Archived decisions

Contact: Sarah Pook, Assistant County Treasurer (01962 847045 )

Thomas Whiffen, Resource Allocation Manager (01962 846287)

Libby Day, Financial Project Consultant (01962 846278)

1 Summary

1.1 New Government guidance on schemes for the financial management of schools require changes to the current Hampshire scheme. The budget proposals for 2003/04, including the movement of funds from Government grant into school budget shares, change the age and need weightings within the funding formulae.

1.2 The County Council has also proposed a number of other local revisions to the Hampshire Scheme.

1.3 In accordance with DfES requirements, a consultation exercise with schools has been carried out on both the statutory and proposed local changes to the HCC Scheme and funding formula.

2 Introduction

2.1 The DfES have issued revised Statutory Guidance on Schemes for Financing Schools, introducing various changes since the first (1999) edition of the Guidance.

2.2 As a result, Hampshire County Council are required to revise the local Scheme of Financial Management for Schools, incorporating those miscellaneous technical areas and matters of detail introduced by the DfES and to bring the wording of the HCC Scheme in line with the Statutory Guidance.

2.3 The County Council has also taken this opportunity to propose a number of other revisions to the operation of the local Scheme and to update the text in line with the Education Act 2002, changes to HCC Standing Orders, to update the Scheme wording to reflect the move from the current financial management system (FMS) to SAP and other more general amendments to local practices and matters of detail.

2.4 Budget developments and changes to Government grants also require changes to the LMS formulae for funding schools.

2.5 At their meeting on 22 November 2002, the Schools Forum supported the proposed revisions to the Scheme for Financial Management of Schools and changes to the funding formula and agreed to a consultation exercise with schools.

2.6 This report informs the Education Policy Review Committee of those proposals which represent a fundamental change to the operation of the current HCC Scheme or funding formula and the response to the consultation exercise with schools.

3 Proposals for Local Scheme Changes

3.1 Local Authority Financial Reporting Requirements

3.1.1 The County Council requires all schools to report on their financial performance in accordance with the County Council's standard financial reporting regime.

3.1.2 Section 5 of the Scheme further clarifies the right of individual schools to operate local financial systems / software for subsidiary purposes and reporting, provided they meet any costs of modification to ensure the principal accounts are prepared in accordance with prescribed County Council systems.

3.2 Funding Mechanisms for Local Bank Account Schools

3.2.1 Currently the County Council is maintaining two local bank account schemes, one for only five schools. It is appropriate at this time to question the cost effectiveness of this. The proposal was to rationalise the current funding mechanisms into a single scheme. All Local Bank Account schools will receive their full budget share (both pay and non pay allocations), in twelve monthly instalments from April 2004 onwards.

3.3 Criteria for Borrowing by Schools

3.3.1 As all borrowing forms part the Local Authority's credit approval, the wording of Section 12 of the Scheme, "Borrowing and Investments", has been revised to clarify the criteria and rules for individual school borrowing. It stipulates that schools are not permitted to borrow without first seeking the approval of the County Council as well as the DfES and that approval will only be given where the purpose for which the loan is required is in accordance with the County Council's Asset Management Plan and capital programme priorities.

3.4 Introduction of a Loan Scheme from School Balances

3.4.1 To ensure the effective use of surplus school balances, a loan scheme has been proposed which will utilise a maximum cumulative total of 25% of the net aggregate of school balances in any one year.

3.4.2 Access to the scheme will be limited to borrowing for Asset Management Plan and strategic priorities only, where there is a clear repayment stream either from capital receipts or from revenue savings and where there has been Executive Member agreement to the disposal of the asset.

3.4.3 Irrespective of the operation of the loan scheme, individual schools will retain the right to draw on their full balances at any time and will receive interest on their total balance in accordance with the agreed interest rate regime.

3.4 Surplus Balances

3.4.1 In order to reduce the significant level of surplus balances held by schools, the Scheme includes clarity on the appropriate level of unreserved balances held by schools for contingency purposes.

3.5.2 The latest DfES proposals on three year indicative budgets and school balances are being considered, together with proposals that Education Financial Services focus on working with schools with significant balances, supported by the provision of meaningful and robust financial information. Further changes to the Scheme may be put forward for April 2004 following consideration of the DfES proposals.

3.6 Response to Consultation Exercise

3.6.1 The final date for responses to the consultation exercise with schools was 21 February 2003. Responses to the proposed HCC Scheme changes are:

3.6.2 Of the remaining proposed changes to the HCC Scheme, the responses range between 213 schools and 200 schools in favour with, at most, 10 schools against. A copy of the Scheme, the full text of the proposed changes and the summary of responses from schools is available in the Member's room.

3.6.3 Narrative responses principally refer to the short timescale applied to the consultation exercise and the need for further detail / examples of some of the more technical proposals. Two foundation schools expressed concerns about the use of a single financial system by schools. Four schools expressed concerns about the operational detail of the proposed loans scheme.

3 Changes to the Funding Formulae

4.1 Introduction

4.1.1 The Government have made a number of changes to specific grants which have a knock-on effect on the LMS Formulae for funding schools. Since these change the age weightings and Special school place weightings they require consultation with all schools. The 2003/04 budget process considered the implications of the grant loss and the extent to which that loss could be made good in the budget.

4.1.2 There was no time to consult schools after the budget was agreed, as schools need their budget shares before the end of March. Consultation on the distributional effects of these changes was on the basis of the draft budget proposals. These are the ones which have now been agreed thus making the consultation worthwhile. The County Council approval of the budget and the support of schools for these changes have been reflected in 2003/04 budget shares.

4.1.3 It is expected that further formula changes for 2004/05 will need to be considered by the Schools Forum in summer and autumn 2003.Issues that have already been identified for further work are : deprivation funding, further impact of standards fund reductions, sixth form funding. It is likely that consultation will have to take place with all schools on the structural changes to the formula before budget decisions are made.

4.2 Infant Class Size grant

4.2.1 This grant is being moved into the main education funding assessment for Local Authorities. The class size limits are an obligation and there is a County Council policy of funding to allow schools a 1 to 28 ratio. This means the money will also have to move into main school budget shares on a per pupil basis for the three infant year groups . This has the effect of increasing the weighting of these year groups as compared within all others even though it is little more than a re-labelling of the money from grant to budget share.

4.3 Standards Fund grants

4.3.1 Four Standards Fund categories are ceasing to attract 52% grant but none of that

money is being moved into the main funding assessment. Addressing the implications of losing these grants was a major budget challenge for 2003/04.

4.3.2 The affected grant headings are: School Improvement, Pupil Retention Grant, Introduction of Newly Qualified Teachers (NQTs), and Performance Management/Threshold Assessment.

4.3.3 The first three have been reinstated by the agreed budget for 2003/04 but the distribution methods used in 2002/03 do not meet all the DfES rules as to

allowable budget share factors. The consultation was undertaken to secure schools support for the necessary budget share treatment with modified methods of distribution which aimed to retain as close a match to the current method as possible within the rules.

4.3.4 School Improvement, this meant that the small elements with a graduated approach to governor and teacher numbers had to be replaced by flat rates per school.

4.3.5 Induction of NQTS, the termly claim basis for NQT Induction is able to continue within main LMS formula funding but agreement was needed to the presence of a NQT at a school as a distribution factor.

4.3.6 In the case of Pupil Retention Grant (PRG) no equivalent method could be devised and the proposal was to put some of the money directly to fund excluded pupils and the rest to the SEN Audit.

4.3 Special School Funding

3.4.1 There is a gap between Special School Audit Step 4 in primary and secondary special schools. £160,000 is included in the 2003/04 budget proposals to bring secondary step 4 closer up to primary. Support was sought for this change in need weighting.

4.4 Sixth Form Funding

4.5.1 As the funding allocations for school sixth forms coming from the LSC change it is necessary to ensure that the approach to adjusting the "other factors" element of the formula is suitable and clear. An interim approach was adopted in 2002/03 and, in discussion with schools with sixth forms, it was agreed to continue this for a second year with more fundamental options being examined for 2004/05.

4.6 Summary of Formulae Consultation

The proposals were general supported and the table below gives details.

4 Recommendations

That the Executive Member for Education be advised as follows:

5.1 That approval be given to the proposed revisions to the HCC Scheme for Financial Management of Schools as they have been supported by schools and the revised text be submitted to the DfES for formal approval.

5.2 That the changes to the funding formulae for schools, all supported by schools, be reflected in school budget shares.

Section 100 D - Local Government Act 1972 - Background Documents

The following documents disclose facts or matters on which this report, or an important part of 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

Schemes for Financing Schools: Section 48 of the Schools Standards and Framework Act 1998 and Schedule 14 thereof. - Statutory Guidance for Local Education Authorities - issued by DfES January 2001

Draft Financing of Maintained Schools Regulations 2003 : Regulation 29 and Schedule 3- sent to LEAs by DfES December 2002 DfES ref LEA/0501/2002.