by Martin Johnson
Research Fellow, IPPR
Project paper presented at an IPPR seminar, 9 January 2003
February 2003
Institute for Public Policy Research
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Schools Budgets - Fair Enough?
A Comment on the Review of Education Formula Spending
by Martin Johnson
Research Fellow, IPPR
Contents
Introduction 2
Background 2
The Education Funding Strategy Group 3
The PwC Study 5
The Government’s Decisions on AEN 6
Fair Enough? 7
The Effects of a Larger AEN Unit 9
Targeting by Grant 11
Conclusion 11
References 12
Annex 13
About the Author 14
About the Project 14
About ippr 14
Introduction
On 5 December 2002 announcements were made which, it might be thought, close the debate on the formula by which schools receive central government funding. The review, part of a larger revision of local government funding, was preceded by a lengthy period of lobbying by a range of parties, not least through the mechanism of the Education Funding Strategy Group established by the DfES.
The IPPR recognises the dangers associated with raking over coals after the fire is out but while they are still hot. Nevertheless, it is important to ask, not whether the new formula is more equitable than the one it replaces, but whether it is sufficiently equitable to promote social justice within the schools system. This paper arises from the project ‘Schooling in London’ and addresses the question of whether London schools are treated fairly by the funding system.
The paper does not deal with the range of issues contributing to the debate on the Education Formula Spending Share (EFSS). Indeed, the remodelling exercise which accompanies the paper treats as given all the variables except one, the Additional Educational Needs (AEN) factor. Neither does the paper deal with all the issues concerning AEN. For example, the indicators and weightings used to calculate AEN entitlement are not questioned. The paper asks one simple question: does the formula allocate an appropriate proportion of total funding to pupils with additional educational needs? The answer, of course, is not a calculation, but a judgement.
Background
The funding reaching schools via the local education authority (LEA) is determined largely by two factors, the central government grant to the local authority and the LEA LMS formula. This paper deals with the first step, although it is said that the SSA system was somewhat progressive in its effect, while LMS formulae are somewhat regressive in effect. Certainly, the rule which demands 80% of the schools’ budget share to be allocated on a per pupil basis, differentiated only by age, does limit the opportunities for LEAs to be progressive.
Although LEA Section 52 Statements, which describe in standard form the LMS formula, are public documents, in practice they are often not readily available. No regionally or nationally collated official data describes this very substantial proportion of public spending, and it is left to one of the teacher organisations, the NASUWT, to attempt to collate on an annual basis patterns of expenditure, emphasising unspent balances.
It has been beyond the scope of this project to study the extent to which funding allocated by national formula on the basis of AEN is proportionately passed to schools through local formulae. However, given that the maximum 20% of the LMS formula not allocated by Age Weighted Pupil Unit must include the range of premises costs, there can be comparatively little scope for progressive differentiation at school level. There is a need for further research on the operation of LMS formulae.
In addition, the present Government has increased considerably the number and amount of direct grants to schools, many ring-fenced for specific uses. However, the Government has announced a reversal of this trend, and the transfer of some of this funding back to the EFSS. Schools in those areas in receipt of the most programmes, including inner London, complained that they were having to manage as many as forty funding streams, which they perceived as a needlessly complex administrative task. These programmes have an effect on the overall funding of AEN, a point discussed below.
The outgoing grant system was based on the SSA. In 01-02, £19,246.1m was allocated to primary and secondary schools, 80.5% on the basis of pupil numbers, 15.7% for Additional Educational Needs, and the remainder for sparsity and the cost of free school meals. Each was adjusted by an index representing higher area costs.
Figure 1: The Percentage Distribution of SSA, 2001-02
Source: Education SSA: current methodology and distribution ESFG 22, DfES
Note: ACA multiplier incorporated within each factor: hence this figure not comparable with figures 5, 7
AEN was calculated on the basis of 3 indicators: proportions of children from families receiving IS/JSA, from single parent households, and of ethnic minority origins. In the case of secondary schools, the allocations to LEAs ranged from £170 to £1,500 per pupil (median £518), against a residual of £2,394.
The Education Funding Strategy Group
In considering the restructuring of the SSA, the EFSG considered a range of issues and a number of lobbies. There was general agreement with the proposal to create separate blocks for schools and local authority functions, although at the margins there was some disagreement about the locations of some functions. The outcome is a clarification of their respective roles, although the clarification would have been increased if it had been possible to align the contents of the blocks with the regulations concerning the distribution of the LEA LMS budgets.
The headteacher and teacher organisations worked hard for the adoption of an activity led funding model. Starting from the basis that schools’ costs are constrained by a number of statutory requirements, such as to teach a national curriculum, by inserting assumptions on variables like class size, staff contact loadings, and so on a standard cost of delivering a standard curriculum can be calculated. One problem of this approach is that local authorities which have investigated this have found that the outcome of building such models is unrealistically high funding levels. It could also be argued that this planning runs counter to the ethos of local management, which encourages individual initiative by allowing unlimited virement of income, except for some specific central government grants. At any event, the Government decided with little explanation not to proceed with an activity led model.
A second dominant issue was the vociferous contention of a number of the worst funded authorities, generally shire counties, that they were unjustly treated. The argument seemed to be the very simple one that since all pupils have the same curriculum entitlement, they should all receive the same funding. Indeed, representatives of some Worcestershire schools attempted legal action under the Human Rights Act to press this case. Of the factors militating against such standardisation, most attention was given to the Area Cost Adjustment, ACA.. This factor, which was inserted as a multiplier in all blocks, recognised that costs of providing goods and services, including staff, are higher in London and the south-east. However, papers arguing the economic basis for an ACA, and detailed regional employment market analysis, could not be denied, especially when its applicability was spread to areas like Gloucestershire, Avon, and the west Midlands and Manchester.
The resentment against London in particular was reinforced by the curve showing variation in funding level per pupil by LEA The median per primary pupil allocation in 01-02 was £2,542, with a minimum of just under £2,300 and the maximum to a non-London authority (Manchester) of £2,920. The graph of allocations has a flat curve, only steepening markedly at the top end where inner London boroughs are to be found.
Whatever the views of members of the ESFG, many headteachers, governors, and local politicians in the shires were confused about the reasons for this curve. They were aware of the the impact of the ACA, but less aware of the contribution of the AEN factor. This may be because the range and complexity of London’s socio-economic structure is not always recognised in the rest of the country.
Figure 2: Primary SSA per pupil, 2001-02
Source: EducationSSA: current methodology and distribution ESFG 22, DfES
The London area is one of the wealthiest places in the world. It has a concentration of millionaires and million pound homes. One of its boroughs, Tower Hamlets, is also in a lea gue of its own – for child poverty, with a rate of 73.5%, 12% higher than the next borough (Hackney) and 15% higher than the poorest non-London authorities (Liverpool and Knowsley)(Bradshaw 2002 Table 1.8). On the index of additional educational need calculated for primary school funding purposes for 03-04, nine of the top ten authorities are London Boroughs, and fourteen of the top twenty. Under the previous AEN methodology, London boroughs were even more predominant.
England / London / Inner / Outer% of secondary school pupils known to be eligible for FSM / 16.9 / 27.6 / 44.2 / 19.7
% of secondary school pupils with EAL / 8.0 / 29.2 / 42.3 / 23.3
Figure 3: Indicators of Need 2001
Source: Statistics of Education: Schools in England 2001, table 14; DfES
The PwC Study
The Government commissioned PricewaterhouseCoopers to conduct research on AEN issues to inform the discussion of the EFSG. In the event, the Government has relied heavily on its findings, as does this paper. The second phase of the PwC study investigated the incidence and appropriate proxy indicators of AEN, and the costs of meeting AEN. Its findings were based on questionnaires completed by 3,743 schools in 42 local authorities.
PwC differentiated between types of AEN. Some specific needs, such as autism or dyslexia, occur randomly, with an incidence of 4.8% of pupils. They could best be funded through the basic entitlement. Some pupils, typically with Statements of Special Educational Need or within learning support units, incur particularly high costs, and could be funded through a separate ‘high cost pupils’ sub-block of the schools blocks. The best fit proxy for this group is a combination of Income Support and Low Birth Weight rates. A further 20.1% of pupils have English as an additional language and/or other social needs which incur additional costs. The appropriate proxies are the Annual School Census measure of EAL, or ethnicity, and Income Support (although PwC considered that either ward level data or prior attainment might become useful when universally available).
For the purposes of this paper, the main concern is the cost data revealed by the study. In addition to staffing and other resources used, PwC identified issues both of opportunity costs and ‘unmet need’, and attempted to quantify these. Their introduction was a welcome advance.
Opportunity costs represent staff time spent in dealing with pupils with AEN which prevented them doing other parts of their core work. Typically the cost is that of a teaching assistant who could have undertaken the work with the pupil. Schools were also asked whether their pupils with AEN had some needs which were not being met because of lack of resources. The answer was yes. Almost all schools identified a shortage of teaching assistants, but many other kinds of staff were also specified. The range of costs was very large, with a mean of £1,020 but a maximum of £26,890. The range led PwC to model a series of caps, and recommended that the cost of unmet needs be capped at £1,800. This reduced the mean to £590. The implications of this methodology are discussed below.
Further analysis produced the conclusion that although the costs of AEN vary by school phase, the variations are not statistically significant, and do not justify differentiation within the schools sub-blocks.
In conclusion, PwC calculated the mean cost of providing for EAL needs to be £1,840, the mean cost (after filtering out high cost pupils) of meeting other AEN including capped unmet needs to be £1,760, and that a single figure for AEN incorporating both elements, weighted according to incidence, should be £1,780, comprising £980 met needs, £300 opportunity costs, and £500 unmet needs (capped).
The Government’s Decisions on AEN
The Government accepted in general the PwC arguments and calculations. As a result, the Schools Block contains four main sub-blocks covering under fives, primary, secondary and high-cost pupils. Each of the sub-blocks has a basic entitlement, with top ups for AEN (except the high-cost pupils block) and area costs, and an additional sparsity top-up in the primary sub-block. However, the figures produced by PwC have been adjusted in a number of ways.
· In responding to the PwC report, the Government proposed to the EFSG that the value of the AEN unit should be reduced to recognise that about 25% of the total funding distributed on the basis of deprivation indicators comes from grants, rather than SSA . This judgement has been followed through, and the figure for the met need component of the AEN unit reduced by 25% from £1,280 to £960.
· The Government received opposing reactions to the PwC proposals on recognising unmet need. It decided to include a factor of one half of the PwC calculation of £500, which itself had been reduced by a cap. The Government admits:
‘This is a compromise between the opposing views of the most deprived authorities, who would like to see all the unmet needs being funded, and the least deprived authorities who have argued for a minimum AEN unit cost.’ (DfES 2002)
· The Government has instituted a threshold. This recognises that all LEAs have some AEN, so that the basic entitlement should contain an element of AEN cost. This has been called ‘AEN in basic’ and calculated at £159 (primary) and £162 (secondary). The ten authorities with the lowest rates of AEN are funded at those levels, and for all other authorities those amounts are deducted from their AEN totals.
· Finally, the figures have been uprated in the light of the increases in the control total between 2001-02 and 2003-04.
These changes may be summarised as follows:
£ per pupilPwC / £ per pupil
DfES / notes
met needs / 980
opportunity costs / 300 / 960 / -25% - grants
unmet needs capped / 500 / 250 / compromise by DfES
unmet needs uncapped / 1,020 / not recommended by PwC
total / 1,780 / 1,210
total inc. uncapped unmet needs / 2,300 / not recommended by PwC
uprated to 03-04 spending / 1,300
Figure 4: Effects of DfES decisons on AEN unit total