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School Funding

Volume 543: debated on Tuesday 24 April 2012

Motion made, and Question proposed, That the sitting be now adjourned.—(Mr Wiggin.)

It is a pleasure to serve under your chairmanship, Mr Gray. There is a very strong representation from the south-west here today, including the Chair, and we welcome that.

School funding is an issue that has bedevilled the country, particularly for those of us who represent underfunded areas. In many ways, the problem of school funding reminds me irresistibly of the late 19th-century question of Schleswig-Holstein, about which Lord Palmerston says:

“Only three people…have ever really understood the Schleswig-Holstein business—the Prince Consort, who is dead—a German professor, who has gone mad—and I, who have forgotten all about it.”

Although I would not suggest for a moment that the Minister responsible for schools and the Secretary of State for Education are the only two people who really know about school funding, it is fair to say that I certainly got lost early on in the quagmire of the local authority central spend equivalent grant—or LACSEG, which sounds very similar to some medicine that I once took for Barrett’s oesophagus.

None the less, the issue is clear to us all. There are many schools across the country, including all those in my constituency, whose pupils effectively lose out significantly in terms of the amount of money spent on them per year relative to pupils in the large metropolitan areas. In fact, there are some 2.5 million pupils in the F40 areas, which are the poorest-funded local authorities in England. Therefore, on average, £5,000 less per child is spent on children’s education in my county of Gloucestershire and other counties represented here today.

Does my hon. Friend agree that the problem is exacerbated by the rural nature of constituencies in the south-west? Certainly, in Devon, that makes the problem of underfunding even more acute.

My hon. Friend makes a very good point and speaks powerfully for children in rural areas. Of course, there can also be a problem for those in urban areas within a rural county. In my case, one of the reasons why some of us in Gloucester feel so passionately about the issue is that we are a relatively poor city and a relatively rich county. I am sure that other hon. Members have similar situations, and I am happy to take interventions from them on that point.

I cannot resist an invitation like that. Swindon has a similar demographic to that of Gloucester. We are in a relatively rich part of the world and have historically been underfunded. We are doing our best with the resources that we are given, but the option set out by the F40 campaign—an extra £99 million—would be a good interim way to deal with an historic problem that Governments of all parties have wrestled.

My hon. Friend makes a powerful point that relates perhaps to a later stage of the argument that I will develop. I agree with him absolutely that although, as the saying goes, size—or, in this case, money—is not everything, it does go a long way towards improving the opportunities for children in our constituencies. As we all know, above all else, the Government are concerned with aspiration and providing equal opportunities for children across the country.

Would it not be a travesty if areas of social deprivation lose out on the school funding formula when the Government’s ethos is to encourage young people into education and perhaps to go on from that to vocational studies?

The hon. Gentleman is implying that my argument is to beggar my neighbour, to give pupils in Gloucester a better chance. He is right in saying that a charge to the lowest common denominator to achieve equality is not necessarily what we are looking for, and that is not what I intend to propose. However, perhaps we will come on to the specifics of that in a moment.

Broadly, we have already established a degree of consensus in the debate—and I suspect across the House—that the principle of equal funding for every child in the country is one that we would all happily sign up to. The Secretary of State for Education has made it clear that that is his principle as well. Of course, the Government have, in a sense, made deprivation much easier to deal with by introducing the pupil premium, which hugely helps those children who come from very deprived backgrounds and who therefore deserve additional money being spent on them to give them the same opportunities as those children from more stable family backgrounds. We all agree on the principle, but what can be done about it? Given the length of time that the issue has been with us—some 20 years or more—and, I regret to say, the previous Government’s complete failure to tackle the problem, it falls upon the coalition Government to deal with it.

During the various debates that have already taken place in the House since the Government came to power, my right hon. Friend the Secretary of State for Education has perfectly summarised the issue. He has said:

“The current system is not only ludicrously bureaucratic, it is also unfair as schools in different parts of the country are not funded on a rational basis. Moreover, the sheer complexity of the system gives schools less incentive to respond to the needs of local parents by expanding or establishing new provision.”

With the exception of not alluding to the Schleswig-Holstein issue, he could not have put it better, and I do not suppose that any hon. Member here today would disagree with him. How do the Government therefore propose to create a fairer system that will enable those authorities in which our constituencies lie to be reassured that the Government can right the wrong that has been with us for more than 20 years?

Of course, I should say that the Government first launched a consultation. At the announcement of the consultation, Lord Hill determined that it would address the disparities and inequalities within our school system. The consultation was the first step towards ensuring fair funding. None the less, the Department for Education has been unable to find the additional money that would have provided the top-up to all those areas in the F40 group. That would have provided us with the simple one-stop solution of equal funding for all pupils across the land. In times of extremely constrained finance, it is not surprising—no one in our constituencies could conceivably blame the Government for this—that the additional significant amount of money needed to solve the problem in one go has not been found.

However, there has been good news in terms of a significant reduction in the factors that local authorities can consider when constructing school formula. The number of factors that need to be considered have dropped from 37 to 10, which will slightly reduce the complexity of the education funding formula, to which I alluded earlier, and make it easier for schools to understand the rationale behind their budgets. The consultation also arrived at a much greater delegation of funding to schools and will ensure that local authorities can no longer top-slice school budgets. Above all, given that 75% of the secondary schools in Gloucestershire are now academies, the consultation provided for academies to be funded using exactly the same formula as maintained schools, because there had been a year’s lag under the system inherited from the previous Government. That single change will make a significant difference to the academies in my constituency of Gloucester and elsewhere.

It is a bit like watching Martin Luther King in his prime. Is it not right that my hon. Friend has a dream, not only for all schools to be equal, but for the Schools Minister to give us the first step, the first indication and the first rung on the ladder to an equal and fair funding for all the schools we represent?

Yes, apart from an alarming analogy with Martin Luther. [Hon. Members: “King.”] Martin Luther King—even more puzzling. Martin Luther was of course responsible for the great saying, “Who loves not wine, women and song remains a fool his whole life long,” but I do not think that that was the object of my hon. Friend’s attempt to introduce him into the debate. However, my hon. Friend’s fundamental point—that we are looking for an early gesture from the Government to reassure our constituents that they do not just have warm sounds, but an initial step towards resolving the funding problem—is absolutely right, and one that I think all hon. Members endorse.

There are budgetary challenges to finding a solution, but the F40 group has submitted various suggestions for interim funding proposals that would improve the situation considerably. It has put forward four options to make steps towards equality, not all of which are hugely expensive. It is not for me to ask for a specific amount of money or a specific formula for the Government to start the ball rolling, but I urge the Government to look closely at the F40 group’s proposals in the hope that one of them is attractive and affordable, and, above all, can be introduced for the academic year 2014-15—before the funding settlement of the next Government.

My main wish is for the Minister to take from the debate the thought that not only are the Government able to agree with the principle and the direction of travel, but they can make the first steps to implement financial change to show that this long, 20-year inequality will finally be tackled.

My hon. Friend has mentioned timing on three occasions. Is that not one of the crucial points? Given that we have had that inequality for 20 years and that we have a very strained economic environment, it is vital that we resolve this problem as soon as possible and in the best way possible.

My hon. Friend is absolutely right. Of course, the difficulty is in the words, “as soon as possible” and “the best way possible”. Neither he nor I have control of the finances, but I think we both agree strongly that this is our opportunity to lobby the Minister and for him to reflect the strength of our conviction to the Treasury in the hope that additional moneys can be found as soon as possible.

This is happening because for more than 20 years civil servants have recognised that there will be winners and losers. As a group, we, and my hon. Friend in particular, must impress on the Minister that the most important thing is to get on with it now and have no further delay. There have always been winners and losers, and the F40 group are the losers every single time. We need to ensure that we level things out very quickly, because it has been 20-odd years.

My hon. Friend makes a good point about winners and losers. Personally, I am not trying to advocate taking money away from deprived areas in large metropolitan cities. They have benefited from generous settlements in the past 20 years, which is absolutely right, but this is not necessarily the moment to rob Paul to pay Peter. I am looking for additional funding from the Treasury to the Department for Education in a formula that allows gradual progress over a period to resolve this inequality of funding.

The Secretary of State sent a letter to a number of us, in which he commented on the consultation:

“Support for reform was widespread but responses also suggested this model would need careful planning. Getting the components and implementation of a fair national funding formula right is critical and we need to manage transition carefully”.

I think that we all agree with him. We would like him to move on as quickly as possible, rather than delaying until the next Parliament—the issue on which I will close my speech. This situation is not of the Secretary of State’s making. This is a 20-year legacy problem that could and should have been tackled by the previous Government. God knows, they had long enough to consider it carefully. None the less, the issue of fairness echoes powerfully for all of those involved in education in our constituencies, which is why so many of us are here today to engage with the Minister, who has once again kindly picked up the cudgel. I am sure he will respond with his usual positive and encouraging noises, but we are looking for more than just noises. We encourage him to take the message back to the Treasury that the strength of feeling is strong.

Before I call the next speaker, perhaps those who intend to speak will remain standing for a moment. There are six hon. Members, so there is no necessity to impose a formal time limit. Perhaps those who intend to speak can be aware that we have approximately an hour before the Front Benchers reply to the debate. I was going to the hon. Member for Congleton (Fiona Bruce).

Let me be the first to congratulate my hon. Friend the Member for Gloucester (Richard Graham) on a superb introduction to this important issue, which has drawn a large number of hon. Members to the Chamber. It would have been nice to see a few hon. Members from Her Majesty’s Opposition, but they seem to be somewhat absent. I congratulate my hon. Friend on the sensitive way in which he has raised this important issue.

We all have a duty to speak up for our constituents. Central Bedfordshire council is in the unique position of having a local authority on one side of it, Luton, which is generally poorer than central Bedfordshire, and a local authority on the other side of it, Buckinghamshire, which is richer. Both authorities receive more money per child than central Bedfordshire. I put it to the Minister that it is very hard, as a Bedfordshire MP, to explain to my constituents why the authorities on either side, one of which is poorer and one of which is richer, receive more money. It makes an eloquent case for why the formula has no logic or rationale.

I am intrigued by the disparity and lack of clarity in Bedfordshire. Three years ago, Cheshire county split into two unitary authorities—east and west. Cheshire East, which includes Macclesfield and Congleton, receives £10 million a year less than Cheshire West. The reason for the disparity is not clear at all, which highlights my hon. Friend’s point. The formula needs clarity and transparency, as well as fairness.

I am grateful to my hon. Friend for illustrating a problem similar to the one in the bottom part of Bedfordshire. That adds to my argument.

Each child in central Bedfordshire receives £4,658, compared with a child in Luton who receives £5,315 and a child in Buckinghamshire who receives £4,814. A child in Luton gets £657 more and a child in wealthier Buckinghamshire, our neighbour, gets £156 more. Every political party across the spectrum in central Bedfordshire is unhappy about that. The leader of Central Bedfordshire council wrote to the Secretary of State on 25 January to express the views of the whole council on this matter.

I congratulate my hon. Friend the Member for Gloucester (Richard Graham) on securing this debate.

If my hon. Friend the Member for South West Bedfordshire (Andrew Selous) would like another example, Leicestershire is the lowest-funded local authority per pupil head in the country. One disparity between the county and neighbouring Leicester city—I am sure that hon. Members have examples of a city next door to a county—is that pupils in Leicester get £900 per head more than pupils in Leicestershire. Yet books and teachers’ salaries do not cost any more in the city than in the county.

I congratulate my hon. Friend the Member for Gloucester (Richard Graham) on securing this debate.

The point that my hon. Friend the Member for Loughborough (Nicky Morgan) made about teachers’ salaries is vital, because those constitute, as all hon. Members who have been school governors know, the vast majority of a school’s budget. I am not in favour of differential salaries throughout the country. We need standard salaries. It is all the more important that schools funding should be fair, per head, because those basic costs should be the same throughout the country.

I thank my hon. Friend for speaking with passion and for further illustrating the point, which all hon. Members are making.

Some hon. Members have already mentioned that relatively wealthy areas often have significant pockets of deprivation. That is true in my constituency. There is deprivation in Houghton Regis, for example. The indices of multiple deprivation in some wards in that town are not dissimilar to those in much higher-funded Luton next door. The formula fails poorer children in wealthier areas. We need to look at that to see whether the formula could drill down and give additional funding for poorer children in slightly wealthier areas.

I am sure that my hon. Friend will agree that the pupil premium has been a great advance for poorer children, but in many counties there is quite a low level of unemployment and poorer constituents often do not qualify for free school meals and miss out, and are not being helped by the differential funding that he rightly condemns.

I am grateful to my hon. Friend for adding that important point to the debate.

This Government made an impressive start on this issue by publishing “School funding reform: next steps towards a fairer system” a few weeks ago. I am grateful to the Minister and his colleagues at the Department for recognising the problem and setting out a route map for dealing with this issue. Having looked through the document, I understand that it will look to vary funding between different areas to try to deal with some of the discrepancies by up to 1.5% variance from the minimum funding guarantee per year. That will apply in both 2013-14 and 2014-15. That is an important start for which we are all grateful.

It is worth putting on the record that this Government came into office inheriting a complete economic shambles. We are still having to borrow £120 billion just to pay for public expenditure this year and we are honouring our commitments on increasing funding to the NHS and on international development. Notwithstanding that, Ministers in the Department have maintained cash budgets for schools, which is no mean achievement. That should go on the record in this debate. Many hon. Members know that the only way to deal with this issue, and the unfairness that many of us are rightly raising, is to get the economy growing and get real economic growth. In a time of rising budgets, I believe that by doing so we will be able to make significant progress towards dealing with these inequalities. I should welcome some reassurance from the Minister that that will happen as the economy grows.

I congratulate my hon. Friend the Member for Gloucester (Richard Graham) on leading the charge on this matter. I am not from the south-west and have no real knowledge of Schleswig-Holstein. Warrington is one of the lowest funded of the F40. Periodically, I visit primary and other schools, as we all do, most recently Broomfields in Appleton. Over and over, governors take me to one side, show me spreadsheets and say, “Why does this school in another part of the country, which has the same characteristics as our school, have so much extra money? Can you explain to me, as our MP, why an incoming Government with a Front Bench bristling with talent, energy and reforming zeal, can acknowledge the problem and understand it has to be fixed, yet does not seem to have the appetite to have a go at it?”

Warrington is not a wealthy place. It has wards that are among the most deprived in the country. Over the weekend I looked at many spreadsheets—I congratulate the Department on the volume of spreadsheets on its website—and noticed that there is a 50% discrepancy between the funding level of Warrington and Westminster, where I live during the week. Is Westminster that much worse off than Warrington? Are the deprivation indices that much more difficult? I do not think so.

In preparing for this debate I read a lot of papers on websites and various materials that are around. A lot of words have been written about how difficult it all is, but none of the analyses attempt to justify the status quo. I have seen no serious attempt to say that where we are now is the right place. None of the hon. Members who will speak or have spoken already are asking for a national funding formula to be put in place and implemented immediately. We are asking for a start to be made.

I recognise—perhaps the Minister will address this in his remarks—that it could take 10, 15 or 20 years to fix this in its entirety, but that is all the more reason at least to make a start. That is what I find most difficult to explain to my constituents. I have a suggestion for the Front-Bench spokesman.

Does my hon. Friend agree that even a modest increase in the budgets of low-funded local education authorities would make a significant difference to the education that could be offered to children?

Picking up on a point made by my hon. Friend the Member for Loughborough, Leicestershire is the lowest-funded area in the country. Coalville, the most deprived town in Leicestershire, is in my constituency. Even in the centre of Coalville there is below average take-up for free school meals, so we will not benefit from the pupil premium to the extent that the Government might expect. There are a lot of proud people out there and they are reluctant to take up free school meals because a great stigma is attached to them.

I agree. Clearly, every hon. Member has places in their constituencies that are deeply deprived and lose out in this regard.

It is said that it is difficult to put in place a national formula, but I do not think it is. An exercise to decide the inputs to the national formula, indices of deprivation, London weighting and historical issues could take place over a long period. Several things could be done, and I find it difficult to understand why they have not been, because there is a precedent in a national formula for health funding. The way in which all our primary care trusts are funded is driven by the ACRA formula—called after the Advisory Committee on Resource Allocation—which appears to work reasonably well. A characteristic of the ACRA formula is that it gives different numbers and numbers that one might not want to adjust to immediately because they are too far up or down in the next year. The Department of Health deals with that with what it calls a direction of travel adjustment—adjustment to the correct number takes place over a number of years. I see no difficulty in the education community doing something similar because, as I said, no one is asking for the problem to be fixed quickly. We want to know that there is a direction of travel and that over the next decade, say, it will be sorted out.

Finally, I very much support our policy and what we are doing with academies and free schools. For me and for people in my constituency on the wrong end of the formula, however, the funding issue is more potent. It is disappointing that our Front Bench is on the same side as the teaching unions, which should give Ministers pause for thought. We are asking not for the problem to be fixed now but for a start to be made.

It is good to see such a well subscribed debate under your chairmanship, Mr Gray. I am mindful that Worcestershire’s lowly place near the bottom of the league tables for school funding is only one above that of Wiltshire so, although as Chair you can make a limited contribution to the content of the debate, it is appropriate for you to be presiding over it.

I declare an interest as an unpaid member of the executive of F40, a cross-party group that campaigns on behalf of Wiltshire, Worcestershire and the other authorities that are among the lowest funded in the country. I also congratulate my hon. Friend the Member for Gloucester (Richard Graham) on securing today’s debate. He and I have worked closely together on a number of issues, representing as we do two of England’s finest cathedral and rugby-playing cities. It is always a pleasure to hear him speak eloquently and wittily for the interests of his constituents and schools, interests on which Gloucester, Worcester and, it appears, Warrington are fully united.

I am pleased to speak before a Minister who understands such a complex and difficult area of policy extremely well. He has a firm grasp of the issues facing our schools and has given a great deal of time to colleagues and to campaign groups, for which I thank him. He has previously expressed the clear and unequivocal view that the current system of school funding is flawed and that reform is necessary. Indeed, before I express my pleas and concerns, it is important to recognise that there was much to be warmly welcomed in the Government announcement of 26 March, “Next steps towards a fairer system”. The Secretary of State, in his foreword to the paper, said:

“The current system is opaque, inconsistent and unfair with huge differences between areas.”

I could not agree more. He promised a new national funding formula after the next spending review—the right answer on the wrong timetable in my opinion, but nevertheless the right answer.

The Secretary of State also announced moves to simplify significantly local funding formulae and to create much greater transparency—I welcome the latter in particular, because transparency might be the key to breaking down the vast disparities and lack of consistency in the current system. If Ministers mean school governors to have more notice of their funding arrangements in future, I strongly welcome such a move, which has been called for by pretty much every school governor I have ever met. If, too, we will see the per pupil funding that is actually received school by school and area by area—rarely possible to date—I welcome it all the more. Ministers could be providing the decisive weapon to expose once and for all the disparities of the system; organisations such as F40 will use it to the best of their abilities.

I congratulate my hon. Friend on his work co-ordinating Members in the F40 group, of which I am one. I highlight again the anomalous funding position of the adjacent large unitary authorities of Cheshire East and of Cheshire West and Chester. Cheshire East runs from Poynton near Stockport in Greater Manchester in the north right down to Audlem, near Shropshire, in the south; within that range, we have severe pockets of deprivation. Meeting with head teachers, I have the sense that not only do they see the funding as unfair but they feel the injustice. Is it not right that we address the issue as a matter of justice, and that we do so expeditiously?

Absolutely, I could not agree with my hon. Friend more. That injustice would be made all the more clear if there were greater transparency on school-by-school funding.

There have also been some moves to protect special needs funding and to simplify arrangements for early years provision, all of which we welcome. The Government set out plans to end disparities within local authority areas but, with a perhaps understandable concern to limit turbulence, they have so far resisted dealing with disparities between authorities until 2015. There is much to praise, therefore, but that last point is a profound mistake.

The biggest and most obvious flaws in the current funding system, as my hon. Friends have pointed out, are the yawning gaps left in per pupil funding between neighbouring authorities. There is a gap of £1,088 between annual per pupil funding in Worcestershire and neighbouring Birmingham; my hon. Friend the Member for Loughborough (Nicky Morgan) mentioned the gap of almost £900 between Leicester and Leicestershire, the lowest funded authority; and there is the stunning gap of nearly £5,000 between the lowest and the highest authorities. We have often discussed such disparities before, and I accept that there are many historic and political reasons for them, but the Minister has accepted the point that no firm formula underpins them any longer. The successive layers of government priorities that created those gaps have ossified over the years, and the gaps have grown ever wider as spending has grown, creating an unfair and indeed unjustifiable system.

It is extremely welcome that the Government have recognised the problem, and the previous Government suggested that they were beginning to do so, but it is not enough to recognise a problem—the challenge is to correct it. When the previous Labour Government opened a consultation on funding reform but proposed no preventive action, I and many others present would have accused them of dithering. Now that my own coalition Government, whose education reforms I support strongly and whose pupil premium I have praised, are proposing no action until after the next spending review, I cannot do otherwise with them. To accept the need for fundamental reform but to postpone any move towards it is similar to a dentist recognising the cause of a toothache making a patient’s life unbearable and then offering to deal with it in three years’ time. If such a case came to our surgeries as MPs, we would react with outrage. On behalf of all the teachers, head teachers, parents and—above all—pupils in our schools, we must demand swifter action now.

The question is not about a system that rewards the neediest areas and gives least to the best off. If that were the case, the City of London would hardly be the best funded authority in the country, nor Kensington and Chelsea in the top 10. Since the introduction of the pupil premium, many F40 authorities have received a good chunk of pupil premium funding, despite the factors mentioned by my hon. Friends, showing that there are significant levels of deprivation in many F40 areas. In my own urban constituency, I have wards that are among the most deprived in the entire country. However, the low level of underlying funding, before the allocation of the pupil premium, means that many head teachers in those wards tell me that they need the extra money to break even—to keep their schools afloat—and that they cannot spend the money on what it was intended for, to improve the chances of the most deprived.

My hon. Friend and neighbour might be interested to hear about my recent discussions with some schools in Wyre Forest. Usually, a school expects to pay somewhere between 80% and 85% of its budget on staffing. Now, because of the very low funding formula, we see typical schools in such lower funded areas spending nearer 90% or even more than 90% of the budget on staffing—an intolerable situation for their head teachers to manage.

Absolutely right. My hon. Friend from Worcestershire points out that the extra money from the pupil premium is sometimes needed to support such costs and it is not necessarily reaching the target at which it is aimed.

We all recognise that it is impossible to correct the problem overnight. Ministers have said that their consultation threw up widespread support for reform but also much concern about turbulence. Interestingly, the teaching unions came out strongly in favour of postponing the issue; in doing so, they might have been representing many of their members, but they were certainly failing to represent the interests of those members in F40 areas whom we meet day in, day out.

The many MPs I have spoken to and the volunteers who make up the F40 executive recognise the need to avoid setting one part of the country against another in a scrap for funding. We also recognise that it is incredibly difficult to change the system radically when spending is under extreme constraint. We can idly wish that the previous Government had been quicker to act and more determined to deliver, but what is done is done; the opportunity to correct the glaring inequalities in the system during the days of ready money has now been lost forever. In the tough conditions of today, however, the need for fairer funding is all the greater. Worcestershire school leaders tell me that they understand the need for constraint and, like other public servants, they are straining every sinew to deliver more with less, but they are harder pressed to do so when there is an open and acknowledged injustice in how they are funded. In Worcestershire, we have schools within a few miles of the boundary with Birmingham that must deliver lessons on a budget hundreds of pounds per pupil lower, that must compete for teachers with a much better funded authority down the road and that are now being asked to accept the same constraints as that neighbouring authority, having missed out on many of the benefits of easier times. It would be neither fair nor reasonable to make no move in the lifetime of this Government to right such wrongs.

I am grateful that, within days of his March announcement, the Secretary of State met the Chairman of F40 and some of its local authority members to hear their concerns. Neither he nor the Minister would have been surprised at the profound disappointment they expressed at the decision to postpone until 2015 the move to a new formula. At that meeting, it was agreed that further representations would be accepted from the group on changes that would not hurt the funding of other authorities, but would mark a first step, however small, towards greater fairness. F40 has since sent in its suggestions, which I strongly support.

We have heard about Martin Luther and Martin Luther King, and I want to introduce Mark Twain to the debate. He wrote:

“The secret of getting ahead is to get started”.

F40 has suggested some options for getting started. It looked at the cost of bringing the lowest-funded authorities up to the level of Lincolnshire, which is the 41st worst-funded authority, and found that that would cost almost £300 million. It considered giving each of the lowest-funded authorities a small flat cash bonus to help, but found that the difference would be too small, and the process would simply rearrange the league table, pushing some authorities outside the F40 down the tables. Under its preferred option, it has proposed making the shift towards Lincolnshire levels of funding, but doing so proportionately, taking each of the lowest 40 one third of the way towards that level. That modest suggestion has the advantage of giving most help to those who need it most, while not altering the fundamental balance of funding.

F40 has suggested that Ministers should seek the £99 million cost directly from the Treasury. I think all hon. Members here would support the Department for Education in applying for that. However, knowing the harsh constraints on public spending that are Labour’s unfortunate legacy, will the Minister consider whether any of it can be found from other sources within the education budget? The sum of £99 million is less than the set- up costs of the new Education Funding Agency, and a very small amount relative to the £1.25 billion earmarked for the pupil premium next year, or the £2.5 billion that it is set to reach by 2015. It could make a major contribution to the work of that vital premium, ensuring it had its intended effect in the areas that it currently has difficulty reaching.

The sum of £99 million is a tiny amount compared with the £36.5 billion paid out under the dedicated schools grant to local authorities and schools around England. If that £99 million were taken equally from all those authorities better funded than Lincolnshire, it would equate to just 0.4% of their DSG funding, and cost no single authority more than £4 million. I hasten to add that that is not what F40 nor I propose, because we prefer no authorities to lose out in the quest for fairer funding, but such a change would be a small step towards a fairer system at a cost that would enable them to stay well within their minimum funding guarantee that no school lose more than 1.5%. At the end of the day, it is up to Ministers to decide the best way of meeting the challenge. We are here today to urge them to do so.

I shall illustrate how the problem has developed. During the first year of the Labour Government, when my predecessor in Worcester used his maiden speech to promise fairer funding as a result of the abolition of assisted places, the gap between Worcestershire and the national average stood at £230 per pupil, and was £380 between us and our neighbours in Birmingham. By the end of that Labour Government, the gap with the national average had risen to £371 per pupil, and with Birmingham it had doubled to £760.

The coalition agreement focused on fairness, but it is disappointing to record that under the coalition Government the unfair gap has widened further. In the current financial year, it stands at £482 per pupil against the national average, and £1,088 against Birmingham, almost three times the gap in 1997. For too long the system has been working against us. For too long we have faced an ever-widening gap. The Government have been brave to recognise the flaws in the system, and right to recognise the need for fundamental reform. However, as Benjamin Franklin said:

“Well done is better than well said."

Today, we are asking for a down payment on reform, a firm signal that the changes that we all agree are needed will be delivered, and a first step towards delivering them. The last Government failed completely to deliver on the issue. The present Government not only can, but must deliver. I urge the Minister to respond positively to the urgent representations from F40 to set much-needed change in motion, and to deliver a real improvement to schools in Worcestershire and across all the areas that have hitherto been left behind. We must not just talk the talk on fairer funding; we must walk the walk. As Shakespeare said: “Action is eloquence”. The Government have displayed great eloquence in dealing with the issue. Now is the time for action.

It is a great pleasure, Mr Gray, to serve under your chairmanship. I congratulate my hon. Friend the Member for Gloucester (Richard Graham) on securing this important debate. It is not the first we have had in Westminster Hall on this matter. We have had a debate on Worcestershire, and the Minister is well aware of my views, so I will not speak at length.

A good education is the right of every child in this country. I was educated in the state system, as were both my children. Every child deserves the best education we can provide, and the state should provide it. Imagine my shock when I moved to Redditch 12 years ago to find that my children were in a postcode lottery for education funding. We had arrived from Wales where funding per head was far more than in Redditch. I have campaigned for those 12 years to rectify the situation, and I thought that when we finally got the Conservative-led coalition we would see the end of that disgraceful situation. I am disappointed that again the children of Redditch will have to wait at least three years before they get a fair deal.

Will the Minister explain directly to all the children, teachers and parents in Redditch just why they are worth less than those who live 7 miles up the road in Birmingham? As my hon. Friend the Member for Gloucester (Richard Graham) said, funding per child in Redditch is £1,000 less than in Birmingham.

In neighbouring Wyre Forest I share the same problem as my hon. Friend. Does she accept that it is a tribute to the teachers in our constituencies of Redditch and Wyre Forest in Worcestershire that they choose to work in those financially constrained conditions when they could take the easy option and move 8 miles up the road to Birmingham where they would received 45% more money? They choose to look after our students and pupils, and we should pay tribute to them for that.

I certainly pay tribute to those teachers, and I will come to that. I used to be chair of the governors of a first school in Redditch, and if it had received the same funding as Birmingham, it would have had £400,000 more. One of my first jobs then was to appoint a new head at Vaynor first school. She came from a school in Birmingham, and was shocked at the funding level. She did not stay long.

I know that fairer funding is on the agenda, and I am grateful for that. I acknowledge that we have inherited the worst deficit from the previous Government, but that should motivate the present Government to address the structural deficiencies in the system now, and not continue to the next Parliament with an unjust system that jeopardises the future of young people in Redditch. I look forward very much to hearing the Minister’s response.

I want to take the Minister and all hon. Members here in their minds to a road in my constituency—Soundwell road. The east side of the road is in King’s Chase ward in South Gloucestershire council, and is one of the 10% most deprived wards according to the lower layer super output area indices. To the west is the city of Bristol, which includes wards in that local authority, such as Clifton and Stoke Bishop, which are in the top 10% of local super output areas. Yet funding for a pupil on one side of Soundwell road in South Gloucestershire council is £4,487, but for a pupil on the other side of the road it is £5,469. That differential is £982. As hon. Members have said, the differential is growing. Three years ago it was only £468.

Who are the Government, and who are we to suggest that a pupil in leafy, wealthier areas such as Stoke Bishop and Clifton are worth nearly £1,000 more than pupils in areas such as Cadbury Heath and Kingswood, which are within the bottom 5% of lower layer super output areas? Such areas and indices of multiple deprivation have been brought up because they are important. We are formulating funding on a local authority basis, but we now have the data and ability to differentiate between individual pupils in a way that we could not 20 years ago, or even 10 years ago. We have the tools to go beyond even free school meals. As my hon. Friend the Member for North West Leicestershire (Andrew Bridgen) said, although the Government’s proposals for a pupil premium are fantastic, free school meals are an inexact science.

There is an issue with our welfare reforms because many pupils who receive free school meals have parents on benefits. Understandably, that will probably decline as our welfare reforms progress. We have the data, and the ability to ensure, for the first time, that we differentiate genuinely deprived areas. We do not want anyone to miss out, and we don’t want an attack on deprived areas. We have the ability to pinpoint deprived areas, even within postcodes. I am sure that, although it may be difficult, the Department can do so, and I encourage it to do so. In places such as the Soundwell road—all hon. Members will know of similar roads between local authorities where there is a differential—we have the equivalent of an educational Berlin wall. To paraphrase Ronald Reagan, I say to the Minister, “Tear down that wall!”

I thank my hon. Friend the Member for Gloucester (Richard Graham) for securing this debate. I want to pay tribute to the 35 schools in my constituency, all of which aim for the highest standards, not just academically but in extra-curricular activities. I thank the staff for everything that they do in keeping those standards high, and ensuring an enriching and fulfilling education for the children in my constituency.

Funding in South East Cornwall is a big issue. For 2012-13, the pupil premium grant was just under £4,700 per pupil, which is half of that allocated to a child in the City of London. We are, therefore, no better off than a lot of the other areas about which we have heard today. Cornwall comes 134th out of 151 local authorities, and in South East Cornwall the guaranteed unit of funding does not even begin to help the schools in the way that was intended. The Department for Education states:

“As the GUFs are based on previous spending levels, which will have reflected previous allocations, differences will roughly reflect the level of educational disadvantage in each area, area costs, and sparsity (i.e. the fact that very small rural primary schools are more expensive to run).”

I believe, as many hon. Members have said, that we should be spreading the money more equally to assist all children in the same way, regardless of where they live.

The pupil premium is a fantastic innovation of which the Government can be proud—at least they are taking steps to try to address the balance. In 2011-12, 10,700 pupils in Cornwall’s state-funded schools, including academies, qualified for the pupil premium, with total funding of just over £5 million. For 2012-13, the provisional figures are 16,000 pupils—24.6%—and £9.5 million.

Many of the schools in South East Cornwall that I have visited say that the pupil premium rules contain an anomaly, on which several hon. Members have touched. The pupil premium is based on the number of people who are registered for free school meals, but many parents are reluctant to claim such assistance for reasons that range from pride—we see a lot of that in rural farming communities—to simply being unaware of their entitlement. Surely, information is available to the Government that would enable them to identify those who are receiving financial assistance and are therefore entitled to free school meals. Rather than leaving it up to parents to register, it would make common sense for the pupil premium to be based on figures that are already held, and that would ensure that the superb schools in my constituency receive the right funding. Will the Minister consider such a move?

It is a great pleasure and privilege to speak in this debate that was so ably secured by my hon. Friend the Member for Gloucester (Richard Graham). We know that this is a debate about schools because everybody has started quoting famous names. By my account, we have had Shakespeare, Mark Twain, Martin Luther, Martin Luther King, and Reagan snuck in at the end. I prefer to take the Minister back to the ancient Chinese proverb of Lao Tzu who—as our eminent Education Minister will know—was the founder of Taoism and said that the longest journey begins with a single step. Is not the essence of this debate that we are all seeking that first step? It is not a large step; it could be a short step.

Since my hon. Friend introduced Lao Tzu, he will no doubt also be aware of the more recent Chinese philosopher and statesman Deng Xiaoping’s great remark, “Yi bu yi bu”—one step at a time. Does my hon. Friend think that that is appropriate for the way in which we might resolve the issue of fair funding for schools?

I do, and I will reply with words from Sun Tzu who, when he talked about the art of war, said, “Know your enemy.” That is interesting given that there is no enemy present today, but does not the absence of Opposition Members—save for the shadow Minister, the hon. Member for Westminster North (Ms Buck), who will no doubt act robustly in defending the 13 years during which we all endured a funding gap—speak volumes?

I will move on from the happy badinage in which I and my hon. Friend have been engaged to say that like other hon. Members, I represent schools in Northumberland that look enviously at counties and cities that have a greater degree of funding. To put it simply, no change is not an option. As has happened to my hon. Friend the Member for Warrington South (David Mowat), school governors and head teachers have drawn me to one side and whispered surreptitiously in my ear, “Do you really understand how badly off we are compared with X, Y or Z?” To be frank, they are correct in that analysis of the deficiencies in the present funding system, and significant issues need to be addressed.

We all accept the fair point raised earlier about the fact that there is a financial deficit and restrictions apply, meaning that progress is slow. However, when I go to areas of social deprivation in my constituency—of which there are a significant number—I see schools that survive only because of head teachers and governors who go so far beyond the extra mile that I shake my head in wonder.

I remember going to Prudhoe Castle first school where the head explained how she bought things out of her own pocket because the budget would not cover many of the basics, including essentials such as pencils. I was taken round that school by the head girl who said, “We really would like the lighting to be improved, because at times we cannot see the blackboard.” On a day when I welcome St Joseph’s school to the House of Commons, it is significant that everybody—quite rightly—has made the strong and eloquent point that we are gravely indebted, particularly in schools where there is less funding, to the unbelievable work and unstinting commitment of our head teachers, governors, teachers and staff who work in those schools. I pay tribute to the many members of staff whom I have had the opportunity to meet, but with more than 40 schools in my constituency I have not been able to meet every one of them thus far.

I will conclude my remarks because it is important that we hear from the shadow Minister and the Minister. However, I echo everything that has been said and believe that we should be spending the money more equally. I endorse the great support for the pupil premium, and eagerly await the Minister indicating how far the first step will be.

It is a pleasure to respond to the debate under your chairmanship, Mr Gray. I congratulate the hon. Member for Gloucester (Richard Graham) on securing the debate and on the erudite way in which he introduced his argument. When discussing an issue of local government finance, by law it is necessary to invoke the Schleswig-Holstein question, which he wisely did. When looking at education funding and the many complex questions about welfare expenditure and the formulae for allocating funding to local authorities, it is right to reflect on the complexity and difficulty of such issues, which the Government are discovering to their cost.

I understand that many hon. Members today made sincere and heartfelt arguments in defence of their own local communities and about some of the funding discrepancies that occur between local authority areas, reflecting the differences in local authority funding formulae broadly, not just in education, and some of the discrepancies that occur between individual schools in their local communities. A common thread seemed to be an argument for additional spending on education. That is absolutely fine, but it does not quite fit with some of the concern expressed about the record of the Labour Government and the deficit. The fact is that we saw a dramatic increase in investment in education and in schools during those years and we are now seeing a squeeze on schools funding within which some of these difficult issues need to be played out.

It is true, as the hon. Member for Gloucester said, that this is a long-standing issue. It goes back far longer than 20 years. The entire problem of discrepancy that we are grappling with reflects the fact that the education funding formula has a historical root. Allocation to schools and to local authorities was based on an incremental change in existing historical patterns. Then there were changes, many of which were introduced by the Labour Government, to make that system more progressive through the various specific grants that were introduced and to achieve particular ends and outcomes in education through those specific grants. The aim was also to begin the process—it was begun—to try to deal with some of the funding discrepancies through such means as the dedicated schools grant.

Therefore, it would not be fair to say that the Labour Government were not engaged in finding ways of dealing with some of the inexplicable and difficult variations in funding. The then Opposition spokesperson, Baroness Buscombe, reflected that fact when the dedicated schools grant was introduced, saying:

“We welcome the principal policy behind the regulations, the new ring-fenced dedicated schools grant, the multi-year budgets and the rationalisation of standards grants.”—[Official Report, House of Lords, 16 February 2006; Vol. 678, c. 1340.]

Progress was being made.

However, there are tensions in relation to what hon. Members want. All of us wanting to see fairer and more progressive funding need to recognise that there are tensions between those two objectives. It is sometimes difficult to be more progressive and invest money in education outcomes that deal with some of the disadvantages that children have in schools and at the same time have a more equal funding formula that flattens some of the discrepancies to allow schools to have similar levels of funding.

Three times now the hon. Lady has used the word “progressive”. Can she explain to us how it is more progressive that Warrington, which has a substantially lower income per head than Westminster, has 50% less funding for its schools? That does not seem progressive to me.

There are several answers to that. As a Member of Parliament for Westminster, I was anxious that we should not be drawn too far into our own local experiences. I just point out that the last time I looked, which was a year ago, my local authority had the ninth-highest entitlement to free school dinners—the imperfect but accepted measure of deprivation for funding purposes—in the entire country. The school deprivation is significantly greater than the deprivation of the local authority area as a whole. One of the other difficulties that we must face is that school populations are not necessarily the same as resident populations. That is another area of tension that must be dealt with. I am completely at one with those who say that not all the discrepancies can be explained, but some are more easily explicable than others.

Can the shadow Minister confirm that she, like every other hon. Member who has spoken in the debate, supports the principle that every pupil in the country should receive the same basic funding?

The issue is more difficult than that. The core of the debate, which I want to come on to, is this. There need to be—the dedicated schools grant was taking us in this direction—some basic building blocks of education funding. The issue then is that although we do not have unlimited money—we did not have unlimited money even in the more generously funded years—we must also recognise that we need to address not just the deprivation element, but things such as special educational needs funding, which is a very difficult issue as well. It is very difficult to achieve what the hon. Gentleman wants to achieve without significant additional funding and without some of the consequences that none of the hon. Members who have so far spoken has been willing to deal with.

The hon. Lady mentioned the pupil premium entitlement. Did she mean entitlement or did she actually mean people who are claiming free school meals?

I was about to come to the issue of free school meals. Of course it is difficult to accommodate, as an indicator of deprivation, any element that involves a degree of take-up. All Governments have had to and will continue to grapple with that. Some changes in local government allocations in the funding formulae, which have factored in the index of multiple deprivation and the take-up of tax credits, have proved to be even more difficult, because that variation is even more challenging. Obviously, if we could come up with a deprivation funding formula without dealing with take-up, that would be better. If we could find a way of doing that, I could understand why people would want to do so.

To return to my point, there is a tension between fair funding and progressive funding that we have not managed to resolve. There is also a tension between the core desire to see all schools and all pupils have a basic funding allocation to which a progressive element—a pupil premium or whatever people want to call it—is a relatively small top-up, and the historical desire for local authorities to have a say and for local democracy to be an element in deciding how funding is allocated. In another context, the Conservative party would argue that case quite strongly. One reason why it proved to be such a challenge, not just under the Labour Government but before that, was that local authorities were receiving funding for schools but not passing all that funding on to schools or were making their own decisions about how to share out the grant. Accusations can be levelled at all political parties, in different ways, because of what was done, but of course some of that is intrinsic to local democracy. If we take it out of the equation completely, that throws up other and very difficult questions.

We recognise that school funding is extremely complex, that there is a case for further reform and that that reform is of course far harder to achieve when funding is as tight as it is now. We are seeing the squeeze on school budgets. Even with the pupil premium, funding will fall. At the time of the 2010 spending review, the Department for Education said that total funding for the schools budget would be increased by 0.1% in real terms in each of the following four years. However, subsequent higher projections of economy-wide inflation have changed the real-terms calculation. They indicate, according to the Institute for Fiscal Studies, a real-terms cut over the whole period of about 1% and a small real-terms increase in only one year. Of course, that is at a time when pupil numbers are expected to increase. That gives us an indication of the broader context in which some of these demands have arisen.

To make the position even more complicated for the Government, there is an absolute shambles going on because the Department for Work and Pensions has failed to work out a system whereby the new universal credit can accommodate a proper indicator for school dinners. It is struggling to find a way of doing that. That means that the way of calculating the deprivation indicator is moving even further away from what the hon. Member for South East Cornwall (Sheryll Murray) is saying should be the case. We are, at the moment, at a complete loss to know how the deprivation factor will be properly assessed when it comes to future funding. Both those things—the squeeze on funding and the inability to calculate a future pupil premium, because of the free school meal entitlement shambles—undermine the Government’s case that the problem is so desperate that an immediate solution must be found.

Following the Government’s consultation, the Institute for Fiscal Studies brought out an absolutely damning critique of the Government’s thinking. The report exposes the rather arrogant belief, which we see in so many other areas of public policy, that the problems can be sorted now that we have a Conservative Government, and that the previous Government had, by definition, got everything wrong. When it looked at the small print, however, it found that things were much more difficult.

The report, which I encourage all Members to look at, shows that: the Government’s plans would lead to a large funding transfer from secondary schools to primary schools; the average gains and losses could be 10% or more; one in six schools would face budget losses of 10% or more; there would be huge numbers of winners and losers; and, even over a transitional period lasting six years, some schools would incur annual cash losses of up to 5%. The Secretary of State has therefore started to row back from his enthusiasm for seeing early movement on finding a response.

I am sure the IFS’s list of problems, which the hon. Lady has just read out, is correct, but does that not demonstrate the size of the problem that must be fixed? The fact those problems will exist if we move to a fair formula demonstrates how much inequity there is at the moment. However, will the hon. Lady clarify the Opposition’s position on introducing a new funding formula? Would they like us to carry on as we are doing, or would they prefer to see a new formula developed, albeit over time?

As I thought I made clear in my opening remarks, I completely understand that there are arguments about similar schools with similar characteristics receiving different grant funding because of an historical pattern. I am merely pointing out that that was difficult to tackle when we had a generous funding framework, because of the impact on schools and the numbers of winners and losers. If it had been easy to tackle those issues, and there had not been large numbers of winners and losers, much greater progress would have been made, and some of the winners and losers would have been secondary schools in Conservative Members’ constituencies. Now, however, we are in a time of public spending constraint, so most of the challenges are far greater and could be far more damaging for schools, including some in the constituencies represented by Members here, who have made a powerful case, in principle, for having a fairer formula. My critique relates to the fact that the Government are rushing in and saying, “This can all be solved. The previous Government made a complete shambles. We’ll be able to oblige you with a solution,” when they cannot, of course, offer one or answer many of the questions that have been asked.

I want to finish by asking the Minister a few questions. How many winners and losers will there be as a result of the “Next steps” proposals and the Government’s decision to dictate to local areas how they organise their funding? Do the Government propose any modelling or pilots to test their proposals? In the light of what head teachers, collectively, want, why are the Government restricting local formulae to 10 centrally chosen criteria? Why will they not allow some flexibility to reflect differences in local circumstances?

What is the cost of using the Education Funding Agency to administer the budgets of increasing numbers of academies? Can academy chains gather all the funding and distribute it as they see fit, including holding back money for central services? If that is the case, does the Minister propose any restrictions? Is he taking any steps to monitor salaries in academy chains? Obviously, top pay will impact on the money spent on pupils.

How will the introduction of universal credit affect the Department’s thinking on free school meals and the pupil premium? The Department acknowledged it will cause “turbulence”. What exactly did that mean? Is free school funding per pupil per actual pupil or per notional pupil? Finally, will the Minister confirm that, as a result of the Government’s botched efforts, there will be no major overhaul of school funding during this Parliament?

It is a pleasure to serve under your chairmanship, Mr Gray. Let me begin by congratulating my hon. Friend the Member for Gloucester (Richard Graham) on securing a debate on a topic of great importance to us all; indeed, I met him and other colleagues on 12 March to discuss it.

I understand my hon. Friend’s concerns. Gloucestershire is ranked 136th out of 151 authorities for funding allocations per pupil. In 2011-12, funding per pupil was £4,661, compared with the national average of £5,082. My hon. Friend’s opening remarks and the whole debate reflect concerns across the sector about the school funding system.

My hon. Friend is the Martin Luther of school funding reform; indeed, I found a letter from the F40 chair, Councillor Ivan Ould, nailed to the door of the Department for Education. It listed four options or grievances, and we will respond to it in due course. I should, however, point out that option 3 would cost £99 million, which is not an insubstantial sum, given the current financial climate.

I pay tribute to my hon. Friend for the passion, commitment and perseverance he has shown in campaigning for a fairer funding system and formula. He has raised these issues on countless occasions, including when I visited Tredworth junior school, Finlay community school and Gloucester academy in his constituency last July. I also pay tribute to the work of my hon. Friend the Member for Worcester (Mr Walker), who has provided the leadership and steering for the F40 campaign in Parliament.

I wholeheartedly agree with hon. Members that the current system for funding schools is in desperate need of reform. It is based on an assessment of need that dates back to at least 2005-06, if not further, so it has not kept pace with changing demographics and the needs of pupils across the country. It is also too complex and opaque, so head teachers and governing bodies are often unable to understand how their budgets have been calculated.

It is not right that schools with very similar circumstances can receive vastly different funding for no clearly identifiable reason. We have found that funding between similar secondary schools can vary by £1,800 per pupil. As my hon. Friend the Member for South West Bedfordshire (Andrew Selous) said, the neighbouring areas of Luton, which is poorer than central Bedfordshire, and Buckinghamshire, which is richer, receive more funding per pupil than central Bedfordshire. My hon. Friend the Member for Loughborough (Nicky Morgan) made a similar point, when she said that Leicestershire, which received the lowest amount in the country, received £900 less per pupil than the city of Leicester. That seems unfair.

As my hon. Friend the Member for Warrington South (David Mowat) said, there is a 50% discrepancy in funding between Warrington and Westminster local authorities. My hon. Friend the Member for Redditch (Karen Lumley) said that Redditch receives £1,000 per pupil less than Birmingham. My hon. Friend the Member for Kingswood (Chris Skidmore) noted that one side of the Sandwell road in his constituency receives £4,487 per pupil, while the other receives £5,469 per pupil. I have never been compared to Mr Gorbachev, but I accept the challenge to tear down these walls and end these absurd inequities.

The Government remain committed to reforming the funding system so that it is fair, transparent and reflects the needs of pupils across the country. On 26 March, the Secretary of State for Education announced our intention to introduce a new national funding formula during the next spending period. I am sympathetic to my hon. Friends’ wish to see us move faster and address the system’s inequities much sooner. However, in reforming a system that is so entrenched, we need to proceed with caution, and it is important that we introduce full-scale reform at a pace that schools can manage. At a time of economic uncertainty, stability is crucial.

Our priority must be to ensure that schools are able to focus on delivering high educational standards and are not side-tracked by destabilising shifts to their funding. Attempting to introduce any dramatic change to the funding system at a time when we are, by necessity, addressing the budget deficit could cause problems in those schools where there might otherwise be significant changes in their funding.

We will move towards introducing a new funding system, but at a pace that gives us sufficient time to agree the construct of a new formula and that allows schools enough time to adjust to changes in their funding arrangements. Since last spring, we have consulted widely on how to create a funding system that is fair and logical and that distributes extra funding towards the pupils who need it most. The Department for Education has had a number of conversations with key groups, including schools, local authorities, unions and academies, to consider how we can move towards a fairer funding system.

The announcement made by the Secretary of State for Education on 26 March not only reaffirmed our commitment to introducing a new national funding formula during the next spending round, but set out detailed funding arrangements from next year. The funding arrangements from 2013-14 will make the local funding system simpler and more transparent for schools, early years provision and high-need pupils. Under the new arrangements, education provision will be funded on a much clearer, more comparable basis than under the current system. Head teachers, parents and governors will be able to see precisely how their budgets have been calculated, and why.

The first step—we have heard a lot today about first steps, in various languages—to simplifying local funding will be to work on the basis that as many services and as much funding as possible will be devolved to schools. I firmly believe that schools are best placed to decide how to meet the needs of their pupils and to target funding effectively.

Just to clarify, I think that we all welcome the announcements made by the Education Secretary on 26 March, which will, as the Minister says, simplify things considerably; but does the Minister see that as a first step, which can be improved during this Parliament?

It is certainly a first step, and an important one that should not be underestimated; but the national funding formula, to which we want to move in the longer term, will commence in the next spending review, not the present one.

Our approach of simplifying local administration and the local formula and of maximum delegation to schools will give head teachers, principals and governors much more control over how funding is spent.

The second step on our journey is to reduce the number of factors that local authorities can use to distribute funding to schools. At present, they can use 37 factors when deciding how to allocate funding—a point that the hon. Member for Westminster North (Ms Buck) raised. Each of those 37 factors can be interpreted widely and applied in different ways. That has resulted in long and complex local formulae, with huge variations across the country. We are reducing the number of factors that local authorities can use from 37 to 10.

The 10 remaining factors are clearly defined and help to ensure that funding is used to support the attainment of pupils. They are a basic per-pupil entitlement; a deprivation element; an element for looked-after children; low-cost, high-incidence special educational needs; English as an additional language for the first three years after the pupil enters the system; a lump sum, and we are consulting on whether to set a maximum cap of between £100,000 and £150,000; split sites; rates; and private finance initiative contracts. Also, for the five local authorities some but not all of whose schools are within the London fringe area, we will allow some flexibility to reflect higher salary costs in those areas. No longer will local authorities fund schools based on historic factors that we consider less important, such as the number of trees, or the number of ditches surrounding the property. It is right that, at a time of austerity, funding should be focused on supporting pupils to achieve. Each local authority will be required to publish details of its formula on a simple, clear and consistent pro-forma.

To strengthen local decision-making, the third step will be to make some changes to the schools forum arrangements. We will make improvements to their composition and operation, so that their business is more transparent and decisions better reflect the views of education providers. For example, we expect that schools forums should operate similarly to other council committees. Meetings should be held in public and decisions should be publicised.

An issue has arisen in the local authority in Swindon, where decisions on the allocation of moneys relating to the pupil premium have caused consternation, as some schools are entitled to more premium than others. I welcome my hon. Friend’s remarks about more transparency in schools forums.

In 2013, those issues will be made public, so if some schools forums are redistributing the pupil premium in a way that was not intended, it will become clear and apparent.

Are the 10 factors, which the Minister has read out, that are to be used within a local authority to achieve a fair allocation potentially the basis for a national funding formula by which the money would get to the local authorities in the first place, which is the nub of the problem?

My hon. Friend raises a good point. Those are the very issues on which we are consulting, in moving to a national formula. We must move away from the phenomenally complicated formulae that currently apply in allocating funds to local authorities.

To ensure that we are better placed to introduce a national funding formula over the coming years, we are also making changes that will substantially improve how local authorities are funded. They will continue to be allocated amounts for each pupil through the dedicated schools grant based on previous funding levels. The difference will be that that grant will be allocated in three notional blocks: for schools, early years and high-needs pupils. The notional blocks will not be ring-fenced, so local authorities will continue to have flexibility over how they spend their money. That approach will benefit pupils and schools from all sectors and phases.

We will use the October census, rather than the January census as we do now, to calculate budgets for the schools block. Therefore, mainstream maintained schools will receive their budgets earlier, giving them more time to plan. The separate high-needs block will help to secure a more transparent and sustainable approach to funding pupils with high needs. Schools and other providers will be expected to contribute to the costs of a pupil with high needs, up to a clearly defined threshold. Any cost above that threshold will need to be met from the high-needs block. That will ensure that funding for high-needs pupils is funded in an equivalent way, whatever type of institution they attend, and it will improve consistency when young people move from one part of the country to another. The early years block will continue to be funded on the basis of the January census, but that funding will be adjusted to reflect actual numbers by the end of the financial year, to take into account the fact that young children join the school system at different points in the year. It will ensure that local authorities have greater certainty about funding for early years children.

We are aware that we need to reform the administration of the local authority central spend equivalent grant, which is very dear to the heart of my hon. Friend the Member for Gloucester, so that there is greater comparability and transparency. We are exploring a new Department for Education grant that would substitute an element of the formula grant that is currently paid by the Department for Communities and Local Government. The new grant would cover relevant central educational services and be paid on a national basis, per pupil, to local authorities and academies. That, combined with the maximum devolution of funding to schools, would replace the need for LACSEG. Making the local system simpler and more transparent will mean that, when we come to address the national system, there will be far less complexity for us to untangle. This is the start of the process for which my hon. Friend the Member for Warrington South calls.

I am aware of the concerns covered in the opening remarks made by my hon. Friend the Member for Gloucester, including those about small schools, which were also discussed by other hon. Members during the debate. We have considered the additional needs of small rural schools in developing the new funding arrangements. As my hon. Friend the Member for South East Cornwall (Sheryll Murray) pointed out, very small schools are very expensive. We have built enough flexibility into the proposed system to allow local authorities and schools forums to support successful small schools—for example, through the lump sum that I referred to earlier.

In the remaining period of the spending review, schools are being funded at flat cash per pupil, in addition to which schools receive £600 per pupil eligible for free school meals. However, to support our proposed changes and to protect all schools, including small schools, from significant locally decided fluctuations in their budgets, we will continue to operate a minimum funding guarantee of minus 1.5% per pupil for 2013-14 and 2014-15. Therefore, in most circumstances, schools across the country can be assured that, over the next two years, their budgets will not be reduced by more than 1.5% per pupil each year.

Our analysis has shown that those measures will protect the majority of small schools. However, we are consulting on the issues and listening to all the sector’s concerns. Formal decisions on protection for small schools and, indeed, other areas of reform will be announced in the summer.