subsidise their sixth forms. high needs - the introduction of new formula to distribute funds to councils will affect the education of more than 18,000 high needs students in colleges (currently funded at a level of around £200 million). councils - the consultation involves the reshaping of local government's role in education which could affect local services such as education transport and alternative provision. It is interesting that DFE is reducing the role of councils in funding school education just as the Treasury and BIS plan to increase the role of combined authorities (higher tier councils) in funding adult education. The biggest general risk from these reforms for post-16 education is their cost. DFE's spending review settlement leaves very little room for maneovre at a time when pupil numbers are rising. There is a risk that ministers and officials decide to make further cuts to 16 to 18 spending to make it easier to implement the new school funding arrangements. There is a 20+% dip in funding once a pupil reaches the age of 16 and colleges are more efficient than schools in several areas (eg pay cost per teaching hour) so this would be a wrong step for DFE to take. The rest of this note looks at the details in the three areas Schools DFE's plans for schools are summarised in a 26 page paper ("The case for change") and explained in detail in a 67 page paper ("schools national funding formula consultation"). Key points about the plans: the current school funding system involves DFE paying Dedicated School Grant to councils who then decide on local distribution. The consultation anticipates national decisions about a national school formula with effect from 2019-20. The schools block in DSG (about £32 billion) will be separated from the high needs block (about £5 billion) which will continue to be distributed by councils. the proposed school formula has 12 elements some of which involve complex manipulation of DFE and ONS data. as now, the biggest factor in the formula will be the number of pupils - this drives 76% of school funding in the current system, DFE suggests three funding rates (for primary pupils, Key Stage 3 and Key Stage 4). When the DFE calculated top-ups to school funding in 2014 as part of its fair funding plans, it set minimum funding levels of £2,880 for primary pupils, £3,950 for KS3 and £4,502 for KS4. There is no indication of the likely levels for 2017-18. The equivalent minimum rate for 16 and 17 year old students ("Key Stage 5") is £4,000 free school meal status will continue to drive a deprivation factor but will be combined with ONS data on the local population (the IDACI index). Together with pupil premium grants worth £2.5 billion (paid in addition to the nationa formula), factors for low prior attainment and English as an Additional Language, this means a significant weighting in the formula towards pupils from disadvantaged families and areas. How this compares to the existing arrangements depends on future decisions on rates. DFE anticipates using 7 different factors based on school characteristics to cover necessary costs. The factors cover a payment to small schools, a sparsity factor (for rural schools), funding for business rates, a split site factor, a payment for PFI costs (currently £556 million), exceptional premises costs and funding to deal with growth. The school formula is and will be complicated compared to the 16-18 formula. This is mainly because schools and small and have little flexibility over their costs. As a result central and local government needs to make numerous adjustments to keep schools viable. An area cost factor will be used, as now, though there is a question in the consultation about whether to use general pay data or teaching salary data to calculate it. The school formula consultation asks detailed questions about each of these factors to assist the development of the national formula. The plan for 2017-18 is to adjust the funding regulations for local government to take account of the longer-term plans. In the process DFE plans to remove the post-16 factor in local formulae which is currently used by some councils to add £15 million to school sixth form budgets. It is difficult to be certain about the impact of the new formula on schools apart from knowing that the protections listed above will ease the annual losses for some schools while prolonging the period over which they experience cuts. Schools in London and major cities seem set to be the biggest losers but adjustments to the detailed factors (for example the deprivation or low prior achievement factor) could offset cuts to the national rate. The complexity of the formula means that it will be difficult to use it to incentivise any particular behaviour. One obvious question for the leadership of many 11-18 school will be whether they can continue the expense of maintaining sixth forms funded at an even lower rate. High needs DFE's plans for funding high needs involves a much smaller reform to funding arrangements because payments for each pupil/student with special education needs is calculated individually and the entire system was changed just three years ago in 2013. The high need funding overhaul involved a shift from statements of special education needs to education health and care plans (EHCPs), a new statutory framework (via the Children and Families Act), a new code of practice covering assessement and a new system for 16 to 25 year old high needs which is closer in design to the system for 5 to 16 year olds. In the process DFE put local government firmly in control of both assessment and funding decisions. The key points about the plans in the new high need funding consultation (available here) are: DFE plans to move towards a formula for distributing the £5.3 billion high needs budget to councils. The current distribution of funds is based on historic spending patterns adjusted in response to annual DFE/Council adjustments. £4.7 billion is spent on special education needs, £0.5 billion on alternative provision and £70 million on hospital education. the new formula will combine data on the number of high needs students with data on local population (aged 2 to 18), the number of children on disability living allowance, the numbers recorded in the 2011 census as having poor health, the proportions of Key Stage 2 and 4 pupils with low achievement and data on deprivation. DFE anticipates a five year period in which the money paid to councils will shift towards the new formula and way from current spending patterns. It is difficult to assess the impact without knowing the rates or seeing the modelling. the creation of two separate formulae for schools and for high needs means that there will also be a prohbition on councils transferring money from the schools block to the high needs block. This could create some short-term financial difficulties for some councils in this area because it can take time to vary high needs costs given that they are partly determined by individual assessments of conditions. DFE promises some capital funding via the free school programme and via a new fund (£200 million in 2016-17) to support change in provision (for example away from residential provision to day-time school based units) There will be a shift in the funding arrangements for 16 to 25 year olds towards the model used for high needs in schools in that the formula will, in future, assume that the first £6,000 of support is paid for from core education budgets. It is unclear quite how this will work but things may be clearer after an AoC portfolio group meeting on Friday involving officials. There is also a plan that specialist units in FE colleges should be designated as such. The average FE college teaches around 70 students with high needs which is more than the average secondary school and closer in some respects to special schools. Councils The case for the national school funding formula includes the claim that the new system will be more efficient. This has a number of implications for the future role of councils in education: DFE anticipates that councils will no longer have school funding duties (outside high needs) by 2019. Given that local government has had a role in allocating funding to state schools since the 1870s, this is a landmark change. The implication for council staff is restructuring, redeployment and/or redundancy. DFE plans to remove the ability of councils to fund school improvement work from the DSG from 2017. Future activity in this area, as with other services like music, pupil support, outdoor education, payroll etc should be paid for on a trading fund basis (ie paid for directly by schools). DFE sets out three future roles for councils in education (in Page 57 of the School Funding Consultation accessible here). The three roles are (1) work relating to the provision of places and access to them (including admissions, transport, contingency arrangements in emergencies, floods etc) (2) work relating to vulnerable pupils (high needs, attendance, alternative provision, home education, prevention of extremism) (3) acting as the champion of parents the plan is to fund council services directly via a central school grant. This will absorb the current Education Services Grant but as this is scheduled for large cuts between now and 2019, the implication is a scaling back of funded activity. there is an intention that councils should no longer be able to fund historic committments (eg relating to equal pay) from the schools budget. The consultation process offers an opportunity to provide views on this and other issues. Central government took over funding responsibility for colleges more than twenty years ago but colleges still work closely with their local councils and have concerns that there could be cutbacks in important areas (for example education transport). It is interesting that DFE is removing county and borough councils from a role in funding schools at a time when Treasury and BIS are making steps to give new combined authorities a role in funding adult education and skills (outside apprenticeships). The issue in both cases is to ensure that funding reform improves the efficiency and effectiveness of education rather than detracts from it. AoC will be making a full response to the consultation by 17 April 2016