What is this and what does it mean for you?
New national funding formulae for schools, high needs and the central school services block will be introduced from April 2018.
The DfE published ‘The national funding formula for schools and high needs’ in September 2017, which explains the changes the government is making to the school funding system in order to support the introduction of the national funding formula.
This guidance document summarises the DfE’s policy paper, highlighting the key changes to school funding and how they will be implemented.
Background and information
In Spring 2016, the government consulted on the factors that the new national funding formulae should contain. Another extensive consultation was then launched in December 2016 on the details of the formulae. The responses gathered from these consultations have been used to help inform the government’s final decisions on the national funding formulae that will be introduced from April 2018.
The national funding formulae will replace the current system, aiming to create a system that is:
- Fair and supports opportunity.
- Getting more funding directly to the frontline.
The dedicated schools grant (DSG)
The DSG is the main grant that the government allocates to LAs for education provision in their areas. Under the funding changes, the DSG is also changing. With the exception of the pupil premium plus grant, other grants outside the DSG (e.g. the main pupil premium and universal infant free school meal funding) are unaffected by these changes.
Currently, the DSG is divided into three blocks – schools, high needs and early years. From 2018/19, the government is introducing a fourth block – the central school services block – which will fund LAs for the statutory duties they hold for maintained schools and academies.
The funding LAs receive in each block will be determined by a specific national funding formula. Funding for early years has been allocated through a national funding formula since the 2017/18 academic year; therefore, the government’s policy statement does not cover the early years formula.
The pupil premium plus
Support for LAC will be provided through the pupil premium plus, rather than including an LAC factor in the national funding formula. The total amount spent through LAC factors in the local formulae in 2017/18 has been transferred from the DSG to the pupil premium plus budget. As a result, the 2018/19 pupil premium plus rate will be £2,300.
A ‘soft’ schools formula
The government’s long-term aim is that schools’ budgets should be set on the basis of a single, ‘hard’ national formula; however, this represents a significant change. As a result, in 2018/19 and 2019/20 the schools formula will be based on a ‘soft’ approach.
Under a soft system, the government uses the national funding formula to set national budgets for each school, which are then aggregated to give the total schools block budget for each LA.
LAs will continue to set a local formula to distribute their schools block funding for the time that the soft approach is adopted. After setting a local formula, LAs will then distribute their block allocation between maintained schools and academies in their area.
Moving funding between blocks
The schools block will be ring-fenced from 2018/19, meaning that the majority of the schools block allocated to LAs must be passed directly to schools. LAs will, however, have limited flexibility to transfer funding to other blocks where this best matches local circumstances. Such transfers are limited to 0.5 percent of an LA’s total schools block, and can only be made with the agreement of the schools forum.
Other blocks are not subject to limits on transfers (with the exception of the early years pass-through requirement); however, LAs are encouraged to consult their schools and agree with their schools forum on any proposal to move funding between blocks.
National funding formula for schools
The introduction of the national funding formula will be supported by an additional investment of £1.3 billion for schools and high needs (£416 million in 2018/19 and £884 million in 2019/20).
The diagram on slide six shows the 14 factors that the national funding formula for schools comprises of.
Primary to secondary funding ratio
Since 2013/14, the ratio of funding between primary and secondary schools has remained relatively stable in LA formulae at an average of around 1:1.29 – meaning that funding per pupil is 29 percent higher overall in the secondary phase on average.
The government has decided to use the national average ratio in setting the unit values in the national funding formula; however, it is not the case that a uniform 1:1.29 ratio will be seen nationwide. This is because the actual ratio observed in the funding each individual LA is allocated through the formula will depend on the characteristics of the pupils in that area and the choices made locally about the structure of education provision.
Basic per-pupil funding
The age-weighted pupil unit is the basic funding that all pupils attract and the fundamental building block of the national funding formula. The DfE has set different units for primary, KS3 and KS4 pupils - £2,747, £3,863 and £4,386 respectively.
In addition to increasing the value of basic amounts of per-pupil funding, the government has introduced a minimum per-pupil funding level over the next two years.
In 2018/19, the formula will provide for a minimum per-pupil funding level of £4,600 in secondary schools and £3,300 in primaries. This minimum will be increased in 2019/20 to £4,800 for secondary schools and £3,500 for primaries. For middle schools that do not include KS4 pupils, the minimum per-pupil level will be £4,000 in 2018/19 and £4,200 in 2019/20.
In 2018/19, the formula will provide, as a minimum, a 0.5 percent per pupil cash increase in respect of every school, and in 2019/20, an increase of 1 percent. This is the minimum extra amount that the formula will allocate to each school; the majority of schools will attract greater per pupil gains.
Funding for pupils with additional needs
Deprivation: The formula will allocate £3 billion for deprived pupils, representing 9.1 percent of total funding.
Low prior attainment: The formula will allocate £2.5 billion in respect of pupils with low prior attainment, representing 7.4 percent of the total national funding formula. A pupil who does not achieve the expected level in the Early Years Foundation Stage Profile on entry to primary school will attract an additional £1,050 a year through the formula. A pupil who does not achieve the expected level at KS2 will attract an additional £1,550 a year while in secondary school.
English as an additional language (EAL): The formula will allocate £404 million through the EAL factor, representing 1.2 percent of the total formula spend. A primary school pupil will attract an additional £515 and a secondary school pupil will attract an additional £1,385.
Mobility: LAs will be allocated funding as a result of the mobility factor on a historic spend basis. In 2018/19, the formula will provide LAs with funding that reflects the amount they distributed through their mobility factor in 2017/18 – this amounts to approximately £22 million being allocated for mobility overall.
All schools will attract a lump sum of £110,000 through the formula, making the total spend on this £2.3 billion and representing 6.8 percent of the total schools block.
The decision to introduce a positive funding floor will protect schools whose historical lump sum payments were higher than £110,000, as the difference in their lump sum will be included in their baselines.
Alongside the lump sum, the sparsity factor in the formula is designed to provide support for small, remote schools. Eligibility for sparsity funding depends on the distance pupils in the school would have to travel to their next nearest school and the average number of pupils per year group.
The formula will allocate £26 million through the sparsity factor. Primary schools that qualify will attract up to £25,000 and secondary schools (including middle and all-through schools) will attract up to £65,000.
The level of sparsity funding will be set with reference to the lump sum.
Premises-related funding will be allocated through four factors: rates, split-sites, private finance initiative (PFI) and exceptional circumstances.
In 2018/19, the formula will allocate what LAs plan to spend on rates, split-sites and exceptional circumstances in their local formulae for 2017/18. PFI funding will be allocated on the same basis, but uprated annually in line with RPIX. The planned total spend on these factors in 2017/18 is £610 million, representing 1.8 percent of the total formula.
The government will reveal more information about how the premises factors will be funded in 2019/20 in due course.
Funding will be allocated to enable LAs to respond if a significant growth in pupil numbers occurs in-year and is not immediately recognised by the lagged funding system.
The growth factor in 2018/19 will be allocated on the basis of what each LA plans to spend, in total, on growth in 2017/18 – totalling £174 million, which represents 0.5 percent of the total formula spend.
The DfE will continue to look at the options for funding growth for 2019/20 and beyond.
Area cost adjustment (ACA)
A hybrid ACA which takes into account the general labour market trends, and the particular salary variations in the teaching workforce, will be reflected in the formula.
The ACA is applied to qualifying schools’ allocations once the rest of the formula has been run – it inflates the allocation using a multiplier. Funding distributed according to historic funding levels, the minimum per-pupil funding, the one percent per pupil floor and premises funding are excluded from the ACA.
Nationally, the ACA ranges between 1.00 and 1.18.
Transition to the formula in 2018/19 and 2019/20
The government has set out the formula for 2018/19 and 2019/20 – plans beyond 2019/20 will be set in a future spending review.
There will be a maximum level of gain for most schools through the formula each year – the gains cap will be three percent per pupil in 2018/19 and a further three percent per pupil in 2019/20.
Due to the government’s £1.3 billion investment, they are aiming to ensure that no school will lose funding as a result of the formula. The formula will provide a minimum 0.5 percent cash increase per pupil in 2018/19 and 1 percent by 2019/20, in respect of every school, compared to their baseline.
In 2018/19 and 2019/20, under the soft formula, the schools block funding for each LA will be set by calculating notional allocations for each school according to the national formula. LAs then will determine individual school budgets according to local formulae, following local consultation.
Impact of the national funding formula
Certain types of schools are more likely to attract more funding as a result of the formula, including the following:
- The lowest funded schools – schools that currently have the lowest levels of funding overall will gain six percent on average.
- Schools with a high number of pupils with low prior attainment – Schools with the highest levels of low prior attainment will gain on average 3.8 percent in total. Schools with the highest levels of pupils with low prior attainment, but not in areas of high deprivation, gain on average 4.4 percent.
- Schools with pupils who live in areas with levels of deprivation that are above average, but who have not been heavily targeted through historic funding decisions – outside London, these schools gain 3.2 percent on average.
- Rural schools – these schools will gain 3.9 percent on average through the combined lump sum and sparsity factor. Schools meeting the criteria for the sparsity factor will gain five percent on average.
Some schools will attract relatively lower percentage gains than others. These are likely to be schools in Inner London and some other urban areas that have benefited from historic funding decisions, and where the fall in the underlying deprivation levels over recent years has not previously been reflected by the funding system.
National funding formula for high needs
The diagram on slide 15 sets out the basic design of the high needs funding formula and how the factors are added together to give the formula allocation.
Design of the high needs formula
Basic entitlement factor
- The basic entitlement factor provides £4,000 per pupil in special schools.
- The amount of funding in the 2018/19 allocations distributed through this factor is currently £513 million based on October 2016 school census numbers – this will change in response to the numbers collected through the October 2017 census and the individualised learner record.
Historic spend factor
- The historic spend factor provides £2.7 billion, based on 50 percent of LAs’ historic spending on high needs.
- This factor provides LAs with an amount based on existing high needs costs, particularly those costs that may not be reflected by indicators of need used in other formula factors.
- The remaining £2.7 billion of the high needs block will be distributed through proxy factors – overall population, deprivation, low attainment, and health and disability.
- The use of population and other proxy factors will ensure LAs’ allocations will increase in proportion to their 2-18 population and the characteristics of that population.
- The funding floor and gains will be calculated on a per head of population basis.
- In the same way as the schools formula, an uplift of 0.5 percent in 2018/19 and 1 percent in 2019/20 over the relevant 2017/18 high needs spending baseline will be provided.
- The formula will prevent LAs from losing funding if their overall 2-18 population is decreasing.
- The import/export adjustment ensures funding reflects situations where LAs may face higher costs if they attract more pupils from outside their area with high needs and circumstances where LAs ‘export’ high needs pupils to other areas.
- The adjustment calculates where there are more imports than exports in an area, or vice versa. In these situations, a positive or negative adjustment is made, using a unit value of £6,000.
Moving funding from schools into high needs
- LAs will be able to transfer 0.5 percent of their schools block funding into their high needs budget, if this is agreed with their schools forum.
Impact on protected characteristics
- The formula will maintain the current average pattern of funding distribution between schools and does not shift the current overall primary to secondary ratio.
- The government is not proposing to weight any element of the high needs formula towards any particular age group.
Race (including ethnicity)
- A broad ethnicity factor has not been included in the formula – instead the additional needs factors will be relied on.
- Funding for mobility will be allocated on a historic basis in 2018/19 – alternative methods of allocation will be considered for use in later years.
- Ethnic groups achieving below the national average will be targeted for additional funding through the low prior attainment factor.
- There is an overlap between high areas of deprivation and the proportion of pupils from an ethnic minority background. Deprivation funding has been increased to reflect the funding currently channelled to deprived areas through the per-pupil basic lump sum factors by some LAs.
- The impact of the formula is broadly similar for faith and non-faith schools – 56.3 percent of faith schools and 60.1 percent of non-faith schools are not on the funding floor and will attract gains of one percent or more.
- A specific special educational needs and disabilities (SEND) factor has not been included in the formula. Instead, low prior attainment will particularly be used as a proxy indicator of need.
- Schools with higher proportions of pupils with a statement of SEN, an education, health and care plan, or in receipt of SEN support would attract higher average per-pupil funding rates.
- The formula for high needs will allocate more funding on a formulaic basis using proxy indicators to identify need. These are: health and disability, low attainment, socio-economic disadvantage, and population.
- The government is allocating 50 percent of funding according to existing spending patterns, which will help to reflect the position of any areas with higher levels of SEND that have not been picked up by the proxy indicators.
Formula for central school services
The central school services block is designed to reflect the ongoing LA role in education and will be created from two existing funding streams – the DSG and the retained duties element of the ESG.
Funding will cover two elements – ongoing responsibilities and historic commitments – which will be handled separately within the formula.
For ongoing responsibilities, 90 percent of funding will be distributed according to a per-pupil factor and 10 percent will be distributed according to a deprivation factor. Both elements will be adjusted for area costs. The transition to this formula will be gradual – a protection will be in place for 2018/19 and 2019/20 that limits reductions to 2.5 percent a year per pupil. The level of gains will be set annually dependent on the precise composition of the block in each year – for 2018/19, gains of up to 2.5 percent per pupil will be allowed.
For historic commitments, funding we be allocated based on evidence, with the expectation that historic commitments will unwind over time. There will be no protection for historic commitments in the block.
Under this block, 87 LAs will see their funding increase. LAs that have been spending considerably more than the average per pupil, will typically see a reduction in funding; however, the protection will ensure that no LA will face losses of more than 2.5 percent per pupil in 2018/19 or 2019/20.
Arrangements for allocating funding
- The DfE has published tables showing allocations for the schools, high needs and central school services blocks.
- The DfE has confirmed the primary and secondary per-pupil rates, derived from the formulae, that will be used to set LA schools block allocations in 2018/19.
- In December 2017, the final LA allocations will be confirmed.
- In 2018/19 and 2019/20, LAs will continue to set local school formulae to distribute the funding allocated to them by the national formula.
- The government has also published allocations of high needs funding, indicating how much each LA will receive in 2018/19 for the majority of its allocation, and clear per-pupils rates for the remainder.
Schools national funding formula
There DfE will continue to work with stakeholders and experts to improve their data and indicators, e.g. for low prior attainment, the DfE will consider further longer term changes to improve targeting of funding to need.
LAs’ local formulae will be kept under review to assess the impact of the funding reforms on individual schools’ funding levels.
High needs funding
The DfE will undertake further research to look at the factors that are driving costs, and whether there are new or different proxy indicators that could improve the formula.
Central school services funding
If changes are made to LAs’ legal obligations in the future, the total amount of funding for the block will need to be changed to reflect this.
The DfE will also consider how to treat funding released from the historic commitments element of the block and will confirm the approach at a later date.
- Read the DfE’s full guidance on the national funding formula for schools and high needs here.
- Read the full equalities impact assessment of the national funding formula here.
- The tables showing provisional allocations for the schools, high needs and central services blocks can be found here.