School Funding Reform in England: a smaller step towards a more sensible system, will the final leap ever be made?

Date: 21 September 2017
Publisher: The IFS

Last week, the Secretary of State for Education announced arrangements for school funding in England in 2018–19 and 2019–20. This confirmed additional annual funding of around £900m by 2019–20 (as compared with pre-election plans) and announced the amended plans for the national funding formula. Under these new proposals, the funding local authorities receive for schools will be linked to local area characteristics; however, a new national school-level formula will now not be in place until at least 2020–21. This is a smaller step than planned prior to the election – although still one in the right direction. The slower pace of reform and additional money also mean that schools losing out under previous plans will probably see their funding situation improve slightly. This observation describes the current system, why reform is needed and the likely effects of the latest proposals.

Current school funding system

Currently, central government allocates a block of funding to English local authorities which they allocate to all state schools in their area using their own funding formulae. This results in a wide variation in funding per pupil across schools in England. A lot of this is intentional: schools in London receive more to cover higher staff costs and successive governments have deliberately allocated more funding to schools in more deprived areas. However, some of the variation is unintentional; many schools with similar characteristics in different parts of the country receive different levels of funding.

These unintentional differences arise for two reasons.

  • First, similar local authorities can receive quite different levels of funding per pupil from central government. This is because the amount going to each local authority is largely determined by their characteristics in the early 2000s and local authorities have changed a lot since then. For example, Plymouth and Bradford have similar characteristics (e.g. both have about 17% of pupils eligible for free school meals), but funding per pupil is around £500 higher in Bradford than it is in Plymouth. This is largely because back in 2004 there was a significant gap, with about 24% of pupils eligible for free school meals in Bradford and 16% in Plymouth in 2004.
  • Second, schools in different local authorities can also receive different levels of funding per pupil because local authorities make different choices over how to allocate their school funding. For example, in Norfolk, the basic amount provided for a pupil aged 11-14 is about 20% higher than for a pupil in primary school. In Darlington, it’s about 70% higher. As a result, similar secondary schools would likely receive higher funding in Darlington than Norfolk, while the opposite would be true of similar primary schools. This type of variation may be desirable; it may reflect differences in local preferences or local policymakers responding to information on the ground.

Proposals for reform

Before the 2017 general election, the government set out ambitious plans for a national funding formula for schools in England. This would replace all 152 different local authority funding formulae with one single national funding formula applying to all state-funded schools. The intention was to eradicate the differences in funding levels between apparently similar schools and, in doing so, remove the role of local authorities in allocating school funding. Sensibly, given the scale of the change, in 2018–19, local authorities would still play some role, with the national school-level formula not fully kicking in until 2019–20. There were also caps on the gains and losses schools could experience. Such protections were desirable to prevent schools from seeing large changes in funding over a single year, but doing so slows the transition to the new formula. Around 40% of schools would have still had funding levels that reflected historical factors in 2019-20, including a quarter of schools that were “overfunded” relative to the formula. The government said very little at the time about what would happen after 2019–20 and this remains a major source of uncertainty.

Under the new proposals for a national funding formula set out last week, a number of factors changed. The most important change is that the national funding formula will no longer be fully implemented until at least 2020–21. There will be a school-level formula, but it will only be used to calculate how much each local authority receives. They will then be free to allocate it (subject to certain regulations) to the schools in their area according to their own funding formulae.

There were also a number of other changes to the original proposals. First, there is more money. The average cash-terms increase in funding in pupil between 2017–18 and 2019–20 is now around 3% rather than just under 1% as under the original proposals (equivalent to a real-terms freeze). Second, there are new absolute minimum levels of funding per pupil for both primary and secondary schools. Finally, protections against losses were extended such that no school could experience a cash-terms increase  of less than 0.5% per year between 2017–18 and 2019–20 (as opposed to a cash-terms fall of 1.5% per year). The maximum any school can gain has also increased from 5.6% to 6.1% in cash-terms per pupil. However, none of these changes will affect schools directly. They will affect the amount that each local authority receives and it is the local authority (in discussion with schools themselves through ‘School Forums’) who will decide how much each school actually receives. The minimum funding levels for primary and secondary schools are not obligatory and local authorities are able to reduce individual schools’ funding per pupil by up 1.5% in cash-terms if they wish. It is sensible that this latter protection is less than the 0.5% increase in the main formula as it will allow local authorities’ funding formulae to respond to the changing circumstances of schools (e.g. if a school is becoming less deprived, its funding can go down).

What will this achieve?

Given the current state of the school funding system, the latest proposals imply school funding reform is moving in the right direction, albeit it at a slower pace than implied by policy prior to the general election. If implemented, this will get closer to a system where similar areas will receive similar levels of funding. However, the proposals will not ensure that similar schools are funded in a similar way, as local authorities will still be free to implement their own funding formulae.

We don’t know anything, however, about government plans after 2019–20, either in terms of continued transitional protections or the full introduction of a school-level national funding formula. This is a source of major uncertainty. The government still says it is their ‘intention’ to implement a ‘hard’ formula. Whether it actually happens – in particular given that this change would require primary legislation to pass through parliament – remains to be seen.