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Schools: Finance

Volume 464: debated on Tuesday 16 October 2007

To ask the Secretary of State for Children, Schools and Families (1) what his latest estimate is of the total cash balances held by all schools in each year between 1990-91 and 2007-08; and if he will make a statement; (156967)

(2) what guidance his Department has issued to local authorities on deducting money from schools' balances; and if he will make a statement;

(3) what his most recent estimate is of the amount of schools' surplus balances which will be clawed back and redistributed in (a) 2008-09, (b) 2009-10 and (c) 2010-11; and if he will make a statement;

(4) if he will publish all guidance issued to local authorities since 1 January 2007 on cash balances held by schools; and if he will make a statement;

(5) what powers he has to claw back excess cash balances held by (a) academies, (b) trust schools and (c) foundation schools; and if he will make a statement;

(6) what his most recent estimate is of the excess cash balances held by each school in England;

(7) what assessment he has made of the legality of clawing back unspent allocations of Standards Fund monies from schools; and if he will make a statement;

(8) how many schools had an excess cash balance in each reporting period from 1997-98 to 2007-08; and if he will make a statement;

(9) what his latest estimate is of the proportion of cash surpluses held by schools in (a) 2005-06, (b) 2006-07 and (c) 2007-08 which represents committed expenditure on future projects; and if he will make a statement;

(10) what plans he has to fine schools for holding excessive balances; and if he will make a statement;

(11) whether he plans to take steps to stop schools from being required to give up a proportion of cash surpluses held by them in 2006-07 which has subsequently been spent; and if he will make a statement;

(12) what his most recent estimate is of the total surplus cash balances held by schools in each local authority area; and if he will make a statement;

(13) when he plans to make a statement on the redistribution of a proportion of surplus cash balances held by schools on 31 March;

Total net closing revenue balances for local authority maintained schools for the financial years for which data are available are set out in the following table.

Financial year

Total revenue balance1,2

1999-003

740,691,354

2000-01

1,085,602,004

2001-02

1,256,776,093

2062-034

1,192,864,397

2003-04

1,323,989,041

2004-05

1,532,855,786

2005-06

1,570,348,360

1 A school's total revenue balance is calculated from the combination of any unspent allocations (including unspent Standards Fund grants) and the cumulative balance of income less expenditure from revenue funding sources during the financial year and any balances carried forward from previous years. This is drawn by adding together the unspent allocations and balance carried forward columns from local authorities Section 52 Outturn Statements 1999-2000 to 2001-02 (Table 2) and Consistent Financial Reporting categories B01 and B02 from local authorities Section 52 Outturn Statements (Table B) from 2002-03 onwards.

2 Included are all local authority maintained schools correctly reported by the local authority on their Section 52 Outturn Statement. Local authority maintained nursery schools with delegated budgets have only been collected on Section 52 from 2003-04 onwards.

3 School level revenue balances are not available prior to the inception of Section 52 for the 1999-2000 financial year.

4 In 2002-03 the Section 52 outturn categories were aligned with the Consistent Financial Reporting (CFR) framework following the introduction of CFR to schools. The change in sources is shown by the blank row. Some inconsistencies with the balance figures reported by local authorities' in 2002-03 were identified and consequently caution should be exercised when using the balance figures for that year.

The Department is currently collecting and validating local authorities’ outturn data for the financial year 2006-07 and we will publish this later in the autumn. But early indications are that the total of balances has increased again.

It is right that schools should be able to accrue revenue balances from one year to the next in support of strategic, long term, financial planning. However, I am clear that it is not acceptable for Government to allow balances to continue to accumulate. At the end of 2005-06, total net revenue balances were 5.3 per cent. of schools' total income. For schools with a positive balance, the figure is 6.7 per cent. of total income. Moreover, around 17 per cent. of schools had held an excess surplus for each of the last five years. This is taxpayers’ money voted by Parliament for the education of the pupils in schools in the year in question and it should not be steadily accumulating in schools' bank accounts.

We are therefore taking action on two fronts to bring the total down. We have introduced a requirement that, from 2007-08, all local authorities must, where they do not already, operate a balance control mechanism enabling them to claw back excess surplus balances. These are defined in the guidance as uncommitted revenue balances above 8 per cent. of total income for primary and special schools and 5 per cent. for secondary schools. The guidance is available in the Library of the House and can be viewed at:

www.teachernet.gov.uk/schemesforfinancingschools/

To be effective, claw-back requires local authorities to scrutinise schools' plans for using their excess surplus balances and reach a judgement on whether the balance is genuinely committed to be spent for a specific purpose within a specified timescale. Claw-back is only as effective, therefore, as the local authority's scrutiny is rigorous.

In 2005-06, local authorities reported that £988 million or 62.9 per cent. of balances was committed for specific purposes. However what is defined as a committed revenue balance varies from one local authority to another and the split of total revenue balances into committed and uncommitted balances is not reliable. For example, in 2005-06, 37 local authorities reported less than 25 per cent. of their total revenue balances as committed whereas 62 LAs reported more than 75 per cent. of their total revenue balance as committed.

The Government expect claw-back to have some impact but we believe it is right to take further action on all balances to ensure that their overall level reduces so that some of this money is used to support the education of today's pupils. We proposed in the consultation on the school, early years and 14 to 16 funding arrangements in spring this year to require all local authorities to redistribute locally 5 per cent. of all positive revenue balances from 2008-09. Local authorities will decide with their Schools Forum how the money is to be redistributed locally to support local needs and priorities.

I announced in my statement of 25 June 2007, Official Report, column 2WS, our decision to proceed with this proposal, and in September my Department published an Explanatory Note for local authorities and Schools Forums on the school funding arrangements for the next three years, including further detail on how the balance redistribution would work in practice. The Explanatory Note is available in the Library and on TeacherNet at:

www.teachernet.gov.uk/schoolfunding2008to11.

The Department is now consulting on the draft school finance regulations for 2008 which would bring the balance redistribution into effect. The proposition is that local authorities should calculate 5 per cent. of the most recent positive revenue balance for all schools, and add this sum to the total Schools Budget for the coming year. For 2008-09, it is proposed that this should be final balances at the end of 2006-07 since final balances for 2007-08 will not be known before authorities notify schools of their budgets by the end of March. Consultation closes on 26 October and I will announce our final decisions on the redistribution in the light of the comments received. Details of the consultation can be viewed at:

www.teachernet.gov.uk/schoolfundingframework/

and copies are available in the Library.

It is clear from early responses that schools are particularly concerned about the use of 2006-07 balances. We will want to look very carefully at this aspect of the proposals in particular in reaching final decisions in the light of the consultation.

Local authority claw-back mechanisms and the proposed balance redistribution apply to all local authority maintained schools including foundation and trust schools. Academies and city technology colleges (CTCs) are not subject to the same rules on the carry-forward of balances as maintained schools. Instead, the requirements are set out in their individual funding agreements. The normal provision is that the academy or CTC may carry forward at the end of any year a sum which at maximum is 12 per cent. of the General Annual Grant (GAG) for the year just ended; and within that overall limit only 2 per cent., at most, of the preceding year's GAG can be carried forward for revenue spend; the rest must be for capital purposes. This calculation is not cumulative—that is, the total sum carried forward should never grow larger than 12 per cent. of the preceding year's GAG. Adherence to these limits is monitored by the Department and GAG may be clawed back if they are exceeded, although the Secretary of State is empowered under the funding agreements to approve a higher limit in individual cases. There are no plans to change these provisions.

Standards Fund grants are paid under sections 14-18 of the Education Act 2002. Section 16 allows the Secretary of State to set the terms of those payments, including the circumstances in which grant is to be repaid, and how grant should be distributed to schools.

In my written ministerial statement of 15 March, Official Report, column 18WS I announced the publication by my Department of a summary of the data on school balances for the financial years for which information is available—1999-2000 to 2005-06. This includes data on balances for all local authority maintained schools, together with regional and local authority level summaries. It shows the proportions declared to be committed and uncommitted and the amount of balances meeting the definition of “excess balances”. Copies have been placed in the Library and the information is also available on the Department's website at:

www.dfes.gov.uk/localauthorities/section52/subPage.cfm?action=section52.default&ID=84.

Information on closing balances is collected after the end of the financial year so data for 2007-08 onwards are not yet available. As already noted, my Department will publish data for 2006-07 later this autumn.

In 2005-06 positive balances totalled just over £1.7 billion. A redistribution of 5 per cent. of all positive balances in all authorities would deliver in the region of £85 million in 2008-09 to support locally agreed priorities. As total balances reduce over the spending review period it is anticipated that the income generated through the redistribution will be marginally reduced, however it is not currently possible to predict the total surplus balances over this period.

To ask the Secretary of State for Children, Schools and Families (1) when he plans to publish the results of his Department’s consultation on a proposed levy of 5 per cent. on school surplus balances; (158292)

(2) how many submissions to his consultation on a proposed levy of 5 per cent. on school surplus balances have (a) supported, (b) opposed and (c) expressed concerns about the proposed levy.

The Department is currently consulting on the draft school finance regulations for 2008 which will give effect to the proposal to require local authorities to redistribute locally 5 per cent. of all surplus revenue school balances. The consultation closes on 26 October and we will consider carefully all the representations received before taking final decisions. A report on the outcome of the consultation, including an analysis of responses, will be published on the TeacherNet website and a copy placed in the Library of the House as soon as possible after the close of consultation.