A beginner’s guide to the National Funding Formula for schools

I was in a finance meeting last week and there was discussion around changes in the National Funding Formula (NFF) for schools. Although I was aware of the background and the criticisms of the original formula, I wasn’t up to speed with the latest changes and thought that many governors (and perhaps school leaders too) wouldn’t be either. So I hope the below helps; it’s a complex subject and I’d welcome any corrections/clarifications. Much of the below is a distillation of three long papers, which are linked to at the bottom and worth reading.

Background and context

The current NFF is the culmination of recent effort to clarify and simplify the amount of government funding each school can expect. Before 2003 schools funding was included in a block grant from central government to local authorities (LAs), with no expectation of a particular amount being spent on schools. Increasing pressure on school budgets then led to education funding being ringfenced, although with no obligations on how LAs then distributed that money to individual schools. 

This then led to discrepancies in the level of funding provided to schools within the same borough, and contributed to differing levels of performance (the “postcode lottery”, which is easier for better-off parents to win by moving within the catchment area of high-performing schools). At a national level, a significant lapse developed between demographic data being collected, and funding being allocated to LAs on that basis, meaning that LAs weren’t receiving accurate funds to cover their current demographics – much like council tax not having caught up with rising house prices.

Conservative government proposals

The Conservative government’s initial proposals for reform of the NFF came in for significant criticism, in particular from school leaders and also in a long report by the Education Policy Institute (EPI). One key concern was that despite increased funding for schools, a faster rise in inflation would lead to most schools experiencing a real-terms funding cut. The EPI also found that despite the government’s aspiration to increase funding for the poorest children, the overall effect would be to re-distribute funding to the “just about managing”. Schools which were already receiving substantial funding from LAs due to their demographic pressures – most obviously inner city primaries in London – would lose the most funding. 

Therefore in July 2017 the DfE released a new model for the NFF. A Dedicated Schools Grant (DSG) will continue to be paid to LAs until at least the 2019/2020 academic year, described as a “soft entry” for a later move to paying each school directly – and a result of the current minority government, which would probably not be able to get legislation through Parliament allowing it to cut out LAs. An extra £1.3bn of funding has been found, and base funding for each child will amount to £4,800 per secondary pupil, and £3,300 per primary child, in 19/20. The DSG will be calculated through four block reflecting the shape of the schools system: schools overall, pupils with “high needs” (eg SEN), early years and a “central school services block”, reflecting the cost of running a school. Finally, each school will receive a base payment of £110k p/a regardless of size.

A list of further factors will be used to calculate funding for each school: 

* Pupils with English as an Additional Language (EAL)

* Sparsity, predominantly designed to ensure that rural schools with necessarily lower number of pupils aren’t rendered unsustainable

* Premises, to reflect that some school buildings date back over a hundred years

* Sudden growth in the number of local pupils 

To mitigate the unintended loss of funding through the previous formula, the DfE has guaranteed both a ceiling and floor on funding gains: no school will lose money, and all schools will gain at least 1% in 19/20 (0.5% in 18/19). A gains cap from the formula has been set at 3% each year. However, rising inflation will still have an impact here.

Deprivation and high needs

£3bn worth of funding will be allocated to schools with high levels of deprivation. This will be measured through both the number of pupils receiving free school meals (over the past six years – the ever6 measurement), and the income deprivation affecting children index (IDACI). Primary schools may see less variation in this funding (as more of their pupils are likely to have received free schools meals in the past six years) compared to secondary schools£2.5bn has been allocated for children with low prior attainment (measured from early years and KS2). The pupil and sports premium are not currently affected and will remain in place as a separate measure to tackle poverty.

50% of funding for children with High Needs will be allocated through historic spending, and the rest through a range of factors including population, local deprivation and the IDACI. Safeguards will be in place to ensure that LAs won’t lose funding if the overall student population drops, allowing a degree of stability.

What should governing bodies be aware of?

* The DfE has provided calculators for schools in each borough to work out their allocations. Finance managers will have a better understanding of individual schools’ budgets and how they will be impacted, including any impact on budget reserves.

* This is a good opportunity for governors to understand their school’s demographics and funding streams in detail! 

* Labour’s position on the new NFF is not clear and there is of course a chance they will soon be in government. However, overall it has been supportive of a refreshed NFF. For me the most likely scenario is that a Labour government will keep much of the above in place, but also be more likely to keep LAs’ strategic and distribution role in place beyond 19/20.

EPI: https://epi.org.uk/report/national-funding-formula/

DfE: https://www.gov.uk/government/publications/national-funding-formula-for-schools-and-high-needs

http://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-8106

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