Observations

Pupil premium: simple and transparent financial incentive

Date: 15 December 2010
Authors:
Publisher: IFS

On Monday, the Department for Education announced the financial settlement for schools in England in 2011-12, including the new pupil premium. It announced a cash-terms freeze (or real-terms cut) in existing funding per pupil , on top of which there will be a pupil premium worth £430 for every child registered for free school meals as of January 2011. It also announced that children in care will receive a similar premium in 2011-12, and children of parents serving in the military will receive a smaller premium of £200 to assist with their pastoral care. Here we discuss the implications of the pupil premium for children eligible for free school meals, which accounts for about 95% of the estimated £625 million cost of the pupil premium in 2011-12.

The Government's chosen pupil premium is simple, amounting to £430 per pupil eligible for free school meals no matter which local authority children live in. The Government originally proposed a pupil premium that would have varied in generosity across local authorities, been relatively complex to understand, and gone against the Government's stated aim of evening out differences in funding for deprived pupils. In a welcome move, the actual pupil premium announced this week will be much simpler and more transparent, potentially sharpening the financial incentives generated by the pupil premium.

It is noteworthy that the pupil premium is lower than expected. The main reason given is that the Department for Education are now expecting a large increase in the number of children registered for free school meals, from 17.4% of pupils in January 2010 to about 20% in January 2011 (it is the number of pupils registered with their school for free school meals on 20 January 2011 that will determine precise allocations of pupil premium funding in 2011-12). This 15% increase in children registered for free school meals is significantly larger than has taken place in recent years, and is expected to arise through the stronger financial incentive generated by the pupil premium for schools to ensure all pupils entitled to free school meals are indeed registered as such with the school (i.e. the increase is amongst children in households with incomes low enough to qualify for free school meals, but who are simply not registered at present). Existing deprivation funding from local authorities already provides financial incentives to ensure all children are registered for free school meals, but the pupil premium increases the level of the financial incentive, and may make it more transparent to schools; it may also help parents realise that registering their children as eligible for free school meals could directly benefit their children's education.

Without such an increase in the number of children registered for free school meals, the pupil premium could have been at least £100 per eligible pupil larger. However, the financial consequences of a higher pupil premium and no increase in free school meal registrations would be very similar to that of the proposed pupil premium with the 15% rise in the number of children registered for free school meals. However, whether the increase in free school meal registrations transpires does matter for school funding allocations. With a 15% increase in registrations for free school meals, the schools settlement for 2011 implies a 0.75% real-terms cut in funding per pupil, on average, across schools. But if the increase does not take place, there would instead be a 1% real-terms cut, on average. In either case, less deprived schools will see larger cuts, with one-in-six pupils in schools seeing real-terms cuts of 2% or more with the increase in registrations (or one-in-five pupils if there is no rise in registrations). Thanks to the pupil premium, more deprived schools will see smaller cuts, and some will even see an increase in funding, with one-in-four pupils in schools seeing real-terms increases in 2011 (or one-in-five pupils if there is no rise in registrations). A few very deprived schools will see real-terms increases of 2% or more, with one-in-twenty-five pupils in schools seeing increases of this level or more with the increase in registrations (falling to one-in-fifty pupils if there is no rise in registrations). Actual changes to school budgets will, however, depend on decisions made by local authorities, and on which schools can increase free school meal registrations by the most (here we have assumed it is proportional to the current number).

Whether schools can register this extra number of pupils for free school meals by 20th January 2011 is an open question. If the increase in free school meal registrations is lower than the Government expects, then spending on the pupil premium will come in lower than expected. If this occurs, then the Government could choose to increase the value of the pupil premium in future years in response. In 2014-15 spending on the pupil premium is due to reach £2.5 billion and by then the Government will have already observed changes in free school meal registrations in response to the pupil premium up to 2013.