After several delays, the National Funding Formula has finally been introduced and will affect your funding from April 2018 onwards. But what does that mean in practice?
The first aspect to consider is the size of the national pot. The last five years have seen very little change in the per pupil allocations of grant to LAs for mainstream schools. Extra pupils have at least been funded, but what’s needed is ‘real terms’ funding at a level that covers pay awards, inflation and new costs, such as the Apprenticeship Levy introduced in 2017/18.
In 2016, the DfE estimated that cost pressures between 2014 and 2020 would reach 8.7%, and stated that schools needed to save £3bn to achieve sustainable budgets. After national lobbying efforts, an additional £1.3 billion was added to the NFF pot across 2018/19 and 2019/20. Will this be enough to cover future costs? Almost certainly not.
Underlying problems
So how will the available money be distributed? Well, that depends on what your starting point is – i.e. your local formula values compared to the NFF values. In 2018/19 and 2019/20, the NFF will be used to calculate most of your LA’s grant. There are also some non-NFF items, funded on 2017/18 spending, which could cause pressure if costs rise.
An LA can decide whether to adopt the NFF values or not when distributing its grant between schools. (In time, the DfE will eventually use the NFF to fund every school and academy directly, removing local discretion). A school is more likely to be disadvantaged if the NFF values for factors it relies on are significantly lower than the local formula used previously.
There will be transitional protection to smooth matters when the changes kick in, with a per pupil ‘floor’ increase of 0.5% and a maximum per pupil gain of 3% in the LA’s grant. But LAs can alter that too, depending on what’s affordable; regulations still permit a maximum loss of 1.5% per pupil in the local formula.
How long will it take for your school’s funding to be purely based on the NFF? That depends on the decisions that LAs and the DfE take in 2019/20 and beyond. For some schools, this transition could take a long time.
Unfunded pressures (mainly pay related) between 2015/16 and 2017/18 have caused significant difficulties, and have been compounded by the uncertainties stemming from NFF delays. Some schools have reviewed their budgets to find savings, but others have gone into deficit. For most schools, the NFF is unlikely to compensate for this historic shortfall.
The impact is likely to be worse for schools that spend a high proportion of their budget on pay. Schools with PFI costs may also have problems, due to their inability to touch certain parts of their budget when seeking savings and the restrictions they’re likely to have in generating lettings income.
The long-term prognosis
It’s impossible to say what will happen from here on. We know that there will be no change in the NFF unit values in 2019/20 across all the formula factors. In converting this to the 2019/20 grant, the DfE will use updated data from October 2017, which means that rising rolls should still entail a cash increase, even if per pupil funding remains broadly unchanged.
The main problem is that a new Spending Review period starts in 2020/21, and the DfE so far can’t give any guarantees as to what will happen to any part of the school funding system from that point onwards. So how should schools look to cope in the meantime?
Try to control what you can by planning ahead. We’d advise you to create some broad-brush alternative funding scenarios for the next three years, to raise awareness among SLT and governors, and stimulate some creative thinking about how to achieve savings if needed.
You can use your 2018/19 allocation per pupil as a baseline, giving consideration to how the NFF has affected your school and using that to guide your scenario development. The DfE’s model of pure (but protected) NFF outcomes for every school can be found here. This information doesn’t take into account your local formula result, but removes the complication of roll changes and is a good guide to the NFF trajectory.
If your school is listed as having a 1.0 % percentage change in the final column of the NFF summary table, that means you would have lost money in the pure NFF but have received floor protection (subject to the decision of your LA). Alternatively, you may see a large increase, which can be capped. When deciding on scenarios it’s best to be prudent, especially from 2020/21 onwards, since anything can happen!
Develop multi-year ‘best’, ‘middle’ and ‘worst’ case scenarios, using local intelligence on your LA’s plans for 2019/20, and use these to stimulate debate with your governors and draft an action plan. Our forthcoming book, Forecasting Your School’s Funding, will include a method to help guide you through this process.
Schools should also undertake a fundamental budget review. Engage your senior leaders in reassessing all areas of spending, referring to the DfE’s guidance on financial health and efficiency for schools.
What is the national funding formula?
The NFF replaces the old system for funding schools, which involved LAs receiving government grants based on historic spending and distributing those funds locally according to a formula.
Under the new model, NFF values set by the DfE are now applied to pupil and school data. The DfE will decide what protection there will be from losses, and if/how to restrict gains to make the whole thing affordable.
Individual school allocations are aggregated up to LA level, and items not factored into NFF calculations (such as PFI fees, split site costs, pupil mobility and pupil number growth) are added on. LAs will continue to distribute their funding until 2019/20 and make decisions pertaining to protection and gains at a local level. There are separate NFFs for high needs, early years and central budgets, which are retained by LAs.
We don’t yet know when DfE will introduce direct funding of schools across the board – this will entail a major legislative change, and for now at least, Brexit continues to dominate parliamentary proceedings.
Julie Cordiner is an education funding specialist; Nikola Flint is a school business leader. Their book Leading a School Budget Review includes change management tips and a process for reviewing different areas of your budget, and is available via Amazon. For more information, visit schoolfinancialsuccess.com or follow @juliecordiner
