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House of Lords Hansard
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National Funding Formulae for Schools and High Needs
14 December 2016
Volume 777

Statement

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My Lords, with the leave of the House I will now repeat a Statement made in the other place earlier today by my right honourable friend the Secretary of State for Education. The Statement is as follows:

“Mr Speaker, with your permission I would like to make a Statement on the second stage consultation of the Government’s proposals to create a national funding formula for schools, copies of which can be found on the GOV.UK website. Since 2010, this Government have protected the core schools budget in real terms, but the system by which schools and high-needs funding is distributed now needs to be reformed to tackle the historic postcode lottery in school funding. These crucial reforms sit at the heart of delivering the Government’s pledge to build a country that works for everyone, not just the privileged few.

Our school funding system as it exists today is unfair, opaque and outdated. The reality is that patchy and inconsistent decisions on funding have built up over many years, based on data that are sometimes a decade or more out of date. What has been created over time is a funding system that allows similar schools with similar students to receive levels of funding so different that they put some young people at an educational disadvantage. For example, a school in Coventry can receive nearly £500 more per pupil than a school in Plymouth and a Nottingham school can attract £460 more per pupil than one in Halton, despite having the same proportion of pupils eligible for the pupil premium. As these figures demonstrate, our funding system is broken and unfair. We cannot allow that to continue.

Our overall proposals for the principles and broad design of the schools and high-needs funding system, as set out in the first stage of the national funding formula consultation by my predecessor, my right honourable friend the Member for Loughborough, were widely welcomed. Today, we set out our response to that and the next, final stage of putting in place a national funding formula.

First, we are proposing a consistent base rate for every pupil at primary and secondary, which steadily increases in value as they progress through the system between primary and secondary. This is the largest factor in the formula, accounting for more than £23 billion of annual core schools funding and over 70% of the funding total.

Secondly, we are proposing to protect resources for pupils who come from disadvantaged families and are taking a broad view to target £3 billion annually in funding for those most in need of support. Our formula will prioritise not only children in receipt of free school meals but those who live in areas of disadvantage, helping to support many more families who are most likely to be just about managing to get by. This is alongside our broader commitment to maintain the pupil premium for deprived pupils in full, which will be protected at current rates throughout the remainder of this Parliament. We have also listened to the responses received to the first stage of the consultation, so our funding formula will include a factor for mobility, reflecting the number of children who join a school mid-year. Respondents to the consultation from London called particularly strongly for this. We will also protect small, rural schools, which are so important for their local communities, by the inclusion of a sparsity factor.

Thirdly, alongside a basic amount and an uplift for disadvantage, we will be directing £2.4 billion in funding towards pupils with low prior attainment at both primary and secondary school to ensure that they get the vital support they need to be able to catch up with their peers.

Our proposed reforms will mean that schools and local authorities all across England that have been underfunded for years will see their funding increase. Our proposed formula will result in more than 10,000 schools gaining funding and more than 3,000 of them receiving an increase of more than 5%. Those that are due to see gains will also see them quickly, with increases of up to 3% in per pupil funding in 2018-19 and up to a further 2.5% in 2019-20.

At the same time as restoring fairness to the funding system, we are also building significant protections into our formula: no school will face a reduction of more than 3% per pupil overall as a result of the new formula, and none will lose more than 1.5% per pupil per year.

On high needs, which provides local authorities with the funding they need to deliver the extra support required by our most vulnerable children and young people, for those with the most extreme special needs, whether they are in special schools or mainstream schools, we propose allocating over £5 billion in funding a year. That will mean that no local authority area will see its funding reduce as a result of the formula being introduced. We also propose to give local areas limited flexibility to be able to redirect funding between their schools and high-needs budgets, through agreement between the local authority and local schools, to support collaborative approaches to provision for special needs pupils.

These protections will allow all schools and local authorities to manage the transition to fairer funding while making the best use of their resources and managing cost pressures, ensuring every pound is used effectively to drive up standards and have maximum impact for the young people we are investing in. In addition, to support schools in using their funding to greatest effect, we have put in place, and are continuing to develop, a comprehensive efficiency package.

As I said in my Statement to the House on 21 July, I recognise the importance of this reform. It is long overdue, and I am keen to allow the proper amount of time for all schools to have the chance to reflect on what is a detailed formula. The consultation will therefore be open for 14 weeks until 22 March, with final decisions to be made before the summer next year. It is our intention that once we reach a final decision, the national funding formula will be properly introduced in 2018-19. This will be a transitional year during which local authorities will continue to set local schools’ funding formulae, before we move in 2019-20 to our schools funding going directly to schools, so that the great majority of each school’s individual budget is determined on the basis of a single national formula.

It is now time for us to consult on the more detailed design of the formula so that, with the help of the sector, we can really get the national funding formula right. We are keen to hear as many views as possible, and I encourage Members and their constituents to scrutinise and respond to the detailed consultation documents.

The proposals for funding reform will mean all schools and local areas receive a consistent and fair share of the schools budget so that they can have the best possible chance to give every child the opportunity to reach their full potential. Once implemented, the formula will mean that wherever a family lives in England, their children will attract a similar level of funding—one that properly reflects their needs.

This Government believe that the funding system we are proposing will ensure our schools system works fairly, and I commend this Statement to the House”.

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My Lords, I thank the Minister for repeating the Statement. I also thank him—or perhaps it should be his officials at the Department for Education—for assisting those of us who are unable to grasp the main arguments within the Statement by helpfully underlining the really important words in it, just as the red tops do for their readers. It is a quite extraordinary development in the issuing of Statements.

The outcome for schools across the country will undoubtedly be disappointing, even for the 10,000 or so—less than half of all schools—which are to gain, because no new money is promised by the Government. That is hardly a surprise, but what is a surprise is that the Government have chosen to release the Statement today, apparently oblivious to the fact that the National Audit Office was issuing its report on the financial sustainability of schools just hours earlier. This Statement has already been delayed for too long. Had it been produced in a more timely fashion, perhaps the Government could have enabled the NAO to take on board the plans outlined in it, but that has not happened.

I have no doubt that the Minister and the Secretary of State would rather that the National Audit Office had kept quiet, because Whitehall’s spending watchdog paints a markedly different picture to the upbeat scene sketched out in the Statement. The NAO says that the Government’s approach to managing the risks to schools’ financial sustainability cannot be judged to be “effective” or to be “providing value for money”. Schools have to make £3 billion in efficiency savings by 2019-20 against a background of growing pupil numbers and a real-terms reduction in funding per pupil. Indeed, Sir Amyas Morse, head of the NAO, does not pull his punches. He says:

“Schools could make the ‘desirable’ efficiencies that the Department judges feasible or could make spending choices that put educational outcomes at risk. The Department, therefore, needs effective oversight arrangements that give early warning of problems, and it needs to be ready to intervene quickly where problems do arise”.

Unfortunately, the department’s own Statement is not leading the news agenda because it has been overshadowed by the NAO report—which, unlike the Government’s, is not partisan because the NAO’s remit is to help the Government in their drive to improve public services, national and locally. However, I would forgive the Minister if, at this point, he does not quite view the latest intervention by the National Audit Office in that way.

Not only is there no new money, but less than half of schools, as I said, stand to gain from the new funding formula. There is scant information in the Statement about the losers, just a rather complacent comment that no school will lose out by more than 3% per pupil overall. In many cases, school budgets are already intolerably stretched, and there simply is no room to absorb any kind of cut, whether 3% or less. Can the Minister say precisely how many schools will lose, how much they will lose in total and over what timescale? Can he further say what estimate—if any—has been made of the resultant impact on them and their pupils? Will there be job losses? What will the effect be on class sizes? It really is unacceptable that the Statement does not even hint at such information. Perhaps it is in the more detailed papers that accompanied the Statement, which I regret I have not yet had time to scrutinise. But the Minister will have had sufficient time, so I hope he may be able to enlighten noble Lords.

The Statement repeats the palpably false claim that the core schools budget will be protected overall in real terms. The National Audit Office report debunks that myth, stating that although average funding per pupil will rise from £5,447 in the current year to £5,519 in 2019-20, once inflation is taken into account that amounts to a real-terms reduction. I suspect the Minister will be unwilling to accept that analysis. If so, I suggest that he hears it from the chalkface. He may, like other noble Lords, have been listening to Radio 4’s “Today” programme this morning when Anne Lyons, head teacher at St John Fisher Catholic Primary School in London, was interviewed. Of course, it is likely that schools in London will be among the hardest hit by the new formula. She said that schools were at breaking point:

“We realise we have to do more with less money in reality … But we’re now at the stage—we’re at breaking point”.

She also said:

“Like many schools … facing these cuts, we are worried … It means that we’re struggling to maintain the services we’ve been able to offer. We’re cutting activities. We’re a school that is increasing in size … we can’t increase the staffing in line with the increase in pupil numbers … the only way some schools are going to manage this significant cut in real terms is through staff cuts—and that’s going to add to workload”.

I accept that the news is not all bad, as high-needs pupils, as the Minister said, are to receive additional funding, and no local authority will see this part of their funding reduced. It is also to be welcomed that the issue of mobility has been recognised. But the Statement is plain wrong when it claims:

“Once implemented, the formula will mean that wherever a family lives in England, their children will attract a similar level of funding—one that properly reflects their needs”.

That is not the case, and this cannot be fine-tuned in that manner. A new funding formula was certainly needed, but it should have protected any school from suffering a reduction in funding, no matter how small, because schools simply cannot afford to have already stretched budgets reduced.

The Secretary of State should have fought her corner much more robustly with the Chancellor prior to the Autumn Statement to secure additional funding to protect schools scheduled to lose as a result of this Statement. The suggestion that schools make £1.7 billion in savings by using staff more efficiently just does not connect with the real world. Is the Minister unaware of teaching shortages? He certainly should not be, because I bang on about it often enough. Perhaps he can explain how efficiencies can be wrung out of schools that are already understaffed. Can he also confirm that there is no plan to pay for this funding formula by raiding the further education budget to some extent? That is often seen as an easy choice, and within the Department for Education it could be done. I am not saying there has been such a suggestion, but I would like the Minister to confirm that there is no question of stretching an already overstretched sector yet further.

For six years the Government forged ahead with an education policy containing just one strand, academisation. It was not particularly successful but at least it was consistent. Cue a new Prime Minister and suddenly, that has been turned upside down, with grammar schools now the answer. Of course they are not—only a small clique within the Conservative Party, of which I know the Minister is not a member, believes that—but it serves to highlight the turmoil within current government education policy. This approach has resulted in no progress against international comparisons, a crisis in teacher recruitment and retention, a majority of secondary schools with budget deficits and now schools across the country facing the most severe cuts to their budgets in a generation, while the only new money being offered to schools in England is to expand the few remaining grammar schools— 80% of them, unsurprisingly, in Tory-held seats—regardless of where the need for new places is. I suggest that that sums up the Government’s priorities. Despite their platitudes about education for all, their concern is really only for the few. That simply is not good enough. Our children deserve much better than this.

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My Lords, I thank the Minister for repeating the Statement. It says that our current system is “broken and unfair”. Yes it is; as the noble Lord, Lord Watson, has rightly pointed out, we have real problems of teacher supply in schools throughout the country, and teacher shortages in major subjects such as mathematics. There is also the current funding crisis.

I slightly disagree with the Statement where it says the Government have,

“protected the core schools budget in real terms overall”.

However, those school budgets have not taken account of the increases of on-costs and national insurance. Many schools have faced real financial problems. I welcome the Minister’s comments about the pupil premium and rural schools, and the promise of further financial resources for the disadvantaged. The additional safeguards, including the redrafted formula, are very welcome, but schools are still currently facing reductions of more than 3% per pupil, and this does not resolve their concerns or ours. The proposal does not change the real financial situation that our schools are facing. We are seeing real-terms cuts to education funding and, as the noble Lord, Lord Watson, has said, the National Audit Office has pointed out that by 2020 schools will have seen cuts of £3 billion and pupil funding fall by 8%. Those figures are just unimaginable.

We know—this is not illusory—that some head teachers are seriously considering cutting the school week to four days because their budgets are so tight that they just cannot operate a five-day week. Yet at the same time, against that backcloth, we have the Government committing £240 million-odd to the reintroduction of a grammar school system and, of course, the cost of enforced academisation.

I personally, along with my party, welcome the idea of fair funding. In my city of Liverpool, when my party took control, I felt it unfair that the previous party had funded pupils below the national average. We immediately increased the funding to above the national average, and the benefits were there for all to see: Liverpool pupils then outperformed the other core cities. Fair funding, as per its title, can be fair, but there are winners and losers. The only way that I think you can make it work is by ensuring that no school in a fair-funding system sees its pupil figure reduced; they have to be brought up to the top figure.

We are proposing a consistent base rate for every pupil at primary and secondary school that increases in value as they progress through the system. Does that mean that we will have differential rates of funding for an infant pupil as opposed to a junior, secondary or sixth form one? I thought the days had gone when we thought that an infant was not as worthy financially as a pupil at a sixth form college, when we know that in fact the equipment required for an infant costs far more. Perhaps the Minister could explain that point.

We welcome the consultation because it is important to get this right. How does the Minister see the consultation being fed back to your Lordships’ House?

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My Lords, perhaps I could just point out a few inaccuracies in the statement of the noble Lord, Lord Watson: 10,740 schools will gain, 9,128 will lose—54% of schools gain; and we have provided an extra £200 million.

The noble Lords, Lord Watson and Lord Storey, referred to the National Audit Office statement. Schools are making substantial efficiency savings—certainly in the academy sector, where we have much closer and more stringent financial oversight and much more information. I agree with the comments of the National Audit Office about some local authority schools. Schools are coming over from the local authority sector, whose financial controls appear to be very poor.

I invite the noble Lords, Lord Watson and Lord Storey, to look at the financial toolkits that we have developed on our website, particularly the very good clip from Sir Michael Wilkins of Outward Grange Academies Trust, one of our top performing academy groups. It has developed a toolkit called curriculum-led financial planning, which is a bottom-up analysis of how to remodel schools more efficiently and is creating significant savings in schools, and it has absorbed a number of schools into its family which have made significant savings at the same time as driving up education standards substantially. Any school considering going to a four-day week should contact the EFA for advice, because I am sure that by the application of such techniques, that can be avoided.

On the question of the noble Lord, Lord Storey, about differential rates, the answer is yes.

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My Lords, I have wrestled with the school funding issue myself in the past, particularly in 1997, when we inherited significant overfunding of grant-maintained schools relative to other schools. The decision we took after extensive consultation with schools was that it would not be appropriate for schools to have their budgets cut. Part of the reason for that is that there is only a certain amount of energy in the system to raise standards, and it was clear from the discussions that I and my colleagues had that that would lead to a massive draining of energy from the system, because every school to lose from its budget would blame every problem it faced, every failure to raise standards, and every controversy in which it was engaged on the Government having cut its budget.

That involved a very small number of schools. The Minister and his colleagues are being extremely courageous in proposing to cut the budget of 46% of schools. All I can predict with any certainty is that there will be massive controversy in the sector; that will distract from the challenge which he and I would agree is the most important one facing the education system—the relentless one of raising standards, particularly in poorer areas, where standards are still too low and too many schools are still underperforming.

There is a very simple remedy—the one suggested by the noble Lord, Lord Storey—which is that no school suffers a cut in its budget. It would take longer for the new funding formula to take effect, but it would ensure that no school has to sack teachers or is given the excuse of a reduction in its budget to take its eye off the most essential challenge that we face, which is raising standards, tackling disadvantage and ensuring that every pupil in every part of the country has an opportunity to succeed at school.

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My Lords, I share the view of the noble Lord, Lord Adonis, that raising school standards is the most important thing. I perhaps should declare an interest, because he got me into this in the first place.

I do not want to sound complacent, but all schools have known for some time that they effectively face a cost pressure of 8% through pensions and national insurance. The school system is adjusting to that remarkably well, actually. I can only repeat what I said earlier: the toolkits that we published and the methodology being developed to re-engineer some processes without resulting in redundancies, in many cases, are remarkably effective. A closer analysis of some of the techniques, where adopted—I agree that they need to be more widely adopted across the sector—will show that they are effective.

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My Lords, I bring the attention of the House to my entry in the register of interests as leader of Wiltshire Council. I welcome the review, which has been long awaited by all our schools. I particularly welcome the fact that it has been noted that there are issues with rural schools, and that the Government suggest that we protect those schools and particularly look at the sparsity factor and the cost of delivering education in a rural area.

However, when we look at this review of the funding formula, have we taken into account our military children and families? There is an issue about the funding of military children and its costs, and they are a group that often struggles to come up to the standards of other children because of the type of life they live and the moves they make. I urge the Minister to continue to look at having something in the formula that helps communities with large numbers of military children.

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I certainly share my noble friend’s concern about small rural primary schools, which will on average benefit under these proposals by over 5%. We will publish, school by school, the impact of the national funding formula later today. I will certainly look more closely at the impact on military children and families.

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My Lords, of course it is right to put at the centre of policy the raising of standards in schools. Members in this Chamber now are to be congratulated on setting this ball rolling a number of years ago, as is the Minister on continuing that in the school system today. That is fundamental—it is principle number one.

All is not well in schools, and we know it. In fact, the Statement accepts that. Plenty other folks have made the same point: the unions will certainly make it ad nauseam, and the OECD has pointed it out rather forcefully recently. I speak as one who is greatly concerned about shortage of cash in other areas of the Budget—not least social care—which will have a direct impact on the success of schools; we are not on a single track. Granted that the principle of higher standards is accepted, what are the other fundamental principles? Two are being enunciated today. The first is that there should be a national formula—there should not be postcode allocation of cash up and down the country. The second is that the focus should be on areas of high national need and schools that are exemplars of high national need in the system. I do not envy the Government, nor the Minister, in trying to square availability of cash with those principles, but it is absolutely right that we stick with them.

One thing I am sure about: any attempt to provide every school with above average funding will not work, mathematically.

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I am very grateful to the noble Lord for the sense of realism that he brings to the debate. I entirely agree with the point about focusing on areas with financial need; that is why we have developed these opportunity areas, and our regional schools commissioners are particularly focused on areas, many of which are up north, where a particular improvement in education is required.

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My Lords, the Minister in his reply to the noble Lord, Lord Storey, gave a rather perfunctory response, if I can be forgiven for saying so, to his question about differential statements at different stages in the educational system. Speaking personally, I have not yet fully understood the rationale behind this. Could he give us a little more clarity on that, please?

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I invite the noble Baroness to submit any thoughts to the consultation process. As I say, the details of the impact that the formula will have on all schools one by one will be available later today and all schools can look at it, but the net effect is that most schools will have a gain and none will lose more than 3%. As I said, small rural schools will gain on average over 5%, and they are the sort of schools that particularly struggle with some of the issues that have been mentioned.

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My Lords, first, I declare my interests as listed in the register. I formally welcome the new funding formula. As the Minister said, it was long overdue, and it is right that we get it right this time. I particularly want to emphasise, and am very pleased about, the fact that rural schools are going to be supported on sparsity as such. Rural schools provide the libraries and sports facilities for our young people and play a big and vital part of village life. I am pleased that we are also going to initiate a consultation, as it is important that we get people’s views on how they see this formula working out. With the right formula, and a fairer formula, all children should have the right opportunity wherever they live in the country so that, as the Minister alluded to, every child can reach their potential, wherever they live in the UK.

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I am extremely grateful to the noble Baroness for her comments, which I can only support.

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My Lords, has the Minister had a few moments to reconsider his answer to the noble Lord, Lord Storey, on the whole issue of differentials, because he did not answer it? There will be many schools, as the Minister admitted, which will lose funding and will face difficulties. Given the Question that we considered earlier, where it was suggested that the Government might put extra money into independent schools and money for grammar school expansion, will it be possible for all the schools affected—a large number, as the Minister admitted—to submit to the consultation that they would prefer to have the money shared out?

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It will be entirely possible for anybody to make any representations in the consultation, and maybe the noble Baroness would like to do so in that respect.

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My Lords, I am sorry to take the time of the House, but I am not sure that I made myself clear with my first question. It appeared to me, from what the Minister said in the Statement, that he was suggesting—indeed, he confirmed it to the noble Lord, Lord Storey—that the amount of money per pupil would be different for children at an early stage in the education cycle, with smaller amounts being available for nursery school children, for example, to that available for pupils in sixth form. Given the amount of attention given by research lately to the importance of early years education, that seems an extraordinarily surprising decision for the Government to have taken. Could the Minister help us to understand it a bit better?

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We take the view that there are additional costs in secondary over primary and that they increase as one moves from key stage 3 to key stage 4. There will be three bands: key stages 1 and 2; key stage 3; and key stage 4.

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My Lords, I was not intending to get involved on that particular topic but, as noble Lords may know, I have been involved in setting up primary schools. Much as I would like even more money for primary, it is the case that as you go through secondary and have to have specialised teaching in specialised subjects—whereas in primary school it tends to be whole class—there are other costs involved, because classes tend to be smaller, particularly if you are teaching niche subjects.

Despite some of the negativity around these plans, I want to encourage the Minister and the Government to go forward with them. Through the Floreat academy trust that I founded, we have opened schools both in one of the lowest-funded local authorities in the country and in one of the best funded, in inner London. The pupil needs in the schools are not so different, and the requirements in terms of hiring staff are the same, so it is quite palpably unfair. Indeed, for multi-academy trusts that span a number of local authorities, it causes problems in the trust and among the schools if there is a concern—or, if you like, sometimes a sense of unfairness—about what has happened. Notwithstanding the difficult circumstances in which we find ourselves with the overall funding element, righting that historic wrong is incredibly important and cannot come soon enough.

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I am grateful for my noble friend’s support for this. Of course, he speaks with considerable knowledge in this area. As I said earlier, the first stage of the consultation was extremely well received and we believe that the second will be, too—but I invite all people who wish to make representations to do so.

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My Lords, I know that the Minister will be fully aware that there is one group of parents who will be looking at what has been said today and over the last few days with a special interest. They are parents of children with special needs. Quite honestly, they are the ones who are going to be looking at this very carefully and with understandable wariness. I wonder how the Minister will manage to give more information to those children and parents, especially to parents of children who are statemented, who are constantly wary of what the outcome will be as far as their own children are concerned. We need perhaps to focus on that particular area, if possible.

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The noble Baroness is quite right about that. I can reassure her that there will be no cuts to the funding for high needs—no per-pupil cuts at all. Indeed, we have increased funding for high needs every year since the high-needs funding system was changed in 2013. This year, local authorities are getting more than £90 million in high-needs allocations.

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My Lords, can the Minister be a little more specific about special and higher needs? Many years ago, Baroness Warnock identified that 20% of children have special needs, of whom only about 2% have needs severe enough for statementing. I go back to the question from my noble friend about the funding formula for young children. The Government are to be commended for extending childcare, but no one will support moving children with special needs not at statementing level, who are currently educated properly in infant and nursery schools by qualified teachers. We need an assurance that finance for this group of children will be protected. These children form a large percentage of those who fail to achieve later in their school careers because their special needs have not been identified and met.

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The noble Baroness is absolutely right and I am sure that she will be delighted to hear that, at the moment, additional-needs funding accounts for 13% for the overall schools budget and that it will be increasing, under these proposals, by an additional £1.7 billion, so it will be 18%. So in fact substantially more money will be made available for that group.

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My Lords, perhaps I may follow up an answer that the Minister gave to my initial question. He mentioned a figure of £200 million of new money. Why is it not in the Statement, how is it proposed that it should be allocated and where has it come from? I also asked about further education; can he allay any fears that this sector might have as a result of this Statement?

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The way the funding formula has worked means that we have been able to find an extra £200 million. We did not put it in the Statement because we felt that it was more important to focus on the percentage variation overall. As I say, this afternoon we will publish details on a school-by-school basis so that all schools can see where they stand.