Welcome to the Schools National Funding Formula (NFF), the new kid on the school funding block from April 2018. It introduces a single national formula to tackle long-standing disparities in funding for schools in similar circumstances. The problem originates from the use of historic spending levels to determine local authority (LA) grants, which are then distributed to schools using local formulae.
Here we discuss the impact of the Schools NFF and consider how you might use this knowledge to support your forward financial planning. We now know decisions for 2019/20, although they largely confirm what we already knew. We will also mention the High Needs NFF, which we believe poses an additional threat to school budgets.
How does the NFF work?
The initial phase of the Schools NFF is the ‘Soft NFF’. This involves DfE using the national values to calculate each LA’s grant, with LAs still using local formulae to allocate it to schools. ESFA replicates the local values when funding academies.
The most significant recent change is that the Soft NFF will continue to the end of 2020/21, a year later than originally planned. Eventually government will allocate funding directly to every school and academy in the country (the ‘Hard NFF’). We don’t know when this will happen.
What does it mean for my school?
The impact of the NFF relies on:
- Your LA’s decisions from now until 2020/21, including the formula and how SEND pressures are handled;
- DfE decisions on the funding available for schools, especially from April 2020.
Each LA has freedom to keep their current formula, or to adopt the NFF values partially or fully. The impact of adopting the NFF depends on your starting point. Find out what happened in 2018/19 here.
If your local formula changes, the transition to the pure formula could be relatively slow, due to the need to protect schools from large losses. DfE limits gains in the grant (to 3% per year), to pay for protection within the available pot, and LAs may need to do the same locally.
There are some non-NFF elements within each LA’s grant (premises-related and pupil mobility factors) which are based on the previous year’s spending. Growth will be brought into the NFF from 2019/20 based on area-level positive roll changes between October 2016 and 2017, a one-year delay. If there are any pressures in these areas, it might affect your LA’s ability to pass on increases that DfE have given in the grant (an extra 1% across 2018/19 and 2019/20).
DfE has published school-level illustrative allocations for 2019/20, but please exercise extreme caution, as there are many caveats to these, and some elements are incomplete. The allocations are based on October 2017 rolls but in reality, fluctuations in rolls in the October 2018 census will affect both the LA grant and the local formula allocations. They also include growth funding at 2018/19 actuals, not the new formulaic approach, as data isn’t yet available. Providing for extra pupils at a marginal cost will be key to achieving a sustainable budget for many schools.
High Needs Budget
The High Needs NFF is not responsive to changes in need; half of each LA’s 2017/18 spending is locked in, in cash terms, for four years. A majority of LAs will only receive 0.5% extra per year, which clearly won’t cover pay awards, let alone rising needs. Others have gains capped at 3% per year.
Yet DfE is restricting LAs’ ability to manage pressures. Funding transfers between the Schools and High Needs Blocks are still restricted to 0.5% per year in 2019/20 and may not be allowed at all from 2020/21. Instead of spreading the financial burden more thinly across all schools via transfers, this could result in more inclusive schools being penalised, as LAs carry out reviews to improve value for money.
Local systems for funding SEND may therefore change. The approach might vary locally, but we fear that in some areas with significant pressures, high needs will be a hidden threat to many school budgets.
DfE decisions on funding available for schools
The NFF is an issue of relativity; the real problem is the total pot. The NFF factor values will not change in 2019/20; the only extra funding comes from data changes, a PFI inflation uplift, another +0.5% for schools triggering protection, and the lifting of the gains cap by another 3%.
Three years of unfunded pressures have caused more schools than ever to spend more than their income or go into deficit. It’s impossible to know what will happen from April 2020, the start of the next Spending Review period; even DfE doesn’t know what the Treasury will provide for education.
Another concern is how DfE will distribute the pay grant, which funds the teachers’ pay award costs above the first 1%. Setting the funding level before school decisions could cause winners and losers. As a separate grant, it won’t automatically be in the Dedicated Schools Grant baseline for 2020/21, so its long-term future is uncertain.
How can schools respond?
Our main recommendation to handle the uncertainty is to carry out scenario planning. This helps everyone appreciate the uncertainty over your future funding levels. By constructing best, middle and worst-case options you can identify your response to different funding levels. Build a three-year budget around these options and tweak the most likely scenario as further information becomes available.
Our earlier post, ‘Ten top tips for School Business Leaders in September’ (create as link) is also relevant, particularly the items on setting the tone, linking your plans and staying informed - Schools Forum information on the LA’s budget strategy will help you in devising potential scenarios.
Having plans in place provides reassurance to all stakeholders, but also allows you to take advantage of any staff turnover or other changes in circumstances. Early action really does pay dividends. Here’s to a sustainable budget!
Julie Cordiner is a qualified accountant, former Assistant Director of Learning & Skills and now an independent consultant with over 30 years' experience specialising in school funding and education finance. Working as part of School Financial Success, Julie advises schools and local authorities on managing their budgets alongside Nikola Flint - read Nikola's previous guest blogs, Ten top tips for School Business Leaders in September, Forecasting teacher pay budgets and Leading a school budget review.