Financial Aspects of School Meals Strategy.

1 Meals grant distribution.

1..1 The key priorities for the grant are : an universal hot meals service, better food content and better trained staff. Proposals for the use of the money need to take account of the fact that HC3S are the chief provider of meals to primary and special schools and the provider for 27 secondary schools. Although school catering is delegated there would only be administrative cost in devolving grant money to schools for them to pay it to HC3S for better food content or for enhanced staff training. Direct payment to HC3S would seem to be simpler for at least some of the costs with equivalently calculated sums going to schools with other contractors or which run their own catering.

1..2 This would suggest that the grant should be distributed in accordance with the following:

a ) any direct central funding needed for hot meals service

b ) payments to HC3S

c ) equivalent payments to schools with other providers.

2 Food costs

2.1 Figures have been quoted in the press as to what the cost/value of the food content should rise to and a national study was undertaken. However in the local context the important aspect is the cost of meeting the nutritional standards.

2.2 The current phasing in primary and special schools is: the value of the food content improvement that already is in the menu from the start of the autumn term 2005, 8 pence.. A further 14 pence will be added from autumn 2006. That will be a total of 22 pence at current prices from September 2006 onwards, which represents a 52% increase in food ingredient cost. The average effect in 2006/07 financial year of the increases is for spending on food ingredients to be 17.3p higher .

2.3 The cash cafeteria approach to secondary school meals makes it much more difficult to bring about the sustained improvements in food content and indeed the expectation is that it will take longer. The emphasis on supporting the most deprived and nutritionally at risk in the grant purposes suggests that the food content of the free meal does need to be improved fairly quickly. Current spending is higher than in primary schools and the actual choice of food items is far more variable as are the chances for income generation. It is assumed that by summer term 2007 secondary food ingredient spending will also have risen by 22 pence at current prices in two equal instalments.

2.4 The table below shows the cost effects of this move in food ingredient values.

Food ingredients in	Primary and special schools `paid' meals	Primary `free' meals	Special `free' meals	Primary & Special Total
Year	£'000	£'000	£'000	£'000
2005/06	289	89	6	384
2006/07	935	292	19	1,246
2007/08	1,179	370	23	1,572
2008/09	1,179	370	23	1,572
Food ingredients in	Secondary assumed `paid' meals	Secondary `free'meals	Secondary Total	OVERALL TOTAL
Year	£'000	£'000	£'000	£'000
2005/06	0	0	0	384
2006/07	371	102	473	1,719
2007/08	736	204	940	2,512
2008/09	736	204	940	2,512

3 Take up issues

3.1 The government wishes to see higher levels of take up of nutritionally sound school meals. One of its aims is for all those entitled to free school meals to actually take their entitlement. Currently the cost of free school meals is part of schools' budget shares. The money is allocated on the basis of pupils entitled to free meals but the amounts are not enough to meet the costs if all those entitled actually take a meal every school day. i.e. some allowance has been made in the cash figures for the less than 100% take up. The assumption is 85% in primary and special and 78% in secondary. Taking the PLASC date evidence as representative the actual averages are 77% primary, 79% special, 66% secondary.

3.2 Universal take up of full entitlement would cost an additional £520,000 per year. It is unclear as to whether the better school meals will stimulate greater levels of entitlement to be identified and no allowance for this is made in the figures.

3.3 The initial evidence of the healthy menus in primary schools is of lower take up of school meals by pupils. It is reasonable to expect this to continue for a while as the whole school food policies, healthy eating initiatives and the stronger focus on healthy schools will take time to change pupil and parent attitudes and behaviours. It is likely that there will be a similar impact in secondary schools but it is difficult to track. A mid path set of assumptions would be:

Year		Estimated take-up
2004/05	Base year	100%
2005/06	First Year	90%
2006/07	Second Year	100%
2007/08	Third Year	110%

3.4 Since the Hampshire take up of school meals at the base level is about 37% of pupils there is scope for real improvements in overall take up.

3.5 Extrapolating from the evidence available it seems as though the 10% fall in take up if experienced by all schools will cost HC3S and other contractors and schools carrying out their own catering around £500,000 a year. On the assumption above in 3.3 the position would balance out over the three years 2005/06 to 2007/08. Sustained lower take up would increase unit costs and thus require service revisions to endeavour to reduce the semi variable costs - chiefly staffing, and probably also price rises and extra free meals subsidy from school budget shares. Higher take up on a continuing basis would reduce the frequency of price rises and increases in free meal costs, allow further food ingredient and quality developments and where contracts/agreements provided for it increase any returns to school budgets.

3.6 On the basis that the take up of the free meal entitlements takes time to pick up because of the general movement in meal numbers it is realistic to assume that no extra funds for increased take up are needed until 2007/08 as the current funding in budget shares would cover some increase above base. Even then it would be reasonable to allow for only half the increase that is £260,000.

3 Income and charges

3.1 In respect of paid meals the extra costs of the higher food content need to be funded on a sustainable basis and cannot be fully met from grant. This is likely to best achieved by a steady increase in prices to meet both the costs of the higher food ingredients and more general pay and price inflation. Payments to HC3S as the contractor producing many of the meals are set at the same level as the standard meal price. In order to meet the costs an increase of 15 pence followed by annual increases of 10 pence would generate funds for the higher food content with the rest going to meet the general inflation pressures. Price rises are taken as being from April each year.

3.2 The table shows the price strategy

Date	New Price	Increase	For food content	Cumulative for food content	Financial Year	Assumed income
	£.p	£.p	£.p	£.p		£'000
April 2006	1.70	15p	11p	11p	2006/07	965
April 2007	1.80	10p	6p	17p	2007/08	1,479
April 2008	1.90	10p	6p	23p to include inflation on the 22 pence	2008/09	1,983

3.3 The additional income generated about matches the additional food cost for paid meals by the end of the period but there is the cost of free meals to be found. This will in 2008 be a call on DSG headroom insofar as improved efficiencies from general increases in take up do not offset costs. For some of the time the increase in food content precedes the price rises also generating a grant requirement.

4 Training Costs

4.1 The stage 1 training course is estimated to be 6 hours. The cost of staff time, travel, training providers is expected to be £187,000 broadly equivalent to £106 per employee trained. For those schools outside the HC3S agreement and with a school meals service, allowing 3 employees per primary and special school and 5 per secondary school would give such school either £318 or £530. It would be most straightforward to allocate this money in 2006/07. It is anticipated that the training will mainly be undertaken during summer term 2006 or summer term2007.

5 Using the Grant Money

5.1 The table shows how the grant income can be used

	2005/06	2006/07	2007/08
	£'000	£'000	£'000
Brought fwd	0	267	142
Grant amount	651	977	977
Funds available	651	1,244	1,119
Extra Food costs	384	1,719	2,512
Less income	0	962	1,473
NET	384	757	1,039
Add: Training	0	107	80
Add: Capital costs	0	238	0
Total grant needed	384	1,102	1,119
Carry Forward	651-384 =267	1,244 - 1,102 = 142	0

5.2 It would be possible to fund the anticipated increase in free meal take up in 2007/08 from the grant instead of from using Dedicated School Grant headroom. This would have to be done by assuming all the providers were gaining from increased paid take up as well and more general efficiencies and adjusting the grant accordingly.

5.3 Currently the value of the payment to HC3S matches the price of a free school meal. Retaining this link requires some of the grant to go to all schools for free meals and for the rest to go to HC3S directly with equivalent amounts going to non HC3S schools.

5.4 Schools Forum will need to approve the grant distribution which reflects these factors and training costs. It treats all schools equivalently but channels funding direct to HC3S where that makes sense for schools in its contract.

5.5 This would give the following allocations:

Year	To all Pri & Spec	To other (non HC3S) Pri. and Spec. if they have a meals service.	To all secondary	To other (non HC3S) secondary	Direct To HC3S
2005/06 £384,000	£nil	£10.08 per FSM Entitled Jan.05 + £3.00 per pupil	£nil	£nil	£367,000
2006/07 £864,000	£20.90 per FSM entitled	£318 per school plus £11.94 per FSM entitled + £3.50 per pupil	£20.90 per FSM entitled	£530 per school	£511,000
2007/08 £1,119,000	£48.50 per FSM entitled	£1.60 Per pupil & £9.05 per FSM entitled	£57.95 per FSM entitled	£9.05 per FSM entitled	£439,000