Support for Schools in Financial Difficulty: Guidance for LEAs that are eligible for Targeted Transitional Grant in 2004-05.

1. This guidance expands on, and therefore supersedes, the guidance issued on 29 October entitled “Support for schools in financial difficulty: guidance note for LEAs”. Separate guidance has been sent in parallel to LEAs which are not eligible for the targeted transitional grant in 2004-05: however, the guidance on the use of LEA headroom at paragraphs 2-7 below is identical for all authorities.

INTRODUCTION

2. In setting the level of the minimum schools guarantee, Ministers are conscious that a minority of schools will face unavoidable in-year cost pressures higher than that level, or will be facing difficulties balancing their budgets as a result of decisions taken in 2003-04. For many schools, the outcome of the local funding formula will be higher than the guarantee, and this will help address those difficulties. But there will be some schools which face a shortfall between the resources available to them in 2004-05 and unavoidable expenditure, which might result in damage to pupils' education. Schools with falling rolls may experience particular transitional difficulties of this type, even though both the minimum guarantee and most LEA formulae include some protection against the effects of loss of pupils.
3. Ministers expect that LEAs will seek to identify such schools at the earliest possible stage, based on their assessment of schools' financial position in 2003-04 and emerging budget plans for 2004-05; and consider what can be done to direct short-term additional support to those schools, to avoid disruption to pupils' education. This guidance note covers both the use of LEA headroom to direct towards schools in difficulty; and additional transitional support which may be available from DfES in certain circumstances. LEAs should put together their available headroom and transitional support (where applicable) in order to secure stability and avoid an unsustainable growth in deficits. This will require funding to be targeted to particular schools in the short term, outside the LEA's normal funding formula.

USE OF LEA HEADROOM

4. LEAs' SFSS increases should be sufficient to enable LEAs to target funding towards schools in difficulty, over and above what is needed to implement the minimum schools guarantee.
5. Ministers believe that targeting funding to schools in difficulty should be regarded as the first call on this headroom. Ministers plan to amend the LEA Budget, Schools Budget and Individual Schools Budget Regulations to create a new category of retainable expenditure within the Schools Budget from which allocations for such targeted short-term support may be made. This was reflected in the draft regulations issued on 29 October 2003. To emphasise the importance attached by Ministers to such support, expenditure retained within this category would, since it would be spent within schools, not count against the proposed limit on central expenditure; and there would be no cap on the amount set aside for this purpose. It would of course be limited in practice by the amount needed to fund the minimum schools guarantee.
6. The draft regulations set out rules and criteria which must be followed where the LEA plans to retain funding from its Schools Budget for this purpose. These are:
   • the Schools Forum must be consulted on the LEA's plans for implementing such support;
   • no school may be allocated more funding than the total of its expected revenue deficit at 31 March 2005 without the allocation;
   • the LEA must make provision to monitor schools' use of the funding and their progress towards a balanced budget; and
   • schools allocated support should face unavoidable cost pressures at the school in 2004-05 that are higher than the resources otherwise available to the school. Circumstances in which this might arise include teachers' position on the incremental spine, or the carrying into 2004-05 of a substantial revenue deficit.
7. If any amounts held back for this purpose were unallocated at the end of the financial year, the LEA would be required to distribute them to schools on the basis of pupil numbers.

TRANSITIONAL SUPPORT FROM DfES

8. On 29 October the Secretary of State announced a package of transitional support which would be available alongside the LEA headroom, subject to conditions, to support schools facing particular difficulties in bringing their budgets into balance. The remainder of this guidance note sets out the details of the support available, the conditions attached to it, and the processes which LEAs need to go through to access it, including relevant deadlines.

Allocation methodology

9. There are two elements to the transitional support package: a targeted grant, which will be available to 51 LEAs in 2004-05, and a facility for any LEA (including those in receipt of targeted grant) to bring forward grant payments into 2004-05, where they can put forward a compelling case for doing so. A list of allocations to individual LEAs of the transitional grant, and the maximum amount of grant that could be brought forward, is attached at Annex A.
10. The basis on which these figures have been calculated is set out below. We do not anticipate that these figures will now change. However, if there is a significant change in an LEA's Education Formula Spending or relevant DfES grant figure, we will consider whether any adjustments are needed.

Targeted grant

11. Targeted grant will be available in 2004-05 to those LEAs which have received the lowest increase in EFS and relevant DfES grants (relevant Standards Fund grants and School Standards Grant) between 2002-03 and 2004-05. The amount of grant available to each LEA in 2004-05 will be calculated in order to bring their total increase in relevant revenue support for education – EFS, relevant DfES grant and transitional support – over the period 2002-03 to 2004-05 up to 12%. An adjustment has been made for London LEAs to take account of the additional cost pressures on those authorities over the relevant period as a result of the higher pay settlement for London teachers in 2003.
12. A technical note setting out the details of the calculation, including a list of grants that have been taken into account, is available on the school funding website at www.teachernet.gov.uk/docbank/index.cfm?id=5572 .
13. The total value of this additional grant will be £121 million in 2004-05. Around half this level of grant will be available nationally in 2005-06. Allocations to individual LEAs for 2005-06 will be announced in autumn 2004, once the EFS settlement for 2005-06 is known. Our intention is that the allocations should be calculated in the following way:
    1. we will consider the increase in resources in each LEA between 2004-05 and 2005-06, taking account of targeted grant provided in 2004-05;
    2. as for 2004-05, we will top up those with the lowest increase to a minimum level (to be determined);
    3. if necessary, we will take account of identifiable and justifiable regional cost pressures (eg the London pay award for 2005-06);
    4. we will take account of authorities' reported use of targeted grant in 2004-05; and
    5. recognising that targeted transitional grant will not be available in 2006-07, we will cap the amount that any individual LEA can receive to ensure that all are on a reasonable funding trajectory to 2006-07.
    Not all authorities that are eligible for targeted grant in 2004-05 will necessarily be eligible in 2005-06.

Universal support (advance of grant)

14. Taking the additional targeted transitional grant into account where appropriate, Ministers believe that the total resources available to LEAs should, if targeted effectively, be sufficient to put most schools on course to balanced budgets by 2006-07. However, where an LEA is able to put forward a compelling case that additional resources are needed in the short term to avoid unacceptable cuts in services, Ministers will be prepared to consider bringing forward a small amount of DfES grant into 2004-05.
15. Where payments are brought forward in this way, the expectation would be that there will be a consequential reduction in the DfES grant that the LEA would otherwise receive from the Standards Fund across the two years 2006-07 and 2007-08.
16. The maximum amount which Ministers would be prepared to pay early to any individual LEA under this arrangement is:
    • either £300,000;
    • or 0.2% of their EFS plus relevant DfES grant (ie relevant Standards Fund grants plus School Standards Grant), if that is greater.
17. Maximum potential allocations for every LEA calculated on this basis are set out in the table at Annex A . The definition of relevant DfES grant for the purpose of this calculation is the same as the definition for the targeted grant (see the technical note at www.teachernet.gov.uk/docbank/index.cfm?id=5572 .
18. LEAs will be able to apply for an advance under these arrangements whether or not they are eligible for targeted additional grant as described at paragraph 11 above. There should be no assumption however that every LEA will be entitled to an advance under these arrangements: each application will be considered by the Secretary of State on its merits.

Conditions attaching to transitional support

19. Transitional support from DfES under either of the arrangements described above is intended to be targeted tightly on individual schools that need help in order to get their budgets back into balance. Transitional funding will therefore be subject to a number of conditions. The key ones will be that the LEA must:
    • passport its full increase in SFSS into at least a matching increase in its Schools Budget;
    • be directing resources to delegated schools' budgets as far as possible (at least in line with the requirements set out in the draft LEA Budget, Schools Budget and Individual Schools Budget regulations);
    • prepare a plan for the use of transitional support (see further detail at paragraphs 23-25 below), in consultation with the Schools Forum;
    • target support at schools in difficulties , ie those facing unavoidable cost pressures in 2004-05 higher than the resources otherwise available to the schools in question (see paragraph 20 below);
    • unless alternative arrangements are agreed by the Secretary of State (see paragraph 21 below), provide support to any individual school which is no more than that school's anticipated cumulative deficit as at either 31 March 2005 or 31 March 2006, if it did not receive the transitional support;
    • agree recovery plans with each recipient school , so that the schools are planning to have their budgets in balance (ie projected income at least as large as projected expenditure) by 2006-07;
    • make arrangements to monitor schools' use of the support , and implementation of the recovery plans. It will be for individual LEAs to decide what level of monitoring is appropriate, bearing in mind in particular the reasons why the school is in difficulty, and the amount of additional grant provided.
    A range of standard conditions – relating to payment arrangements etc - will also apply to transitional support. Full details of the conditions of grant will be available shortly on the school funding website at www.teachernet.gov.uk/schoolfunding .
20. Within the conditions above, it will be for LEAs to make their own judgements about which of their schools are in sufficient difficulty to receive an allocation of transitional support. This will involve targeting funding on specific schools, rather than allocating it on a formulaic basis across all schools (or, eg, all secondary schools) in an authority. LEAs will wish to consider in particular making allocations to schools in the following circumstances:
    • those which have a historic deficit, and need to be brought back into a sustainable position by 2006-07;
    • those which have faced particular difficulties as a result of the 2003-04 settlement, and have sustained their previous level of spending though running down reserves at an unsustainable rate, making use of devolved capital for revenue purposes, or incurring a licensed deficit; and
    • those which will have cost pressures in 2004-05 which are significantly higher than the average school – perhaps because of their staffing structure – and which are not sustainable in relation to their income.
21. The Secretary of State expects that most transitional support will be used to target schools which would otherwise be in deficit by either 31 March 2005 or 31 March 2006 (as at paragraph 19e above). However, the Secretary of State will be prepared to consider applications from LEAs which want to use some of their transitional support allocation to support other schools which they consider to be in financial difficulty. Before agreeing to any such application, the Secretary of State would want to be satisfied (i) that the LEA had satisfactorily addressed the position of their schools with deficits first; and (ii) that there were convincing reasons why the LEA considered these schools to be in financial difficulty despite not having projected deficits .

Process and timetable

22. A timetable showing the action which LEAs need to take in relation to transitional support, including key deadlines, is attached at Annex B. The key points for LEAs which are eligible for the targeted grant are:
    • LEAs should start to identify schools likely to be in difficulty next year, and so candidates for additional support, as soon as possible;
    • LEAs must provide a Transitional Support Plan by 31 December 2003. Details of what the plan should include are set out at paragraphs 23-24 below. The plan must have been discussed with the Schools Forum and should be signed off by both the Chief Education Officer and the authority's Treasurer;
    • LEAs should finalise which schools will receive support from targeted grant during February 2004, and how much they will receive during March/April 2004;
    • if the LEA also wants to apply for an advance of grant in 2004-05 (under the arrangements described at paragraphs 14-18), it should make an application to the Secretary of State by the end of February 2004 at the latest; and finalise which schools will receive support from that source and how much they will receive during March and April 2004;
    • individual school recovery plans , taking account of the transitional support to be received, should be agreed with governing bodies and head teachers by the May 2004 half term, and a summary sent to the DfES (see paragraph 26 below);
    • DfES will then confirm that the conditions attached to transitional support have been met , and release funding, by the end of May 2004.

Contents of Transitional Support Plans

23. As set out above, preparation of an LEA plan on how it intends to use transitional support will be a condition of grant. For LEAs that are eligible for the targeted grant, this plan must be produced by 31 December 2003. The precise contents of plans will be a matter for individual LEAs, and the level of detail may vary according to the level of grant the LEA is receiving. But as a minimum we will expect plans to cover:
    • details of schools' spending in 2003-04 in relation to their income , and whether any of this was known to be in respect of one-off items;
    • anticipated ISB increases in 2004-05 and beyond; how much headroom the authority anticipates can be targeted to schools in difficulty (outside the ISB); and the extent of schools' reserves available as at 1 April 2004;
    • any specific, unavoidable local cost pressures on the generality of schools in 2004-05 ;
    • a description of the approach the LEA has taken in identifying schools in difficulty in 2004-05 which may be eligible for transitional support;
    • their planned approach to finalising which schools will be eligible for transitional support, and to agreeing the sums they will receive (both from their own headroom and through transitional support);
    • a description of the process the authority intends to go through to agree recovery plans with individual schools, including how they will foster improvements in efficiency/value for money; and where necessary, make cuts in provision, and how the LEA intends to ensure additional financial management training and support to schools (drawing on the package of support being put together by KPMG, NCSL and the head teacher associations – further information will be available on the school funding website shortly);
    • the LEA's plans to monitor the implementation of individual recovery plans , once agreed. LEAs should make implementation of recovery plans a condition of grant to individual schools; and
    • formal confirmation that the LEA intends to fulfil the conditions of grant (as published on the school funding website).
24. Where an LEA which is eligible for targeted grant wishes also to apply for an advance of grant, it may wish to address its plans for the use of both kinds of funding (subject to the Secretary of State's decision on the advance of grant) in the plan to be delivered in December. Alternatively, if the authority decides to apply for an advance of grant at a later date it should provide a short supplementary plan setting out how the proposed additional funding would be used. In either case, the application for the advance of grant must, as well as the elements at paragraph 23 above, include an explanation of why additional funding is necessary in 2004-05 to deal with schools that are in difficulty within the criteria set out above, and a brief summary of how the LEA proposes to handle the expected consequential reductions in grant in 2006-07 and 2007-08. LEAs applying for an advance will need to convince the Secretary of State that they have done all they can to deal with local difficulties from within existing resources, including the use of headroom and transitional grant where appropriate.
25. Both Transitional Support Plans and any application for advance of grant (if separate) should be sent to:
    Jacquie Spatcher
    School and LEA Funding Division
    Area 5N
    Department for Education and Skills
    Great Smith Street
    London
    SW1P 3 BT
    or e-mailed to jacquie.spatcher@dfes.gsi.gov.uk .

School recovery plans

26. The contents of individual school recovery plans are a matter for agreement between the LEA and the school concerned. We will ask LEAs to send a short summary to DfES by the start of the May half term: a pro forma will be provided in due course. These summaries will be for the Department's information, rather than approval.

Progress reports

27. Between the end of December and the May half term we will not expect any formal progress reports from the generality of LEAs. However, if any concerns arise about the handling of transitional support or the use of headroom during the course of our normal contact with LEAs, we may ask any individual LEA to provide a progress report to the Department.

FURTHER INFORMATION

28. •  If you have any queries on the use of LEA headroom, please contact Stephen Bishop at Local Implementation Division, Department for Education and Skills, Mowden Hall, Staindrop Road, Darlington DL3 9BG or by e-mail at stephen.bishop@dfes.gsi.gov.uk .
29. •  Queries on transitional support should be addressed to Jacquie Spatcher at the address in paragraph 25 or by e-mail at jacquie.spatcher@dfes.gsi.gov.uk .

ANNEX A

TRANSITIONAL SUPPORT: ALLOCATIONS FOR 2004-05
	LEA	Targeted Grant (£'000)	Maximum Potential Advance of Grant (£'000)
201	City of London	26	***
202	Camden	2,291	300
203	Greenwich	-	348
204	Hackney	-	303
205	Hammersmith and Fulham	1,743	300
206	Islington	-	300
207	Kensington and Chelsea	1,144	300
208	Lambeth	3,514	323
209	Lewisham	103	355
210	Southwark	-	371
211	Tower Hamlets	867	413
212	Wandsworth	-	300
213	Westminster	-	300
301	Barking and Dagenham	1,546	300
302	Barnet	-	362
303	Bexley	1,400	300
304	Brent	-	339
305	Bromley	1,778	341
306	Croydon	2,626	402
307	Ealing	-	358
308	Enfield	2,600	393
309	Haringey	3,274	317
310	Harrow	-	300
311	Havering	1,621	300
312	Hillingdon	-	312
313	Hounslow	-	300
314	Kingston upon Thames	-	300
315	Merton	-	300
316	Newham	1,726	472
317	Redbridge	1,625	316
318	Richmond upon Thames	738	300
319	Sutton	1,578	300
320	Waltham Forest	2,583	318
330	Birmingham	-	1,417
331	Coventry	-	356
332	Dudley	-	345
333	Sandwell	-	376
334	Solihull	-	300
335	Walsall	-	326
336	Wolverhampton	-	301
340	Knowsley	1,005	300
341	Liverpool	628	596
342	St Helens	-	300
343	Sefton	-	325
344	Wirral	255	382
350	Bolton	-	321
351	Bury	-	300
352	Manchester	-	571
353	Oldham	-	303
354	Rochdale	-	300
355	Salford	-	300
356	Stockport	-	300
357	Tameside	-	300
358	Trafford	-	300
359	Wigan	-	347
370	Barnsley	-	300
371	Doncaster	-	360
372	Rotherham	-	328
373	Sheffield	-	564
380	Bradford	-	634
381	Calderdale	-	300
382	Kirklees	-	468
383	Leeds	-	793
384	Wakefield	-	358
390	Gateshead	-	300
391	Newcastle upon Tyne	-	300
392	North Tyneside	-	300
393	South Tyneside	-	300
394	Sunderland	-	345
420	Isles of Scilly	26	***
800	Bath & North East Somerset	-	300
801	City of Bristol	-	363
802	North Somerset	-	300
803	South Gloucestershire	-	300
805	Hartlepool	-	300
806	Middlesbrough	-	300
807	Redcar and Cleveland	-	300
808	Stockton-on-Tees	-	300
810	City of Kingston-upon-Hull	-	313
811	East Riding of Yorkshire	-	336
812	North East Lincolnshire	415	300
813	North Lincolnshire	-	300
815	North Yorkshire	-	604
816	York	-	300
820	Bedfordshire	2,221	441
821	Luton	-	300
825	Buckinghamshire	2,806	527
826	Milton Keynes	629	300
830	Derbyshire	-	777
831	Derby	-	300
835	Dorset	1,972	374
836	Poole	-	300
837	Bournemouth	670	300
840	Durham	-	541
841	Darlington	-	300
845	East Sussex	3,212	500
846	Brighton and Hove	1,490	300
850	Hampshire	6,909	1,278
851	Portsmouth	713	300
852	Southampton	1,658	300
855	Leicestershire	3,712	626
856	Leicester	-	374
857	Rutland	-	300
860	Staffordshire	-	857
861	Stoke on Trent	-	300
865	Wiltshire	-	461
866	Swindon	-	300
867	Bracknell Forest	-	300
868	Windsor & Maidenhead	-	300
869	West Berkshire	-	300
870	Reading	-	300
871	Slough	1,076	300
872	Wokingham	-	300
873	Cambridgeshire	-	556
874	Peterborough	-	300
875	Cheshire	-	708
876	Halton	-	300
877	Warrington	-	300
878	Devon	-	682
879	Plymouth	854	300
880	Torbay	182	300
881	Essex	9,833	1,477
882	Southend	1,392	300
883	Thurrock	1,685	300
884	Herefordshire	-	300
885	Worcestershire	-	542
886	Kent	12,758	1,531
887	Medway	2,103	314
888	Lancashire	-	1,268
889	Blackburn	-	300
890	Blackpool	-	300
891	Nottinghamshire	-	793
892	Nottingham City	-	316
893	Shropshire	-	300
894	The Wrekin	-	300
908	Cornwall	-	522
909	Cumbria	-	530
916	Gloucestershire	-	589
919	Hertfordshire	7,807	1,196
921	Isle of Wight Council	734	300
925	Lincolnshire	625	715
926	Norfolk	5,319	799
928	Northamptonshire	-	718
929	Northumberland	-	339
931	Oxfordshire	4,386	610
933	Somerset	3,198	506
935	Suffolk	3,125	681
936	Surrey	-	1,023
937	Warwickshire	-	531
938	West Sussex	4,946	762
*** Any application from the City of London or the Isles of Scilly for advance of grant will be considered on an individual basis.

ANNEX B

TRANSITIONAL SUPPORT: TIMETABLE AND PROCESS FOR LEAS ELIGIBLE FOR TARGETED GRANT

(NB: related deadlines / timing shown in italics)

from mid November LEAs	start to identify likely schools in difficulty in 2004-05
during December	Schools will be able to estimate budgets for 2004-05 , based on, in particular, (i) SFSS allocations for 2004-05; (ii) minimum schools budgets arising from the minimum schools guarantee; (iii) estimated 2004-05 pupil numbers
31 December	Deadline for notification to DfES of proposed Schools Budget ( passporting ) in 2004-05, and for LEAs which do not intend to passport in full to apply for exemption from the limit to the growth in central spending within the Schools Budget in 2004-05
31 December	Deadline for Transitional Support Plan from LEAs eligible for targeted grant (following discussion with the Schools Forum)
15 January	January pupil count : from here, LEAs can refine estimates of individual schools' budgets for 2004/05 as they firm up the local formula
end January	Adjustments to transitional support allocations if there is a significant change in an authority's per pupil EFS or relevant DfES allocations following data refinements (NB would affect only the allocation of the authority in question)
13 February	Deadline for LEAs which intend to passport in full to apply for exemption from the limit to the growth in central spending within the Schools Budget in 2004-05
	Targeted grant	Advance of grant
By end February	LEAs finalise list of schools eligible Formal confirmation from schools that they intend to fulfil the conditions of grant (including, in particular, the conclusion of a recovery plan that would see the school's budget in balance by 2006-07) Individual discussions on recovery plans underway between LEAs and schools	LEAs to submit applications for advance of grant , if applicable (following discussion with Schools Forum)
mid March		DfES to confirm advance of grant available (where applicable)
end March		LEAs to finalise list of schools eligible Formal confirmation from schools that they intend to fulfil the conditions of grant (including, in particular, the conclusion of a recovery plan that would see the school's budget in balance by 2006-07) Individual discussions on recovery plans underway between LEAs and schools
31 March	Deadline for LEAs to provide schools with initial budgets for 2004-05
March / April	LEAs confirm precise allocations of transitional support to eligible schools, as part of on-going discussions on individual recovery plans
By May half term	Deadline for LEAs and schools to finalise individual recovery plans LEA confirm to DfES that individual recovery plans have been agreed; and provide DfES with summary of schools to be supported (on pro forma to be provided)
By end May	Confirmation that DfES agrees that the LEA has met the conditions attached to Transitional Support; and funding released.