National formula shifting funding from deprived schools

The National Audit Office has found that a new national funding formula has contributed to a shift in the balance of funding from more deprived schools to less deprived schools.

The Department for Education’s total funding for mainstream schools increased from £36.2 billion in 2014-15 to £43.4 billion 2020-21. However, the increase in pupil numbers meant real-terms funding per pupil rose by only 0.4 per cent. The government plans to increase school funding in 2021-22 and 2022-23, so total and per-pupil funding is expected to rise in real terms by around four per cent.

Between 2015-16 and 2019-20, cost pressures on mainstream schools were estimated to have exceeded funding increases by £2.2 billion, mainly because of rising staff costs.

However, the Department for Education did not take account of the potential impact of coronavirus as part of its assessment of cost pressures, and while it provided schools with funding during the early stages of the pandemic for exceptional costs, and later in 2020 to help schools cover costs arising from staff absences, several stakeholders told the NAO that this funding would be insufficient.

The Department for Education implemented a new national funding formula in 2018-19, which means funding for schools is now allocated more transparently and consistently. It allocates three-quarters of school funding based on pupil numbers, and the remainder is based on factors relating to the characteristics of pupils and schools. Before 2018-19, local authorities received a per-pupil funding rate largely determined by the rate they had received in the previous year. The government did not calculate funding at school level or explicitly base funding on need, which meant similar schools in different local authorities could receive quite different funding allocations.

As part of the national funding formula, the Department for Education introduced a new minimum per-pupil funding arrangement. In 2020-21, the levels were set at £3,750 per primary pupil and £5,000 per secondary pupil. Under the minimum funding arrangement, 37 per cent of the least deprived fifth of schools were allocated more funding in 2020-21. However, none of the most deprived fifth of schools were allocated an increase in funding as a result of this arrangement.

The NAO says that, under the national funding formula, more deprived local areas receive more per-pupil funding than less deprived areas as funding is linked to need, but the difference has decreased. The main reasons for the relative re-distribution of funding between local authorities were the introduction of minimum per-pupil funding levels and changes in relative need, such as the proportion of pupils eligible for free school meals.

Between 2017-18 and 2020-21, average per-pupil funding in the most deprived fifth of schools fell in real terms by 1.2 per cent, while per-pupil funding in the least deprived fifth increased by 2.9 per cent. In total, 58.3 per cent of the most deprived fifth of schools saw a real-terms decrease in per-pupil funding.

Gareth Davies, the head of the NAO, said: “The Department for Education has met its objective of making the way it allocates school funding more transparent and consistent. However, it is less clear whether it has met its objective of allocating funding fairly. There has been a shift in the balance of funding from more deprived to less deprived local areas. Although more deprived areas and schools continue to receive more per-pupil funding than those that are less deprived, the difference in funding has narrowed. The Department must evaluate whether this funding model is matching resources to need.”