A Spending Review is a process used by government to evaluate and prioritise departmental expenditure with intent to ensure financial sustainability, align public spending with national strategy, and (very often in recent history) respond to budget constraints.
Typically, a Spending Review sets the spending envelope for government departments for multiple years, and annual fiscal events assess expenditure and firm-up the department budget for each year within the Spending Review period.
If this is already sounding complicated, that’s because it is – and this approach can lead to difficult-to-navigate cliff-edges.
The 2021 Spending Review was a good example of this. A three-year Spending Review that left us in the dark about what the funding year 2025/26 would look like right up until October 30, 2024!
And, despite the cliff-edge, both local and national financial management policy requires schools to set three-year budget forecasts. It is a bit Heath Robinson at best.
It is encouraging therefore to note that the Chancellor has indicated that the mechanics of the Spending Review process may be tweaked to deliver three-year spending plans every two years. The cliff-edge disappears. However, the Treasury will use the annual fiscal event to reassess department spending plans and adjust if necessary.
What happened on October 30?
The recent Spending Review (HM Treasury, 2024) has far-reaching implications for many sectors, and education is one of the most affected – being the second largest area of expenditure after health and social care.
As governments aim to balance budgets and address economic challenges, education funding often becomes a focal point for adjustments.
A good example of this was the additional funding received by some parts of the sector in July this year. This money was, in part, a response to the impact on school budgets of the government’s acceptance of the School Teachers’ Review Body (STRB) recommendations for a 5.5% pay award for teachers.
The October 30 Budget delivered Phase 1 of the Chancellor’s multi-year Spending Review. Phase 1 covers a single year, April 2025 to March 2026.
Phase 2 of the Spending Review will be delivered in Spring 2025 and will cover at least two years from April 2026 onwards. This timeline means that government departments will soon go back into negotiations with the Treasury to determine their settlements for Phase 2 of the Spending Review period.
What does the Autumn Budget mean for schools?
For education, the Budget confirmed that some lines of income that we already knew about would be baked into the core schools budget in future years and become part of the national funding formula (NFF) allocation.
It also confirmed capital spending for some of the projects introduced by the previous government, the Schools Rebuilding Programme for example.
Diving into the detail of the Treasury documents reveals that there is still a fair bit of number-crunching required to really understand what school budgets will look like in 2025/26. But the “known knowns” are gradually appearing.
What are the known knowns?
- Core schools budget: An additional £2.3bn will go into the core schools budget next year. The core schools budget accounts for two-thirds of the whole education budget and delivers revenue funding for mainstream schools, special schools and alternative provision, local authority high needs spending, and the Pupil Premium grant. This money has, broadly speaking, been used to add £1.3bn to the pre-16 mainstream schools budget and £1bn to the high needs funding block.
- School buildings: The capital budget for the whole of education will be £6.7bn next year. This is a significant uplift in the current year (about 19%). Within that total £1.4bn has been allocated to the Schools Rebuilding Programme, with 100 projects scheduled to commence in 2025/26. The DfE will have £2.1bn to distribute for building condition projects next year.
- Early years: Early years spending continues to rise to support the expansion of government-funded childcare – £1.8bn will be added to the early years budget next year.
- National Insurance: Employer National Insurance contributions will rise by 1.2% from April 2025. The Treasury has confirmed that public sector employers will receive funding to support this cost pressure.
- Living wage: The National Living Wage will rise to £12.21 next April. Will this impact on your staffing costs?
What are the known unknowns?
- Post-16: The 16 to 19 funding formula factor values are not available for 2025/26. More detail about 16 to 19 programme funding is expected by the end of this calendar year, or early next.
- National Insurance: While we know that the increase in employer National Insurance contributions will be supported for public sector employers, the DfE is currently working on the distribution methodology for this funding which will be allocated to eligible settings as an additional grant. Expect more detail in the Spring.
What can you do with the information we have now?
- Budget-planning: Use the NFF factor values to help with budget-planning while waiting for school level allocations. Provisional NFF factor values for mainstream schools are available now (DfE, 2024). At the time of writing, school level NFF allocations are being calculated and are likely to be published at the end of November 2024. The provisional values indicate that the minimum per-pupil funding level (MPPL) values for 2025/26 have been uplifted by around 1.9% compared to current year. The MPPL is a protection factor that guarantees a minimum amount of funding for every pupil. The NFF factors now include funding previously distributed in separate grants, such as the teachers’ pay additional grant (TPAG), teachers’ pension employer contribution grant (TPECG), and the core schools budget grant (CSBG).
- Review budgets: Review existing three-year budget plans using the provisional NFF factor values and test your assumptions on grant income for future years.
- Local authorities: Talk to the local authority to find out when local funding formulae will be finalised. The DfE timeline indicates that school budget shares for maintained schools and GAG statements for academies will be confirmed by local authorities in February and March 2025. In the meantime, decisions on block transfers (moving money between schools block and high needs block for example) will be taken. Block transfers can impact on local formulae which ultimately determine the funding deposited into your school bank account.
- Special schools and alternative provision: These settings can incorporate the special schools and alternative provision core schools budget grant into their budget-planning for 2025/26. We know that the TPAG, TPECG and CSBG for 2024/25 have been rolled into one CSBG for special schools and alternative provision for next year.
- National Insurance: Estimate the impact of the changes to employer National Insurance policy.
Final thoughts
We have had to wait a long time for any information about school funding for 2025/26, and there are still plenty of questions to be answered. The important thing to remember in financial planning is that you can only use the best information available to you at the time. You will have to make assumptions about the known unknowns. Make these assumptions in discussion with other leadership colleagues, governors and trustees and record the logic behind them. Revisit regularly as more detailed information becomes available.
For more advice on financial planning for schools, you can read my previous article for SecEd – Strategic financial planning for schools.
- Julia Harnden is a funding specialist at the Association of School and College Leaders. Find her previous articles for SecEd via www.sec-ed.co.uk/authors/julia-harnden
Further information & resources
- DfE: Guidance: Summary policy note for schools and high needs national funding formula 2025 to 2026, November 2024: www.gov.uk/government/publications/pre-16-schools-funding-local-authority-guidance-for-2025-to-2026/summary-policy-document-for-schools-national-funding-formula-2025-to-2026
- HM Treasury: Autumn Budget, 2024: www.gov.uk/government/publications/autumn-budget-2024