SCHOOLS FUNDING FORUM

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1 ITEM 8 SCHOOLS FUNDING FORUM SUBJECT: DfE Consultation on School Funding Reform: Next steps towards a fairer system AUTHOR: Simon Pleace (Revenue Finance Manager) and Ian Hamilton (School and PVI Budget Manager) DATE: 3 May 2012 Summary This paper reports on the government s latest consultation on their reforms to the national funding system for schools. Responses are required by the 21st May. This paper should be read alongside the consultation document as well as the LA s draft response. 1. Introduction 1.1. In 2011 the Department for Education (DfE) commenced a 3 stage consultation on the reform of schools funding. The first two stages; Rationale and Principles (April- May 2011) and Proposal for a Fairer System (July to Oct 11) were concluded in The final stage, an 88 page document titled Next Steps Towards a Fairer System was launched on the 26 March with a closing date of 21 May Since the consultation document was launched, the DfE have subsequently published: A guidance document for Local Authorities and Schools Forums (18 pages) Frequently Asked Questions (FAQ) section on their website (now 189 questions over 52 pages) A technical tool to help LA model the impact of changes to their formula 1.3. The consultation itself contains a number of important announcements (which are referred to as proposals but without any questions to respond to). There are only a very limited number of questions (14 in total) which directly concern the significant proposals relating to maintained schools The consultation confirms that the Government are to delay the roll out of a national funding formula in order to fine tune the system. This means that the current spend plus model of funding Local Authorities, which is based on a snap Page 1

2 shot of education funding in each LA in 2005/06 will continue for a further two financial years, 2013/14 and 2014/ The Government have said that we will introduce a new national funding formula during the next spending period but they have not yet made any decisions relating to how that formula would operate. They have confirmed that they need to spend the intervening period giving careful consideration to the new formula, including whether it should be set at a school or local level The rest of this report has been grouped into a number of key areas, with the LA s conclusions against each proposal shown in green italics. 2. Dedicated Schools Grant (DSG) to be split into 3 blocks (Schools Block, High Needs Block and Early Years Block) and New Delegation 2.1. From April 2013 the DSG is going to be split into three separate blocks; the Schools Block, High Needs Block and the Early Years Block. The level of funding included in each block will initially be based on the LAs 2012/13 Section 251 return. The amounts recorded against each budget line will be moved into the relevant block under the new criteria. The Government have confirmed that these blocks are un-ring fenced. In the future (from 2015/16) the Governments intention is to fund each block on a national formula Currently academies receive a share of the centrally retained DSG where the responsibility for providing services has transferred from the LA to the academy. This is known as the DSG Local Authority Central Spend Equivalent Grant (or LACSEG for short). From 2013/14 all of the budgets on these lines will need to be delegated to schools and academies so that in future there will not be a need for a DSG LACSEG as the funding will be included within the school and academy budget The DfE have indicated that each LA will have the option to de-delegate and pool some specific budgets. To do this the LA would need to submit proposals to the SFF for them to approve. Each phase of representation will be given the powers on behalf of all schools in its phase to agree if funding should be pooled This is viewed as a positive proposal as this change will ensure consistency and equity of funding between LA schools and Academies, something that the LA has long campaigned for. It will also avoid the requirement to calculate DSG LACSEG each year Due to Kent s historic high level of delegation to schools and the further delegation of budgets in 2012/13, Kent is very close to fully complying with the DfE s proposals Appendix A provides a list of the remaining centrally retained budgets and also indicates which ones could be considered for de-delegation. Page 2

3 3. Simplification of Mainstream School Formula Budgets and the MFG calculation Formula Factors 3.1. From April 2013 the number of different factors used to distribute Primary and Secondary school budgets will be reduced from 37 to 10. The DfE state that this change will provide greater transparency and consistency nationally to the way that schools are funded The DfE have said that they will be providing the necessary data to LA s by the end of May so that the modelling of budgets can take place in the coming months for the all schools consultation during the summer term As part of the process towards the introduction of the new formula in April 2013 LAs will be required to model school/academies budgets with the changes and consult with schools on the outcome. The consultation with schools will be limited in nature due to the prescriptive nature that the DfE have adopted to the changes applied to the new formula From Kent s perspective the simplification changes made to the local formula in 2011/12 mean that we have already made good progress towards meeting the DfE s new proposals. Appendix B provides an initial assessment of the proposed changes to the formula factors and an assessment of the possible impact, however the overall turbulence caused by the interaction of the changes to factors at this point can only be surmised until detailed modelling has been carried out The factor that will cause the most turbulence in funding is the removal the premises (sq mtr) factor. Currently 44 million is allocated to Primary and Secondary schools using this factor and the DfE s proposals confirm that no premises factor is allowed from 2013/14. In future this funding will need to be distributed through one of the 10 allowable factors. The most likely option is to distribute this funding through a combination of the basic amount per pupil (AWPU) and a lump sum The curriculum protection factor (small schools protection) will no longer be allowable, however the DfE have clearly considered the impact on small schools in their proposals. The new formula will be able to include a single much larger lump sum that will help minimise any negative movements in funding We have undertaken some initial modelling which includes the removal of the premises factor, curriculum protection factor and introduction of an increased lump. This modelling assumes that the lump sum is set at somewhere between 100k and 150k, which is in line with one of the consultation questions. Appendix C summarises the results of the modelling and would suggest that the lump sum that generates the least turbulence is 100k. If it was set at this level, 83% of primary schools would see turbulence in their budgets of between -3% and 3% and 95% secondary schools would see turbulence of between -3% and 3%. It Page 3

4 is important to note that this does not include any turbulence caused by changes to other factors Whilst the LA is in agreement with the principle of simplification, the proposals do not allow enough local discretion to target funding to meet local circumstances. The proposals are very rigid, with no scope to add addition local formula factors and therefore could be seen by some as a reduction of Forum powers. Minimum Funding Guarantee (MFG) 3.9. The DfE have confirmed that the MFG for the next two years (2013/14 and 2014/15) has been set at minus 1.5%. This means that any reductions in schools formula budgets will be protected up to minus 1.5% per pupil by the MFG The method of calculating the MFG is going to be simplified. There will only be two automatically agreed exemptions from the MFG for Kent s formula, the lump sum and funding of high needs SEN pupils. Initially Rates and PFI will be excluded as allowable items from the MFG, however request for exceptional circumstances can be submitted to the Education Funding Agency (EFA) for consideration Another change is where MFG is applied to increases or decreases in pupil numbers. Currently funding for increases and decreases in pupil numbers is only applied at 80% for primary schools and 87.5% for secondary schools based on the average amount per pupil. The change to the MFG will mean that schools will receive or be deducted the full average amount per pupil less exempted items. The justification for this is that it would be consistent with the encouragement of a market system and would give growing schools more protection. October Census Another proposed change to the method of calculating budgets from April 2013 is that the pupil census date will be moved from the January census to the previous October census, and this will apply to both academies and LA schools. The consultation guidance states the this will have little impact on schools overall as for 90% of LAs the movement in pupil numbers between October and January census is less that 0.5%. Currently there are arrangements in the Kent formula for schools with pupil growth between the January census and September census. These arrangements will need to be reviewed. 4. Funding for pupils with high needs pupils 4.1. The DfE are introducing a new national system for funding high needs pupils called Place Plus. There is no precise definition of a high needs pupil, but the term is used to mean those pupils or students who require provision that would not normally be available in mainstream settings, and typically where the provision costs in excess of 10,000. Page 4

5 4.2. In Kent these are pupils in a Special School and for mainstream provision pupils that currently meet our Individually Assigned Resources Criteria. From April 2013 it will include pupils from birth to 19 with high levels of SEN in schools, Academies or other settings; those aged with high-level learning difficulties or disabilities (LDD) in FE; and school age pupils placed in Alternative Provision Under this approach, funding for High Needs pupils will comprise of three elements, which can be applied across all provision. Element 1 or Core education funding. This is also referred to as the mainstream per-pupil or per-student unit of funding. In the pre 16 school sector, this is the age weighted pupil unit (AWPU), while in post 16 school and FE sector, this the mainstream per student funding as calculated by the national funding system. This has been set at a notional 4,000 per pupil. Element 2 or Additional Support Funding. A clearly identified budget for providers to cover additional support for high needs pupils or students with additional needs up to an agreed level. This has been set at a notional 6,000 per pupil. Element 3 or top up funding. This element will be the additional funding over and above Elements 1 and 2 that is needed to meet the pupils assessed need. Special Schools 4.4. From April 2013, Special schools will be funded using a single place/pupil led factor. No other factors currently used in Kent s Special Schools formula e.g. lump sums or premises sq mtrs will be allowed Funding will be based on planned places at 10,000 per place (Elements 1 & 2) and top up funding (Element 3) allocated on the number of pupils placed in the school. It is slightly more complicated than that. Kent will only pay Element 3 for placements that it makes. If another Local Authority places a child in a Kent special school then the Other Local Authority (OLA) will be responsible for paying element 3 to the school. This means that the current recoupment process administered by the LA will become obsolete and transferred directly to the school LA authorities will be able to apply a band of funding rates based on the individual need type of the pupil. The logical extension of this would be to replicate and add to the need type funding rates used in the Kent Special Schools formula. Need types would in the future include an element of funding for those factors currently used in the formula. To simply apply a common rate of funding for each need type in all Special Schools would generate a high level of turbulence, and would result in schools with low pupil numbers having a reduction in funding and schools with high pupil numbers having an increase in funding Initially the DfE are not prescriptive in how the banding is applied i.e. there is no limit on the number of rates used, however the consultation mentions the Page 5

6 possibility of eventually moving to a national banding system. As there is no stipulation on the bandings, individual need type rates could be used to reflect the individually characteristics of each need type with in an individual school Funding for any new admission in year will be funded on the pro rata share of element 3 from date of admission. This means that element 3 funding will follow the pupil and therefore if a pupil leaves a special school in year, the funding will follow the pupil to their new provision. The outcome of this will mean that there will be an additional administration burden on schools and more importantly turbulence in funding that will cause difficulties in managing budgets in the short and medium term For special academies, elements 1 & 2 (the 10,000 per place) will be paid directly from the Education Funding Agency and element 3 will be paid by the LA (as the commissioner) direct to the academy The DfE have confirmed that there will be a cash protection for Special Schools in 2013/14 so that no school will lose in cash terms more than 1.5% of their 2012/13 funding. Post 2013/14 no commitments or guidance has been given to any further protection. There are three issues worth highlighting. 1) what seems to be a simple process for protecting on -1.5% becomes more complicated when its only full cash protection on pupils placed in the school by the host LA and not the external LA. 2) there is no reference to capping the amount of funding for schools that will gain as a result of this policy which will be a pressure on DSG flat cash settlement and 3) no guarantee of protection post 2013/ A considerable amount of time and effort was invested in producing a Special Schools Formula for Kent with an outcome that effectively matched resources with the pupils need. Place Plus is a simplistic method that may on the face of it be easy to understand, but in reality is a blunt instrument that will not sensitively target funding to special schools. The DfE have acknowledged the need for a lump sum in Primary and Secondary schools but have not recognised the same need for Special Schools. It could be argued that the need in a small Special School is greater due to the volatility caused by high cost low incidence pupils Initial modelling suggests that 105 different need types for day school pupils would need to be used to maintain consistency in the levels of funding currently received by Special Schools. It is logical that a level of rationalisation could be applied to this to reduce the number of different rates to a sensible level. These rates range from 1,500 to 20,000 for day pupils and up to 86,000 for residential pupils where they have full weekend provision The current Kent Special School budgets provides each school with a high level of stability necessary for planning its annual budget to meet all the pupils needs. Page 6

7 These proposals will mean that stability can no longer be provided as funding for element 3 will follow the pupil. The worst case scenario would be that a high cost residential pupil left early in the summer term (May) and 78,000 would need to be recouped from the school. Schools cannot, for a number of reasons, suddenly reduce their expenditure in line with such a sudden reduction in funding. It may be an extreme example but will impact on a number of schools to a lesser but significant extent Outreach funding The DfE have confirmed that Place Plus will not be able to replicate outreach funding currently included in Special School Budgets. However, the DfE have confirmed that where a special school undertakes functions other than educating pupils on its own roll, the local authority should fund these functions through separate payments to the school from the High Needs Block. High Needs pupils in Units attached to mainstream schools Since April 2011 pupils with high needs in mainstream schools have been funded at a single rate per pupil based on the same need type funding rate as a Special School pupil. There are a number of different need type rates ranging from 10,653 to 19,029 per pupil. In recognition of economy of scale the first 3 pupils are funded at the full rate, pupils from 4 to 20 at a reduced rate and then any pupils over 20 at a further reduced rate It has always been the case that schools are responsible for meeting the needs of all of the pupils in the school. When a high needs pupil requires additional support over and above the level of IAR funding, schools are required to use their notional SEN funding or AWPU funding. The new Place Plus approach defines a precise amount that should be spent on each pupil which will remove the level of discretion a school has The proposals states that from April 2013 under the Place Plus approach a Unit will receive 10,000 per pupil (element 1 & 2) and element 3 top up funding based on the individual needs of the pupil. They will also receive a separate budget for the school; however the data for the pupils attending the Unit will be excluded from the main schools formula for the first time. Element 3 will be funded in the same way as special schools, so if the pupil placed in the school is from Kent then KCC will pay element 3 to the school. If the pupil placed is from another local authority then it is the OLA who pays the school element 3. The placement of pupils from other LA will be less common in Units compared to Special Schools however may still occur Where an Academy has a unit, the 10,000 (Element 1 & 2) will be paid directly by the Education Funding Agency (EFA) and top up funding will be paid by the commissioning LA. We are assuming, although the guidance is silent on this point, that the level of top up will be determined by the host LA. High Needs SEN Pupils in a mainstream without a Specialist Unit These proposals would replace the Individually Assigned Resource (IAR) funding, which was also previously known as Very Severe and Complex Needs (VSCN) Page 7

8 funding. Under the Place Plus proposals, due to be implemented from April 2013, a High Needs pupil will have funding attached to them. The funding will consist of the same 3 elements as mentioned above. The following illustration shows how the proposal would work: The local authority has assessed that the pupil has support needs that will require provision costing 16,000. If the LA s AWPU was set at 2,800, then the school would be expected to contribute the first 8,800. This is made up of 2,800 AWPU (element 1) and 6,000 from notional SEN budget (element 2). You should note that element 2 is a fixed amount regardless of how much funding the school actually receives for its notional SEN budget. However the DfE have acknowledged that where primary schools do not have sufficient notional SEN funding in their budgets to cover the cost of element 2 then this can be supplemented from the LAs SEN block. The LA would provide the school element 3 top up funding of 7,200. This is calculated as the difference between the LAs 16,000 assessment of needs and the 8,800 which the school is expected to fund The suggestion by the DfE that LA s may top-up element 2 if the school can demonstrate that they have insufficient funding is fraught with subjectivity and complexity. Alternative Provision (AP) From April 2013 all PRU budgets will need to be delegated. The method for funding PRUs will also be Place Plus like Units and Special Schools, with the only difference being that elements 1 & 2 will be 8,000 in total instead of 10, Top Up funding (element 3) will be on the same basis as High Needs pupils. The government s policy is that pupil placements in PRUs are short term and they are keen for pupils attending PRU s to be re-integrated into the main schools system as soon as possible An added complication is that funding for management of excluded pupils will be allocated direct to schools and schools will be expected to the pay the 8,000 if they place a pupil in a PRU Currently in Kent, PRU s are set an annual budget based. Moving to this new national model will introduce a degree of uncertainty over the level of funding each PRU will receive on an annual basis (as the element 3 funding follows the pupil). Due to the high turnover of pupils and the associated administrative costs in tracking pupils, this is a major area of concern. We are surprised that the DfE did not acknowledge this with the introduction of a lump sum (which they have recognised for Primary and Secondary schools). LDD pupils further education Page 8

9 4.25. From 2013/14 the consultation proposes that LAs will have a greater responsibility for funding post 16 pupils. 5. Timetable for change 5.1. The EFA have set a challenging timetable for reform. All maintained schools and academies should be consulted on formula changes in the summer term. Any consultation should include a demonstration of the effect of modelling such changes (including and excluding the MFG) on individual maintained schools, academies and early year s providers. LAs should therefore ensure that they communicate proposed formula changes to all bodies affected by the changes LAs authorities will need to provide the EFA with a simple pro-forma so that it can be used to replicate the LA formula in order to calculate all Kent academy budgets. These proposals do not remove the duplication in work that already exists, and LAs will still have to calculate individual academy budgets and pass this funding back to the EFA The proposed timetable published within the consultation is as follows: Date Action Summer term Consultation with academies and schools that includes full modelling of individual school and academy budgets. Summer/ early autumn term Agreement with SFF on level of dedelegation. 4 Oct 2012 School Census Day End of Oct 2012 Local authorities submit provisional schools budget pro-forma to the Education Funding Agency (EFA) End of Oct 2012 The LA must agree the number of planned places within each Special School and Unit and notify the EFA 28 Nov 2012 School Census database closed Dec 2012 EFA confirms DSG allocations for 2013/14 (prior to recoupment of funding for Academies) Jan 2013 Local Authorities submit final data for Schools Budget pro-forma January March 2013 Local authorities confirm budgets for their maintained schools. EFA confirms academy budgets 5.4. There are a number of changes to be implemented in an incredibly short period of time. This will present a considerable challenge to LAs It appears that the overarching aim for the changes to school funding is the need for the EFA to be able to calculate Academy budgets. The proposals all point to making the EFA s job easier at the expense of LA s current working practices, and Page 9

10 there are some significant consequences for schools which appear to have been overlooked. 6. Changes to the constitution of the Schools Funding Forum (SFF) 6.1. There will not be any changes to the powers of the SFF at this stage, but this is currently being reviewed. The consultation suggests that the DfE are mindful to make some changes to Schools Forum regulations from September The consultation proposes the following changes: 1. Remove the requirement to have a minimum of 15 people on a Forum more an issue for smaller LA s where they struggle to get representatives to sit on their Forum. 2. Restrict local authority attendees from participating in meetings unless they are a Lead Member, Director of Children s Services (DCS), DCS representative, or are providing specific financial or technical advice (including presenting a paper to the Forum). generally we comply 3. Restrict the voting arrangements by allowing only schools members and PVI members to vote on funding formulae. 4. Require local authorities to publish Forum papers, minute and decisions promptly in a public area of their website. we already comply. 5. Require Forums to hold public meetings as is the case with other Council Committees members of the public have always been welcome to attend the Kent SFF meetings. 6. The Education Funding Agency (EFA) will be given observer status at SFF meetings. This is to support the local process and to provide a national perspective. The EFA representative would not be required to attend every meeting, but could be available if members thought it helpful or if there were any concerns about the running of the Forum. 7. The guidance restricts local authority representatives from participating in the meeting. After seeking further clarification on this from the DfE they confirmed that the 14-19, School Improvement Partner and Diocese representatives can continue to be members, but will not be able to vote on the formula once the new forum regulations come into force. In Kent these members currently have voting rights. 8. Authorities should ensure that the composition of their Schools Forum is compliant with the regulations and reflects the pupil numbers expected to be in each category/phase at 1 September Any required elections should take place before the end of the summer term, however it also states that current membership should stay on the SFF until there term of office ends. Page 10

11 6.3. At the SFF meeting on the 20 January 2012, interim arrangements for the membership were agreed that the type of school should dictate membership and not whether the representative was a LA school or an academy In light of the proposed new regulations, it probably makes sense to defer any elections for new members until the new regulations have been confirmed and guidance issued to LA s. 7. Local Authority LACSEG 7.1. The government s proposal is to introduce a business rates retention scheme from April 2013 and they are exploring the transfer of funding for relevant central education services from Formula Grant funding for LAs into DfE education budget. Under this option, the DfE would then administer this money as a separate grant to LAs and to Academies on a national basis, proportionate to the number of pupils for which they are responsible. The Government plans to consult on the details of the proposed business rates scheme, including on any transfers into and out of the funding baseline in the summer. 8. Early Years Funding 8.1. The simplification of the Early years formula require LAs to use only four factors, Base rate, Deprivation, Quality and Flexibilty. The Kent s early years formula is based exactly on these factors, therefore we are already compliant with simplification process Currently there is a funding floor target for 3 yr olds, where by LAs are guaranteed funding for 90% of the population of 3 yr olds in the LA regardless of the number of pupils that take up the free entitlement. From April to 2013 the protection will be reduced to 85% and removed completely from April Kent s 3yr old participation is in excess of 90% therefore this change in policy will not have any impact of Kent Currently funding for early years is based on the January count for the financial year April to March, from April 2013 funding will be adjusted for actual numbers in line with summer and autumn pupil counts, this will align funding with the actual pupil counts during the year. 9. Conclusions 9.1. The changes will have a variable impact on Kent s current funding formula and will initially be how the formula is presented as the bottom line funding for schools will have strict protection built in for losers and the ability to fund winners will be restricted by the Governments DSG flat cash settlement for and The consultation does not address in anyway the anomalies in national funding in relation to the amount of funding per pupil the LA receives from the government as they are unable to address this at the current time due to the constraints on the national purse, but hope to be in better position after the next spending review. Page 11

12 The level of funding per pupil received by the LA from the government and the individual levels of LA delegation are the primary reasons for differential in funding of schools across the country. 10. Recommendations Members of the SFF are asked to note the contents of this report and the LAs draft consultation response Members of the SFF are also asked to consider whether they wish to submit their own response to the consultation or submit a joint response with the LA. Page 12