National Funding Formula: Analysis and advice

Written by: Julia Harnden | Published:
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Understanding the National Funding Formula, its limitations and how it will affect your school is vitally important. As the second consultation period draws to a close, Julia Harnden analyses the current proposals

With the government’s consultation on the National Funding Formula (NFF) due to close on March 22, now is a good time to examine how it works and the implications for schools.

The NFF will determine how core revenue funding is distributed and is intended to address the unfairness that exists in the current system, whereby similar schools in different parts of the country receive very different levels of funding.

Its aspiration is to achieve an equitable distribution which means that any pupil with the same characteristics will attract a level of funding that is transparent and predictable, regardless of where they live.

It is important to remember, however, that these reforms are about distribution and not sufficiency of funding.

The problem remains that the overall level of investment in the education system does not match rising cost pressures.

Core funding for schools is delivered via the Dedicated Schools Grant (DSG). The DSG is split into the following blocks of funding:

  • Early years (consulted on separately in 2016).
  • Schools.
  • High needs.
  • (And new for the NFF) Central school services.

The National Funding Formula for schools

The NFF for schools will consist of 13 factors split into four blocks. Each block is given a formula weighting that will determine the distribution at school level.

Block A: Basic per-pupil funding will account for just under 73 per cent of the schools block. The proposed values for each of the key stages are £2,712 for key stages 1 and 2, £3,797 for key stage 3, and £4,312 for key stage 4.

Block B: Additional needs factors will be used to allocate 18 per cent of the funding and will incorporate deprivation factors for pupils on free school meals, pupils who have been eligible for FSM in the last six years (Ever6 FSM), and an area-based deprivation factor – IDACI. There are six IDACI bands determined by data from the national deprivation index (1).

Block C: School-led factors represent the remaining nine per cent of the allocation and include a fixed lumped sum of £110,000 for every school.

Block D: Area cost adjustment funding will reflect the variation in labour market costs in different regions.
Transition to the NFF for schools

Any redistribution process is going to cause turbulence in the system, and it is right that there is a period of transition. Implementation of the NFF will begin in 2018/19. A “soft” NFF will be introduced whereby local authorities will receive funding according to the national formula. Local authorities will distribute to schools using local formulae. It is anticipated that local authorities will at least adjust the local distribution to more closely reflect the national formula. From 2019/20 the vast majority of the funding that schools receive will be determined by the NFF, although local authorities will probably retain flexibility on some parts of the formula – growth funding for example.

National Funding Formula for high needs

The government proposals for reforms to high needs funding distribution are to utilise nine factors in a formula that will allocate funds to local authorities. The nine factors are split into six blocks:

  • Basic entitlement per-pupil (the current proposals set this at £4,000 per pupil).
  • Population factor.
  • Health and disability.
  • Low attainment.
  • Deprivation.
  • Historic spend.

As with the schools block, this will be distributed according to factor weightings, with 50 per cent of the available funding attributed to the historic spend factor and the remainder split between the other five blocks. The high needs block includes all place-led funding and money to support pupils in mainstream who need SEN support.

Central schools services block

This is a new block within the DSG and will have to pick up the costs of local authority statutory duties, previously paid for using the Educational Services Grant (ESG). The ESG is being cut as part of the 2015 Comprehensive Spending Review.

This will add even more pressure to the burgeoning costs of running a school and providing essential amenities such as HR, financial audit and education welfare services. Allocations to local authorities will be determined via a combination of pupil numbers and historic commitments.

What the NFF will mean for schools

While the reform proposals for the schools block indicate that 54 per cent of schools will see increased funding, there will be a cap on gains of three per cent in the first year of transition and 2.5 per cent in year two. We simply don’t know what will happen after that and will have to wait for the next spending review to find out.

Something else for these schools to think about will be the likelihood of their local authority mirroring the national formula in 2018/19 and enabling schools to benefit from any gains.

They will be encouraged but not compelled to do so by the Department for Education (DfE). For the remaining 46 per cent whose budgets are set to reduce there are significant challenges ahead – not least in trying to understand why some of the schools in this group are already among the lowest funded in the country.

In many cases, this will be because of the relative change in the factor weightings between the local and national formula. This is the “turbulence” that we hear about and why having more than 150 different local formulae is not a good idea.

In an attempt to limit the turbulence, the DfE has proposed a number of measures:

  • To include a funding floor that limits the overall reduction to any school’s budget to three per cent.
  • To continue to apply minimum funding guarantee protection at –1.5 per cent
  • To use the “invest to save” pot that was discussed in stage 1 of the consultation to finance this limit on losses and allow some to gain. This is estimated at £200 million a year.

The schools and high needs blocks are inextricably linked and pressure on local authorities to meet the needs of SEND reform have led to funds moving out of the schools block and into high needs.

Initially, the reforms indicated that the schools block should be ring-fenced but this has been amended in the current consultation to continue to allow some flexibility at local level. Local authorities, schools forums and schools will need to agree to transfers from school budgets into high needs.

What now?

On a practical level, schools should be using the illustrative budget allocations (2) that are available to start scenario-planning and risk-assessing current curriculum delivery costs against future funding.

In addition, schools will need to examine the implications of reforms outside the NFF – removal of the ESG, and the introduction of the Apprenticeship Levy, for example.

I have already pointed out that the national formula cannot address the problems associated with paucity of financial resources – and this remains the biggest challenge. We are campaigning vigorously for more government investment in education, and this will be a major theme of our annual conference later this month in Birmingham (3).

  • Julia Harnden is a funding specialist at the Association of School and College Leaders.

References and further information

  1. English Indices of Deprivation 2015, Department for Communities and Local Government: http://bit.ly/2luebPG
  2. School National Funding Formula – Stage 2, DfE consultation documentation: http://bit.ly/2l3qPSk
  3. As part of its annual conference on March 10 and 11 in Birmingham, ASCL will be holding a session on understanding the National Funding Formula (on Friday, March 10). Visit http://bit.ly/2lz7IBw


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