Contact: Sheila Little, Education Finance Unit (01962 847545) ([email protected])

1. Introduction

1.1 Members will be interested in being up-dated on the current developments in the preparation of the forward budget for 2004/05, in particular:

· The Secretary of State for Education announcements on 29 October 2003 outlining the funding system for 2004/05, where he announced: a minimum increase of 4% in every schools budget, additional resources to help every LEA to support schools with additional resources and, transitional support to help all schools achieve balanced budgets (£6.9 million).

· The school funding timetable and announcements for 2004/05.

1.2 A further up-date will be provided at the meeting to reflect the latest announcements.

1 Funding Announcements of 29 October 2003

2.1 Appendix 1 attaches the paper which went to Cabinet on 24 November 2003 which expands on these funding announcements. In addition, Schools Forum comments are being sought on the flexibility on central spending limits in November and a submission through the Secretary of State for Education will follow this consultation.

2.2 Schools Forum is also being consulted on the criteria for distribution of the transitional support grant of £6.9 million to schools. This will be a two stage process and the first stage is discussing potential approaches which meet DfES requirements, as attached in Appendix 2, in preparation for completing Hampshires submission by 13 February 2004.

2 School Funding 2004/05 Timetable and Announcements

2.1 As expected, the DfES have brought forward the dates for their announcements this year and the consultation process has been amended accordingly, details of which are included in Appendix 3.

Recommendation

That the funding announcements made so far are noted.

Section 100 D - Local Government Act 1972 - background papers

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

None

Appendix 1

Contact: Jon Pittam, ext 7400

1 Introduction

The Secretary of State for Education made an announcement on the 29 October 2003 outlining the funding system for 2004/05 for Education and the Schools budget in particular.

His announcement covered:

· minimum increase in every school's budget

· additional resources to help every Local Education Authority (LEA) to support schools with additional pressures

· targeted transitional support to help all schools to achieve balanced budgets.

Schools guarantee

The estimated effect of cost pressures on the average school for 2004/05 is 3.4%. That assumes a teachers' pay award of at or around 2.5% (and a similar increase for other pay costs in schools). The teachers' pay award should be announced before the date of the Cabinet meeting.

The increase will allow a 4% per pupil increase for each individual school with an amount of 4% in cash for fixed elements within delegated school budgets. The minimum guaranteed per pupil increase is therefore 4% over the 2003/04 budget, slightly more than assumed in the last projections reported to Cabinet. Consequences of this are:

· a school whose pupil numbers stay the same will be guaranteed a 4% per pupil increase in its budget

· a school whose pupil numbers decline receive a funding increase of more than 4% per pupil to help cover fixed costs

· a school whose pupil numbers are increasing will be guaranteed at least a 4% increase for all their existing pupils and an overall per pupil increase of at least 3.4%.

The Secretary of State has also announced an indicative increase of at least 4% for a school with unchanged pupil numbers for 2005/06.

Education formula funding share and revenue support grant

The minimum increase in the Schools formula spending share (SFSS) of 5% per pupil has been set for 2004/05 with a ceiling of at least 6.5% per pupil. This represents about a 4.8% cash increase for this Council's SFSS for 2004/05 because of falling pupil numbers, and after adjusting for changes in three-year old numbers.

According to the Secretary of State's announcement each authority will receive sufficient grant in each of the next two years to cover its formula increase in education spending. Despite this it is expected that the grant increase will only cover the increase in Schools FSS (not Education FSS).

The Office of the Deputy Prime Minister (ODPM) will be writing to authorities to set out the Government's clear expectation that every LEA passports in full its SFSS increase into a matching increase in its Schools budget ie full passporting unless there are wholly exceptional circumstances. The Secretary of State has statutory powers to require this to be done and the announcement made it clear that he will be prepared to use those powers if it is necessary for him to do so.

There will also be a limit on the increase in central education budgets (eg special education needs and excluded pupils within the Schools budget) which may not rise faster than spending on delegated schools budgets. LEAs will be able to seek an exemption in local circumstances. The County Council will wish to pursue this with the Department for Education and Skills (DfES) because of the projected increase in special education needs costs for 2004/05.

The minimum schools guarantee of 4% will be expected to result in a minimum increase in SFSS of around 5% in 2005/06. The higher percentage increase reflects the protection given to schools with falling rolls and other anomalies created by imposing the per pupil guarantee in this manner on the fair funding formula used to allocate resources to schools. It also means that the unwinding of the grant floor will take a lot longer than previously anticipated and the increase is more than the 3.5% assumed for budget consultation purposes.

Targeted transitional support

The Secretary of State has acknowledged that LEAs will need more flexibility to help schools balance budgets over the next two years and has amended the regulations to enable LEAs to target their resources at those schools which have particular problems "whatever their source". It expects LEAs to use this flexibility.

Those LEAs that have received the lowest increase in Education formula spending and grant between 2002/03 and 2004/05 will have a targeted transitional grant available over the next two years. This will take the increase in funding for all authorities over the two year period up to a minimum of 12% per pupil. It will cost around £120m and benefit around one third of LEAs. The County Council's allocation is around £6.9m for 2004/05.

Unfortunately the support is a year too late and will not replace the extra funding that was provided by the County Council in its 2003/04 budget to increase schools' budgets beyond the level supported by Government grant in that year.

This additional resource is an indicative allocation and will only be provided when the Secretary of State is convinced that the LEA has made every effort to support its schools from within its own resources by:

· passporting its SFSS increase in full

· directing its resources to delegated schools budgets as far as possible

· targeting the schools in greatest difficulty.

It will be a condition of such grant that each LEA prepares, with the schools concerned, a costed and credible plan to bring their schools' budgets into balance by 2006/07. A similar grant will be made in 2005/06 at around half the level of that provided in 2004/05.

Standards Fund and School Standards Grant

These specific grants will be increased by 4% in cash terms for standards fund and by either a 4% increase on the per pupil schools standard grant or the value of the announced band for 2004/05 whichever is higher.

Commentary

The announcement together with the reinstatement of the standards fund specific grant amount early in the summer, will provide a better result for Hampshire schools in 2004/05 than was previously forecast. It means that the expected reductions because of the formula grant changes will take longer to work through. There should be sufficient increases in the Schools budget to meet cost pressures so that schools do not have to make any cuts over the next two years, provided that they use the transitional funding for one-off investment only to enable them to get back down to the long term funding level.

Draft regulations have been published to enable the minimum per pupil guarantee to be delivered and responses are required by Friday 14 November 2003 (in advance of the Cabinet meeting). Comments have been made where appropriate to make sure the County Council has the maximum flexibility in using the head-room within the targeted transitional grant. However it would have been much better if this effective "safety valve" grant had been included in the underlying floor because of the low funding increases over the two year period. If that had occurred all Hampshire schools could benefit rather than just those in difficulties or with deficits.

It is important that the County Council is able to take credit for its "over passporting" in 2003/04 and also for its percentage increases in delegated schools budgets and central items in 2003/04. It is therefore suggested that the calculation of percentage increases in delegated schools budgets and central budgets together with the contribution of `over-passporting' should be made over the two year period of the new funding system rather than just being based on 2004/05 as currently proposed.

It will also be helpful to use the flexibility within the extra targeted grant to meet the unexpectedly high costs of additional cases of special education needs (SEN) and exclusions from schools by clawing back those resources from delegated schools budgets where possible.

There is also scope to explore proposals for centralised procurement (eg insurance and IT costs) which improve value for money and have the support of headteachers.

Early action is required to identify whether a case needs to be made to increase spending on SEN faster than the spending in delegated schools budgets. Higher cost rises on SEN should be met as far as possible by Government funding meeting its share rather than by further over "passporting" which puts the burden entirely on the council tax.

The timetable set is 8 December 2003 to submit a case to the Secretary of State with a decision made by 18 December 2003. The Schools Forum must be consulted first.

It is imperative that the flexibility within the new funding system is used to bring schools to a long-term funding level and that the transitional support is used for one-off purposes only.

Some of the pros and cons of the system are set out below:

Pros		Cons
recognition of problems in 2003/04 and avoids `crisis' in 2004/05		further centralisation of control and decision making
some stability and certainty		increased ring fencing (passporting and targeted grant)
cash to meet cost pressures from 2003/04 to 2004/05		schools forums constrained
earlier announcement of standards fund, schools standards grant, per pupil guarantee etc		fossilises 2003/04 spending - creates anomalies
early announcement of teachers' pay award in November, constrained at 2.5% within announced per pupil amount to meet cost pressures		no growth in provision - minimum cost guarantee only
indicative figure for 2005/06		enforcement of passporting
standards fund reinstated		limit on `central' spend with pressure on absorbing SEN/exclusion costs
grant increase to match formula increase in Education spending		complicated, not simple or transparent to LEAs, schools or parents
		transitional funding targeted at schools with difficulties, not all schools in LEAs with lower SFSS/grant increase 2002/03 to 2004/05
		too much in targeted grant (safety valve) rather than in floor
		narrow spread between floor and ceiling
		reduces speed of gain for those at ceiling
		still only transitional help (targeted grant 100% 2004/05 and 50% 2005/06) - long floor unwind
		effect on LEA block and other services (and council tax) not yet known, but separate floor for LEA block expected in provisional regional support grant (RSG) announcement
		basis of calculation of formula based transitional targeted grant is known, but cannot be confirmed until 2004/05 EFSS amounts are announced with the settlement
		short deadline on imposing the guarantee overrides the normal consultation process and period required by LEAs to consult governing bodies and head teachers of individual schools
		generally unrealistic timetables
		possible perverse incentives (schools in deficit)

Although not yet announced it is anticipated that there will be a separate floor for the LEA block as well as the Schools block but it is not clear if this will be matched by transitional grant protection. These floor arrangements will dramatically reduce the expected grant loss in 2004/05. A substantial proportion of the transitional grant of £25m for Education in 2003/04 is now expected to continue into 2004/05. Significant changes have been made. In effect the Secretary of State has frozen the grant changes for Education and further significant grant loss appears to have been deferred until 2006/07. Final figures will no doubt change and the details will be confirmed when the provisional RSG settlement is announced, possibly during the week beginning 17 November 2003.

Recommendations

1. to note the minimum per pupil, guarantee and grant support for the School's budget for 2004/05

2. to confirm the budget strategy that the Schools budget be increased in-line with the passported Schools Formula Spending Share and accompanying grant support and no more

3. to emphasise again the constraints being placed on special educational needs funding where the Government should provide more flexibility

4. to use the transitional grant for schools for one-off purposes only and to work closely with the Schools Forum and all schools to maximise any headroom in the passporting arrangements and transitional grant to cover additional special education needs costs and costs of excluded pupils.

Section 100 D - Local Government Act 1972 - background papers

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:

Published works.

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

TITLE FILE

None

Appendix 2

Transitional support grant paper to be inserted

Appendix 3

Contact : Thomas Whiffen Ext. 6287

Introduction

This paper gives the overall timetable of School Funding for 2004/05 and summarises the main announcements made or to be made. Both national and local key points are included.

Table of Events

17 July 2003 Statement by Charles Clarke ( DfES Secretary of State) on School Funding 2004/05.This covered the principles of : a minimum per pupil guarantee, limitations on increases in spending on Schools Budget undelegated (central expenditure ), a 2 year inflation linked pay deal for teachers, some transitional support for schools in particular difficulty, earlier central government announcements on LEA funding, full passporting , passporting declaration by 31 December instead of January. He also announced a reversal of the planned Standards Fund cuts for 2004/05.

15 September 2003 Leader of the County Council's meeting with Hampshire Schools Forum as part of early budget consultations.

14 October 2003 Education Policy Review Committee at which 2003/04 and 2004/05 budget pressures on SEN and exclusions, which form part of Schools Block undelegated, identified

21 October 2003 Hampshire Schools Forum meeting which recognised funding for schools serving deprived areas as a priority and agreed other formula changes.

29 October 2003 Charles Clarke statement which announced : the guarantee of 4% per pupil, Standards Funds for 2004/05,minimum increase in SFSS of 5% per pupil, draft regulations including those on "central expenditure", further details on transitional support grant and provisional amounts for qualifying authorities.

10 November 2003 Teachers' Pay award announced: 2.5% from April 2004, a further 2.5% from April 2005, another 0.75% from September 2005 and future pay increases to be in September, changes to come to management allowances.

19 November 2003 Local Government Finance Settlement covering all local authority services with provisional government grant and formula spending share figures. Followed by a letter to LEAs on transitional support grant with: Allocations (subject to significant data changes - only),final conditions, process (including required contents of plans).

25 November 2003 Hampshire Schools Forum meeting to discuss impact of national school funding announcements including: the guarantee, transitional support, "central expenditure" limits.

2 December 2003 Education Policy Review Committee receive budget monitoring report with latest figures on SEN spending.

4 December 2003 Executive Member for Education considers budget monitoring report

15 December 2003 Hampshire County Council's Cabinet meet and set budget guidelines for 2004/05

17 December 2003 Hampshire Schools Forum meeting which will discuss HCC's 2004/05 budget guidelines, effects of limits on "central expenditure" and final transitional support criteria

31 December 2003 Deadline for notification to DfES of proposed Schools Budget (passporting) in 2004-05 and for requests to DfES for exemption from the limit to the growth in central spending within the Schools Budget in 2004-05 if the authority is not passporting.

13 January 2004 Hampshire Schools Forum

15 January 2004 PLASC day , January pupil count

20 January 2004 Education Policy Review Committee consider 2004/05 budget.

22 January 2004 Executive member Education considers budget 2004/05

End January DfES make 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) School level forecasts of estimated pupil numbers for January 2005 issued to schools for agreement.

12 February 2004 Leader and Cabinet meet to recommend budget and council tax to County Council

13 February 2004 Deadline for requests to DfES for exemption from the limit to the growth in central spending within the Schools Budget in 2004-05 for passporting authorities.

24 February 2004 Hampshire Schools Forum meeting

25 February 2004 Hampshire County Council budget meeting.

End February Finalise list of schools eligible for additional support, 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 in balance by 2006-07)

By 31 March School budget shares, Standards Fund allocations and transitional support allocations notified to all schools, as part of on-going discussions on individual recovery plans

May 2004 Deadline for LEAs and schools to finalise individual recovery plans

LEA confirm to DfES that individual recovery plans have been agreed; provide DfES with summary of schools to be supported

By end May Confirmation that DfES agrees that the LEA has met the conditions attached to Transitional Support Grant