School Funding Issues

Alison Stott, Richard White and Kay Kinder

educational

school funding issues: mainfindings from the CEO survey

Mary Atkinson

Nicola Bedford

Emily Lamont

Alison Stott

Richard White

Kay Kinder

Published in October 2004

by the National Foundation for Educational Research,

The Mere, Upton Park, Slough, Berkshire SL1 2DQ

Registered Charity No. 313392

ISBN 1 903880 84 X

Contents

Executive summary iv

Introduction vii

1 Recent changes to the school funding system 1

1.1 Understanding the new funding mechanisms 1

1.2 Sufficiency of funding provided 1

1.3 Advantages and disadvantages 2

2 Allocation of funding to schools 4

2.1 The major discretionary elements within the formula 4

2.2 The relevance of discretionary elements within the current funding arrangements 5

2.3 The impact of the current funding arrangements on allocation formulae 6

2.4 Advantages of allocation formulae within the revised funding arrangements 7

2.5 Disadvantages of allocation formulae within the revised funding arrangements 7

3 Relationships with schools 8

3.1 Impact of the School's Forum on relationships with schools 8

3.2 Impact of the revised funding arrangements on relationships with individual secondary schools 9

3.3 Impact of the revised funding arrangements on relationships with individual primary schools 10

3.4 Impact of targeted Transitional Support Grant 10

4 Monitoring of school budgets 12

4.1 Mechanisms for monitoring school budgets 12

4.2 The frequency of budget monitoring 12

4.3 Mechanisms for managing budgets of schools in financial difficulties 13

4.4 Effective mechanisms for monitoring school budgets 14

4.5 Financial management training for school governors 15

5 Future developments 16

5.1 Impact of future funding arrangements on attainment 16

5.2 Future funding pressures 18

5.3 Desired future funding arrangements 19

Concluding comments 21

Appendix: local authority sample information 22

References and further reading 24

Executive Summary

Introduction

This report presents the findings from phase one of anNational Foundation for Educational Research (NFER)study into the impact of the 2003/04 Governmentrevisions to funding arrangements for schools. This phaseinvolved the distribution of a postal questionnaire to allChief Education Officers (CEOs) in England. Responseswere received from 101 out of 148 local authorities, thatis 68 per cent response rate.

Recent changes to the schoolfunding system

The majority of respondents indicated that their localauthority understood the arrangements 'completely'but that the schools only understood them 'a little' or'quite a lot'
None of the respondents was in strong agreementwith the statement that the revised fundingarrangements provided sufficient funding for primaryor secondary schools. The most common responses tothis statement were 'neither agree nor disagree' or'disagree'
The most frequently perceived advantage of the revisedfunding arrangements was the greater stability providedfor schools. Carrying out national policy; greatertransparency for schools; and easier decision making forthe local authority were also noted as advantages
The most frequently perceived disadvantage of thenew funding arrangements was their inability toreflect local needs. Inequity between schools and areduction of local authority control and discretionwere also frequently noted.

Allocation of funding to schools

The findings suggest there is a wide variation in themajor discretionary elements that local authoritiestake into account when allocating funds to schools.Special educational needs (SEN) was indicated to bethe most frequently used major discretionary element
Half of the respondents included three or four majordiscretionary elements within their allocation formula;others included as many as five or six, suggesting thatlocal authorities are keen to include a broad range ofdiscretionary elements in order to reflect local schoolneeds. There was also some indication that authoritieswith higher Comprehensive Performance Assessment(CPA) scores used a greater variety of discretionaryelements within their formulae
Almost every respondent felt that the majordiscretionary elements within the local authority'sallocation formula were still relevant within thecurrent funding arrangements, some commenting thatthey reflected the needs of schools
Over two-thirds of respondents stated that the newarrangements from 2004 had affected their allocationformula in some way. It was felt that the newarrangements had rendered formula adjustment orreview difficult, thereby limiting the local authorities'ability to address local needs and to address inequitiesbetween schools. This is in accordance with AuditCommission findings (Audit Commission, 2004a). Theyalso stated that they had impacted perversely onformula allocation, favouring some schools over others
Two-fifths of respondents felt that there were somedisadvantages to their current allocation formulawithin the revised funding arrangements. One of themost commonly identified disadvantages was thedampening effect on the local formula by theminimum funding guarantee.

Relationships with schools

Respondents from over half of the local authoritiesstated that the introduction of the School's Forum hadnot affected the relationship between the localauthority and individual schools. The most frequentlyoffered explanation for this was that a partnership hadalready been established between the local authorityand schools prior to the introduction of the School'sForum. Most of the remaining respondents stated thatthe relationship between the local authority andschools was better as a result of the Forum
The majority of respondents stated that there hadbeen no change in the relationship between the localauthority and individual secondary schools or primaryschools as a result of the revised fundingarrangements. They stated that the arrangements weregovernment imposed, and schools recognised this
Where there had been an improvement (just over onein ten authorities), respondents believed this was dueto the debate prompted between schools and the localauthority and an appreciation of the greater stabilityprovided by earlier notification of budgets. The AuditCommission also found that the potential for schoolsto know in advance the level of resources available tothem was welcome (Audit Commission 2004a.).Findings here offer support to this recommendationand, further, suggest that this also improvesrelationships between schools and their local authority
Only one-third of respondents reported that their localauthority had received the targeted TransitionalSupport Grant. For those who received it, over halfdescribed it as divisive and some thought it caused aperverse incentive. This again supports findings fromthe Audit Commission that by specifically supportingschools in deficit, or those likely to go into deficit, anunintentional message has been given to schools thatworking within a budget is not a priority (AuditCommission 2004a.). However, other respondents feltthat it had helped to address deficits and providefocused support to schools in financial difficulties.

Monitoring of school budgets

The main mechanism used by authorities to monitorthe budgets of all schools was reported to be schoolreturns and just under half of the respondents reportedthat budgets were monitored on a termly basis
Just over one-quarter used electronic information astheir main monitoring mechanism. Authorities withhigh CPA scores were more likely than otherauthorities to use this method. Only one in ten usedschool visits, and small authorities were more likelythan any other authorities to take this approach
Ninety-six per cent of respondents indicated that theyused alternative mechanisms for monitoring schools infinancial difficulties.A wide range of approaches wastaken, including increasing frequency, stringency andthe amount of direct contact. Using budget plans orincreasing the level of support offered to schools wasalso favoured
When asked what mechanisms respondentsconsidered to be particularly effective, a wide range ofresponses was given. The most frequently referencedmechanism was the use of a central system. This wasclosely followed by school visits and projections inbudget plans. Budget planning, reports and meetingswere also proffered as particularly effective
Ninety-four per cent of respondents indicated thatthey provided financial management training to theirschool governors. This was most frequently describedas being available on a needs basis, or as part of theregular and standard governor training or inductionprogram. Courses were most frequently run annuallyor termly.

Future developments

When asked about the potential impact of greaterlocal autonomy on raising attainment, respondentswere overwhelmingly positive. They also thought thatcloser integration of funding streams and fundingclusters of schools would contribute to raisingattainment, although to a lesser extent
When asked about future funding pressures, all buttwo of the 101 respondents indicated that theworkforce agreement was likely to be problematic.This was also selected most frequently as the mainfunding pressure, indicating a level of significantconcern about how this reform will be funded. Overthree-quarters of respondents indicated that SEN wasalso a future funding pressure. The upper pay scale forteachers, changing school rolls, the integration ofchildren's services and transport were also nominatedby over half the sample
The most frequently desired future fundingarrangement was for authorities to have more localdiscretion in terms of school funding. A request for theintegration of funding streams was also high onrespondents' agenda. Requests were made for thepresent 'interim' arrangements to be phased outgradually. The need for stability of funding and longtermbudget planning was also expressed.

Concluding comments

Overall, the main findings from the survey indicate that,despite the introduction of the revised arrangements by theGovernment to alleviate problems with school funding,many local authorities remain negative about the currentmeasures. Respondents acknowledged and welcomed theincreased stability for schools. However, one of their mainconcerns centred on the overriding of the discretionaryelements within their local formula by the minimumfunding guarantee. This was reported to limit localdiscretion and render any adjustments to the formula,which might address local needs and inequities betweenschools, ineffective. There was also a view that the currentarrangements had impacted perversely on formulaallocation and that this, coupled with transitional supportavailable, militated against effective financial managementin schools. These views corroborate those highlighted by theAudit Commission (Audit Commission, 2004a), althoughthey perhaps indicate a greater concern regarding the lossof local discretion and ability to reflect local needs.

In addition, authorities appeared to have been affectedby, or responded to, the new arrangements in variousways. The findings indicate that local authorities couldusefully share good practice, particularly in the areas offormula development and the monitoring of schoolfinances. Authorities considered to be good performers allround may have particular strengths in the area ofeducation finance. Findings suggest that this may includethe range of discretionary elements used in their localformula, existence of effective partnerships with schoolsand their use of electronic information for monitoringschool budgets.

Introduction

Following revisions to the funding arrangements forschools by the Government in the 2003/04 financial year,the Local Government Association (LGA) commissioned theNFER to conduct a study on the impact of these changes.This report outlines the main findings from phase one ofthis study, in which a postal questionnaire was sent to allChief Education Officers (CEOs) in England.

In total, 101 out of the 148 local authorities responded,giving a return rate of 68 per cent. Those who completedthe questionnaire included finance personnel (32);directors (14) and assistant directors (15), as well as'other' local authority staff (24) (e.g. senior educationmanagers and education officers). The 16 remainingrespondents did not provide details about their position.

For the purposes of analysis, the data were examined inrelation to four local authority variables: CPA scores forthe whole authority, i.e. not just education services,('excellent', 'good', 'fair' or 'weak/poor'); financial band('floor', 'middle', 'ceiling'), as well as type ('unitary','metropolitan', 'London' or 'county') and size of authority.

Sample information relating to each of these variables isprovided in Appendix 1. The size of authority wascalculated according to the number of state and grantmaintained primary and secondary schools within it. LEAswith 1–100 schools were classified as small, those with101–300, medium, and those with 301 schools or moreas large. It must be borne in mind throughout this report,that the relatively small numbers in each of thesecategories and the variation in numbers of localauthorities in different categories, suggested that thefindings in relations to the variables may not bestatistically significant. Where points of possible variationand interest emerged, these are highlighted.

The structure of this report follows closely the format ofthe CEO questionnaire, as follows:

1. Recent changes to the school funding system

2. Allocation of funding to schools

3. Relationships with schools

4. Monitoring of school budgets

5. Future developments.

1 Recent changes to the school funding system

This section describes the survey respondents' overallreactions to the recent changes to the school fundingsystem. It begins by considering respondents' perceptionsof levels of understanding of the revised fundingarrangements – both within schools and the localauthority – and the extent to which primary andsecondary schools were felt to receive sufficient fundingfor the delivery of the curriculum. Finally, the section isbrought to a close with respondents' views on the overalladvantages and disadvantages of the current fundingarrangements over those previously.

1.1 Understanding the newfunding mechanisms

The survey asked, 'To what extent does your localauthority understand the revised funding arrangements(i.e. from 2004)?', and invited the responses 'not at all','a little', 'quite a lot', or 'completely'. Attitudes towardsschools' level of understanding were similarly sought. Thefindings are shown in Table 1.1.

Table 1.1 Respondents’ perceptions of theunderstanding of the revisedfunding arrangements

Response / Percentage (%)
At local authority level / At school level
Not at all / 0 / 1
A little / 1 / 50
Quite a lot / 33 / 44
Completely / 65 / 5

No. of respondents (N) = 101

Source: NFER questionnaire survey, 2004

Perhaps not surprisingly, given the financial roles andresponsibilities of the survey respondents, Table 1.1 showsthat a large percentage of those who returned surveysindicated that the level of understanding of the revisedfunding arrangements within their local authority was high:65 per cent 'completely', and a further 33 per cent 'quite alot'. In contrast, responses about the level of understandingamongst schools were far more reserved, with only five percent being of the opinion that schools understood therevised arrangements 'completely' and the vast majoritysuggesting that schools' level of understanding was either'a little' (50 per cent) or 'quite a lot' (44 per cent).

The noteworthy variations between responses on the basisof the four local authority variables (type, size, financialband and CPA score) included that all of those indicatingthat schools understood the revised arrangements'completely' were from small authorities. In addition, half ofthe respondents from small authorities indicated thatschools understood the new arrangements 'quite a lot'compared to around a third of those from largerauthorities. These results may stem from the closercollaboration or increased communication with schools thatis possible in smaller local authorities. Alternatively, it maybe that those in larger LEAs were simply less aware of theextent to which schools understood the new arrangements.

1.2 Sufficiency of fundingprovided

When asked to indicate the extent of their agreement withthe statement that, 'the revised funding arrangementsprovide sufficient funding for the delivery of thecurriculum', individually for both primary and secondaryschools, it is perhaps not surprising that, in each case, themean average response tended slightly towards thenegative. The overall responses can be viewed in Table 1.2.

Table 1.2 Extent to which respondents agreedthat the funding arrangementsprovided sufficient funding for thedelivery of the curriculum

Response / Percentage (%)
At primary level / At secondary level
Strongly disagree / 15 / 14
Disagree / 33 / 36
Neither agree nor disagree / 38 / 36
Agree / 13 / 13
Strongly agree / 0 / 0

No. of respondents (N) = 101

Source: NFER questionnaire survey, 2004

As Table 1.2 shows, for both primary and secondaryschool funding, the most common responses to thestatement were either 'neither agree nor disagree', or'disagree'. No respondent was strongly in agreement withthe statement that the revised funding arrangementsprovided sufficient funding, for either primary orsecondary schools.

Again, the results (particularly the mean agreementscores, calculated on the basis of 'strongly disagree' = -1,'disagree' = -0.5, 'neither agree nor disagree' = 0, 'agree'= 0.5, and 'strongly agree' = 1) were examined accordingto the four different LEA variables. Floor authorities gavemore negative mean agreement scores than either of theother funding bands, for the sufficiency of funding withinboth primary and secondary schools, suggesting that theywere more negative about their current funding position.Similarly, unitary authorities provided the most negativemean agreement scores for the level of funding for bothprimary and secondary schools, with London andMetropolitan authorities being the least negative. In termsof size, medium-sized authorities provided the mostnegative mean agreement score in terms of funding forboth primary and secondary schools, with the highestproportion ticking either 'disagree' or 'strongly disagree'.This suggests that those at the extremes – the smallestand largest authorities – appear to be the most positiveabout their current funding position.

1.3 Advantages anddisadvantages

Finally, this section focuses on questions about the overalladvantages and disadvantages of the fundingarrangements from 2004 compared to previous years. Arange of advantages or disadvantages was presented,with respondents asked to tick all that applied. An 'other'category was provided, and where this box was ticked,further details were requested. The final part of eachquestion asked for the main advantage or disadvantageto be circled. (However, the number of non-responses forthis part of each question was high, perhaps indicatingthat it was sometimes overlooked.)

1.3.1 Advantages

Table 1.3 shows the number and percentage of peoplewho ticked each of the overall advantages presented inthe survey question, and the number who indicated eachto be the main advantage of the new fundingarrangements by circling it.

Table 1.3 Overall advantages and mainadvantage of the new fundingarrangements

Advantage / Percentage ticking each advantage1(%) / No. selecting each as main advantage
More stability for schools / 68 / 27
Carrying out national policy / 33 / 8
Greater transparency for schools / 21 / 5
Easier decision making for the local authority / 19 / 2
Increased control over school budgets / 9 / 0
Other (only those who ticked the 'other' box) / 10 / 1
No response / 4 / 58

Respondents were able to give more than one response, thereforepercentages do not sum to 100