Archived decisions

Contact: Roger Mead, Assistant County Education Officer, Resources and Planning Branch (01962 847991)

1 Summary

1.1 The following decision is sought:

That the accompanying report which sets out the overall outturn budget of the Education Service at the end of March 2002 and the current position on schools and education business unit balances be noted and that the views of the Education Policy Review Committee on the proposals set out in the DfES letter be taken into consideration when finalising the County Council's response by the 25 November deadline.

2 Reason

2.1 Financial regulations require the reporting of overall outturn budgets.

3 Other options considered and rejected - None

4 Conflicts of interest declared by the decision maker or a member or officer consulted - None

5 Dispensation granted by the Standards Committee - not applicable

6 Reason(s) for the matter being dealt with if urgent - not applicable

Approved by: Date: 21 November 2002

Councillor D.G. Allen

Contact: Roger Mead, Assistant County Education Officer, Resources and Planning Branch (01962 847991)

1 Summary

1.1 This report sets out the overall outturn budget of the education service at the end of March 2002 (para 2) and expands on the current position on schools (paras 3, 4 and 5) and education business units balances (para 6). On schools' balances it reports the outcome of research into schools' significant balances and deficits. The planned emphasis in the past two years on reducing the deficits has achieved the aim. Balances across all schools have increased in line with the national picture and proactive steps are proposed for consultation with heads and governors to reduce the level of balances across primary schools in particular.

1.2 In addition, at paras 4.9 to 4.12, attention is drawn to a DfES letter seeking views on a system to enable LEAs to exert greater influence on ensuring that money is mainly spent on pupils already in school, unless it is being saved up for a specific project.

2 Overall Outturn at March 2002

2.1 The final accounts of the Education Service for 2001/02 were approved by the Executive Member - Education in July 2002. Whilst not impacting on the service's cash limited expenditure there were two areas of activity which resulted in significant variations and as such are worthy of further more detailed consideration. These relate to the cumulative balances of schools under Local Management of Schools (LMS) and surpluses of business units and both are covered in this report.

3 Local Management of Schools - Balances Held by Schools

3.1 This section looks at the trend in school balances in Hampshire since 1997, reports the results of a survey of the larger balances held at school level and concludes with comparative data with other authorities.

Recent Trends in School Balances

3.2 The first three financial years after local government reorganisation in 1997 saw a reduction in school balances. They reduced by nearly £2.2 M during 1997/98 and by a further £2.1 M in 1998/99. In 1999/2000 balances held at most schools fell by a further £1.1 M. The two most recent financial years had seen a reversal of this trend with balances growing by nearly £7 M during financial year 2000/01. During 2001/02, balances increased by £6.1 M to about £31 M in total. This represents 6.9% of school budgets.

3.3 There are a number of identifiable reasons for the significant increase in school balances over the last two financial years. The balance at 31 March 2002 includes £1.2 M of Standards Fund allocations which were spent by the end of August 2002. Standards Fund is now spent over 17 months rather than 12 months, hence the balance. The Chancellor of the Exchequer's budget in 2000 announced an extra £6.7 M in direct funding to schools. This announcement was not early enough for schools to take it into account in their budget planning for that year. The further increase in this direct funding in 2001/02 to a total of £14.5 M helps explain the increase in 2001/02 balances. One of the particular reasons why schools have been unable to make full use of recent increases in funding have been well publicised problems in recruiting and retaining enough teachers and support staff of the right quality.

4 Schools with Significant Balances and Deficits

4.1 Each year a questionnaire is sent to all schools with significant balances. These are balances that are greater than £25,000 or 5% of the schools budget share whichever is greater. In practice, since few secondary schools have balances of anything like 5% of the budget share, the vast majority of schools involved are primary schools. 276 (63%) of primary schools, 30 (42%) secondary schools, 21 special schools (67%) and both nursery schools are included in the questionnaire. These schools only make up 61% of the total school population but they hold 87% of the total balance.

4.2 In response to the questionnaire, schools gave a number of major reasons for holding balances and these are given in the table below:

4.3 The County Treasurer's Department have looked at a sample of schools in more detail to examine whether the use of balances features in schools' financial planning. In some cases, in particular for capital building work and for reductions on NOR, use of balances is detailed in School Development Plans. However, this is not the case for all balances. Analysis of budgeting has shown a trend for schools to budget within allocations and to spend less than budget, partly due to the factors identified in 3.3. Schools also cite concerns about continuing grant funding and individual issues affecting them or their locality as further reason for caution.

4.4 Comparisons of balance levels and changing balances with statistical features of schools has not found any causal links. Features looked at include allocations, retrospective NOR adjustments, income, expenditure net of income, NOR free school meals (in total and as a percentage of pupils), attainment (GCSE/NVQ for secondaries and Key Stage 2 for primaries) for all schools and for different types of schools. This suggests that balances are more related to policy and external influences.

4.5 At 31 March 2002, 34 (6.3%) schools (20 primary, 13 Secondary and 1 special) were in deficit. The cumulative deficit of these schools amounted to £1 M. The number of schools in deficit has fallen from 75 in March 2000 to 43 in March 2001 to the current 34 schools. This improvement reflects a lot of hard work by the schools involved with support particularly from Education Financial Services (EFS) staff and the schools' Attached Inspectors.

4.6 Education Financial Services, the business unit that 98% of schools buy into for financial advice guidance and challenge, have focussed on schools in deficit in accordance with previous reports to members. That has achieved its aim as the figures show. Now the emphasis will switch to working with schools with significant balances. This will involve governor training sessions led by Education Financial Services and EFS staff working with individual schools on a more focussed approach, budgeting for income as well as expenditure. A few years ago income was the annual allocation of budget share through the local management formula. Now nearly all schools receive income through several different income streams, some of which are expected to run for several years others may be more short term in nature. Uncertainty about the future funding of many of these targeted allocations has added to the nervousness felt by heads and governors when planning for the future.

4.7 Benchmarking across similar size primary schools helps with providing comparative information for governors but this work needs to be developed further to bring together the finance and school improvement support that could be made available.

4.8 This whole area of working to reduce schools' significant balances merits a more sustained initiative in partnership with schools. Ensuring an approach which is effective and is supported with meaningful and robust information and also challenges schools thinking on appropriate size of balance for contingency purposes will be explored in the Schools Forum which has its first meeting towards the end of November.

4.9 The DfES issued a guidance letter on 23 October part of which addresses the estimated further increase of about 5% in the national total of schools balances. This letter invites comments by 25 November from the County Council on the following issues.

4.10 Firstly the letter proposes that LEAs issue schools indicative budgets for 2004/05 and 2005/06 when distributing the 2003/04 budget. It argues that when the allocations for the Schools Block and LEA Block are announced in early December they will set a trend for the next three years. Whilst the figures will be of a very provisional nature, their publication will give greater confidence to schools to manage their financial affairs without the protection of large uncommitted surplus balances.

4.11 In addition, Ministers are considering permitting LEAs who introduce three year indicative budgets for schools to operate a system with a greater degree of control over balances. Such a system might have the following features:

· Schools would not be permitted to have a surplus balance greater than a certain amount as a general reserve. This might be set at the equivalent of perhaps 5% of the annual budget share or £20,000, whichever is the greater

· Sums held in excess of that general reserve limit would have to be held for specific earmarked projects. These would normally be of a capital nature, but each LEA would be able to list permitted categories

· At year end, any sums held by the school and derived from the delegated budget share which did not fall into these two categories would return to the LEA for use in Schools Budgets for future years.

4.12 This is a way forward and schools will welcome any move towards three year indicative budgets. Alongside the proposal set out in para 4.6 together they offer a reasonable approach to reducing balances overall. The Committee's comments are invited on the DfES proposal specifically to assist the preparation of the County Council's response by the 25 November deadline.

5 Broader Comparisons

5.1 The most recent national data indicates that the national total of school balances at March 2001 was in excess of £1,000 M. This is very similar in percentage terms to Hampshire's balance from its schools at the same date. A comparison, with a number of other south east England authorities shows that Hampshire's experience is broadly similar. Balances grew during 2001/02 in most authorities and the percentage of schools with balances greater than 5% is mainly in the range 50% to 80%.

6 Education Business Units

Outturn Position 2001/02

6.1 The trading activities of the education business units during 2001/02 resulted in an overall in-year surplus of £333,000 compared with a planned deficit of £120,000 on gross budgets of £21.0 million. All business units have either achieved, or in most cases, improved on their original plans. The trading accounts of the individual business units are shown at appendix 1 and the overall position is summarised below:

	£'000	£'000
Reserves brought forward 01/04/01		842
Income 2001/02	21,362
Expenditure 2001/02	21,029
Trading surplus		333
		1,175
Final loan repayment (part of 1998/99 budget strategy)		100
Cumulative Reserves at 31/03/02		1,275

The Years Ahead 2002/03

6.2 All education business units trade at full cost, against agreed business plans and report their performance regularly to the County Education Officer. The majority of their income is from school subscriptions. Although the outturn position shows a cumulative surplus of £1.275 M (about 6% of the total income) and the trading surplus for 2001/02 was £333,000 represents about 1.5% of income. Analysis of each business unit's plans for 2002/03 and beyond show significant investment in service development and accommodation which will utilise nearly all the accumulated reserves. Indeed in at least one case this may require a loan arrangement between two business units to ensure maintenance of the high quality service during a period of change. Such an arrangement would need Executive Member approval.

6.3 A more detailed commentary on each business unit is set out in appendix 2 to support the proposal that business units retain their planned surpluses and reserves.

7 Recommendations

The Committee are invited to note the contents and comments, in particular, on the schools' balances and DfES letter referred to in para 4.

Section 100 D - Local Government Act 1972 - background papers

The following documents disclose facts or matters on which this report, or an important part or it, is based and has been relied upon to a material extent in the preparation of this report.

NB the list excludes:

1. Published works.

2. Documents which disclose exempt or confidential information as defined in the Act.

TITLE FILE

None

Appendix 2

Education Financial Services

The 2001/02 surplus of £20,000 represents 3% on the income achieved. However the accumulated reserves at £178,000 represent a significant proportion of planned income which remains in the region of £650,000. The large accumulated reserve has primarily resulted from staff vacancies in the team over the last two years. A new Head of EFS has recently been appointed and he has plans for investing in staffing and accommodation during 2002/03 and 2003/04, resulting from the review of team structures. This will significantly reduce the reserve back to a more normal contingency trading level.

Education ICT

The £207,000 surplus in 2001/02 on an overall income of £3.624 M represents just under 6%. The surplus compares with a forecast of £7,000 for that year. The volatile nature of the environment within which this business unit operates is indicated by the deficit forecast for the current year. A number of major projects related to the provision of ICT infrastructures in and between schools have not happened within the original timetable with the consequence that expectations to recover the development costs through charges to schools in the same financial year have not been possible. This position has been compounded by EdICT having to incur up-front development costs on the latest SIMS database with the roll out (and therefore income to cover) not taking place till March 2003 and subsequent months. A new service level agreement to operate from April 2003 is currently being discussed with schools, as the main customers.

Education Personnel Services

This unit based in Education is part of the County Personnel and Training Department. The 2001/02 accounts show a deficit of £74,000 on an income of

£1.512 M. This represents a 5% deficit and has led to the reserves reducing to £128,000. In the current year, a deficit of about £76,000 is predicted due to an increase in the County Council's core service requirement from this business unit reducing reserves to £28,000 at end of March 2003. If this use of accumulated reserves was not made then either existing support to the County Council would reduce with a number of key corporate projects affected or additional County Council resources would have to be made available to the unit to maintain existing service support. This imbalance in funding is critical and will be considered with the preparation of the 2003/04 budget.

Hampshire Governor Services

The summarised accounts show a deficit for 2001/02 of £40,000 on a £1 M income. This marginally reduce reserves to £144,000 and is part of an agreed strategy of reducing excess working amongst Hampshire Governor Services staff. That strategy has reduced the number of excess working days from 466 in 2000/01 to 173 days in 2002/03. The Governor Services management team view that element of excess working as acceptable in the short term and steps will be taken to reduce it further over the next two to three years. In addition the business plan earmarks £90,000 of the reserves for upgrading IT systems with IT2000 compatible replacements.

Stubbington and Minstead Study Centres

Each of these centres are business units. A key reason for making them business units was to enable building adaptations replacement to be planned on a ten year programme funded by effective management of each business and not by a call on an already overstretched County Council capital building programme. Therefore all planned surpluses and reserves are committed through the centres' business plans.

Hampshire Inspection and Advisory Service

After several years of operating at a deficit this service has now achieved a small surplus for the first time. However a key factor in achieving this earlier than planned was an exceptionally high level of productivity of the inspectors and advisers. This was only achieved through income targets being exceeded through unacceptably high levels of excess working. The current year's business plan shows a significant reduction in this to more acceptable working levels. In addition HIAS is investing in more flexible and efficient working arrangements for staff, a best value recommendation and will utilise the majority of the cumulative balance to fund this change.

The Hampshire Music Service

Summarised accounts for this service show a surplus of £1,000 on an income of £4.116 M. The accumulated reserves of £216,000 are all earmarked within the services business plan for the short term. The main additional cost falling on the service is the need to relocate from the St Bede site to another site in Winchester and the cost involved in that relocation. In addition the service faces uncertainty over the long term future of Standards Fund grants and DfES requirements for music service which make it prudent to budget for a surplus reserve for this business unit in particular.