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School Budgets

Volume 405: debated on Thursday 15 May 2003

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On Friday 2 May I published a detailed analysis of the school budgets of local education authorities for 2003–04, based on authorities' own statements, and my Department wrote to all LEAs to ask questions about the spending decisions that that analysis had raised. LEAs were asked to reply by 12 May.My Department has now received replies from every LEA. I would like to record my gratitude for the speed and comprehensive nature of their responses.The funding of schools is a shared responsibility of central and local Government. In 2003–04, there have been a number of very significant pressures on LEA and school spending. Nationally, the additional resources provided for education more than match those pressures. However, central Government—partly in response to the requests of LEAs and schools—have introduced a number of changes to both education funding and the wider local government finance system. In particular, changes to the distribution formula for Education Formula Spending, together with the ending of a substantial body of ring-fenced grants from my Department's Standards Fund, have meant that different LEAs and schools have received a wide range of year-on-year increases in overall support for education.

I have already taken steps through an additional grant of £28 million to ensure that all LEAs have at least a minimum increase of 3.2 per cent. per pupil, in addition to taking account of the effect of the Standards Fund and teachers' pension changes. I have also provided a special grant costing £11 million to 18 London LEAs to help them fund this year's increases in London weighting. The full cost of the teachers' Threshold will continue to be paid by additional grant from my Department. And, as made clear in the letter sent to all LEAs on 2 May, the £205 million performance-related pay grant that my Department will be paying in 2003–04 will be sufficient to meet all of schools' on-going commitments arising from the performance-related pay grant provided in 2002–03, and to cover the costs of similar progress along the Upper Pay Spine for those teachers becoming eligible for performance points in September 2003.

From my Department's preliminary analysis of LEAs' responses, it is clear that many local authorities have taken action to manage local problems, and to ensure that their schools have received reasonable year-on-year increases in funding. A number of LEAs have chosen to increase their spending on schools by significantly more than the additional resources that central Government have made available. Others have managed the pressures on central spending so that they can increase the budgets of individual schools.

LEAs have also confirmed that a significant proportion of the budgets they had not allocated to individual schools by 31 March has now been allocated. For example, Bath and North-East Somerset has confirmed an additional £2.3 million has been allocated; Bradford an additional £3.6 million; and Birmingham £12.5 million. Where LEAs have indicated that they cannot make allocations yet, they have guaranteed that all the money will be received by schools during the year, and confirmed that they are ensuring that all schools are being notified of the sums that they can expect to receive.

However, my Department's preliminary analysis of LEAs' budget statements, and responses to the questions asked of them, show that some local decisions have contributed to schools experiencing financial difficulties for 2003–04. In particular, we note that:

some LEAs are still not increasing their schools budget to match in full the increase in education resources from central Government;
the great majority of LEAs have decided to increase the budgets they hold for centrally-provided and centrally-funded pupil provision at a significantly higher rate than the increase in the budget they delegate to schools. While these central services are important, it is vital that all LEAs also ensure that their schools receive appropriate budgetary increases;
in particular, some LEAs have greatly increased their central spending on special educational needs; we need to work with authorities to understand better why this is happening and how SEN funding can be used to best effect; and
many LEAs have provided very different budget increases to different schools, with some schools receiving much smaller budget increases than the local average. While a number of LEAs' local distribution formulae place a limit on the year-on-year losses that a school may receive, these in general still allow some schools to face very significant budget reductions.

Further analysis of LEAs' individual responses is currently underway within my Department, but it is clear that the budgets that LEAs have set for 2003–04 cannot, in general, be reopened.

2003–04 is a unique year, because of both the extent of changes in the system for funding schools, and one-off pressures relating to teachers' pensions and National Insurance. It is clear that there has been very real uncertainty over this year's funding allocations.

To ensure that these special circumstances do not adversely affect schools, I have decided that, for 2003–04 only, LEAs and schools will be given the additional flexibility to use their devolved formula capital funding from my Department to support revenue expenditure. The decision to use a school's capital funding in this way will need to be made jointly by the school and its LEA, and should only be taken in those circumstances where failure to do so would lead to excessive instability within that school.

I wish to reaffirm the importance that I place on schools and LEAs making proper provision for capital expenditure on schools. Since 1997, this Government have increased the total support made available for capital spending on schools from £700 million to £3.8 billion, with further rises planned to £5.1 billion by 2005–06. Devolved formula capital is intended for much needed maintenance of school buildings. The new flexibility over the use of this funding should, therefore, only be used where all other options have been exhausted. It will be allowed for one year only, in advance of the further changes that I intend to introduce for 2004–05. My officials will be contacting every LEA today to inform them of this change.

My officials are also discussing with the LSC what flexibility it can offer in the way it reduces schools' funding allocations where sixth form numbers are lower than expected. On Monday I published the London Challenge strategy which is aimed at transforming secondary education in London. I intend to keep under review the resources available to ensure that this important initiative is successfully implemented.

Schools and LEAs now need to consider how, making use of existing school reserves, other local flexibilities, and, if necessary, the flexibility in devolved formula capital, they can ensure that schools can properly manage within their overall budgets this year. LEAs should bear in mind that they can permit schools to set a deficit budget which they are likely to be able to repay over the next few years; and that, with local agreement, the collective balances of their schools can be used to cover the funding of such agreed deficits. In addition, as I have already indicated to LEAs, I will be willing to give sympathetic consideration to proposals from local authorities to set aside restrictions in existing Fair Funding Regulations and schemes, or in the conditions of grant for the Standards Fund, where the authority thinks that this would assist them in alleviating funding difficulties in particular schools.

Schools and LEAs will also wish to be reassured that next years settlement will offer them a clear and stable platform on which to deliver high standards of education. Many of the changes that have been introduced in 2003–04 will cause less turbulence in 2004–05. In that context, my Department's analysis of this year's settlement, and LEAs' responses to the questions we have asked them, will underpin the introduction of changes to education funding for 2004–05, as promised in my statement on 6 May.

The key priority will be to identify the changes that need to be made so that all schools can expect to receive a reasonable per pupil settlement in 2004–05. In order to achieve that, we are committed to working closely with representatives of local government, teachers and head teachers, starting with the Central Local Partnership Meeting on 21 May. We believe that to meet our shared goal we need to discuss how best to ensure:

sufficient education funding increases for every LEA;
the right balance between support through general grant and through ring-fenced and targeted grant;
confidence that schools and pupils will receive the money intended for them;
the right balance between in-school and out-of-school provision;
variations in the budget increases received by different schools within each LEA are appropriate and fair;
workforce reform, in line with the National Agreement, can be sustained.

My Department will also work with local education authorities to improve and clarify its procedures so that all LEAs are able to distribute their funds, notably Standards Fund, to schools in a timely way.

My intention is to ensure that changes are in place in good time to allow schools and LEAs to plan for 2004–05 and so provide increased predictability and stability in school funding.