Contact: Sarah Pook, (01962) 84 7045; [email protected]

1 Summary

1.1 School balances in Hampshire have increased again during 2007/08 by £5.8m. They now total £46.8m or 7.23% of allocations (these figures include early years balances). School balances have been under scrutiny for some time locally and nationally as this is money delegated to schools to spend on current pupils. Nationally, the Department for Children, Schools and Families (DCSF) is looking to reduce balances to ensure delegated funding is delivering improvements in education for current pupils, the Audit Commission is reviewing the value for money of a system where funding goes unspent and locally there is a concern that as a low funded authority for education, increasing balances could be an adverse indication of need.

1.2 New powers were given to local authorities to help to encourage schools to develop their budget planning and reduce balances, these include a new power to claw back excessive, uncommitted balances. This claw back power has been exercised for the first time this year. Nine schools were proposed for claw back totalling £283,529. Schools Forum agreed to an appeals process such that schools could appeal to a sub committee of Schools Forum, ensuring that the proposals were subject to review by their peers. One appeal was upheld and Schools Forum confirmed the use of claw back for eight schools totalling £215,798 which represents an average of 1.27% of budgets shares for the schools involved or 3.48% of their balances.

1.3 School level detail on balances is published annually as the Section 52 return to the DCSF on the outturn position at the close of a financial year. Hampshire County Council's S52 return will be published in August for 2007/08.

1 Recommendations

That the Executive Lead Member for Children's Services (Education)

1 Approves the proposals from Schools Forum to consider further changes to the criteria for claw back contained in the Scheme for Financial Management of Schools to take effect for 2008/09 balances.

2 Notes the decisions made on claw back of balances for 2007/08.

3 Asks for all County Councillors to be sent details from the Section 52 outturn related to the outtirm balances for schools in their area.

2 Background

2.1 One of four directed revisions to the Scheme of Financial Management required by the Department for Children, Schools and Families (DCSF), placed a requirement on all local authorities to include a mechanism that controls surplus school balances, referred to as claw back.

2.2 The Hampshire Scheme for Financial Management (SfFM) claw back provisions only applies to uncommitted, surplus balances. Having declared all amounts assigned for specific purposes the claw back provision will apply to any uncommitted sums above:

· a sum greater than 4% of the current year's budget share (secondary schools)

· whichever is the greater of 5% of the current year's budget share or £25,000 (primary, special and nursery schools).

2.3 The onus is on the County Council to show that it has actions in place to control the level of school balances. Although the trend of total balances has continued to rise since 2003/04, it is expected that the balances control mechanism will have the effect of reversing the trend over the medium term. With balances continuing to rise the possibility of a future DCSF imposed levy will become more likely.

2.4 Recent data published by the DCSF and Audit Commission for 2006/07 shows interesting trends, the highlights are:

· Total national revenue balances increased from £1.57bn (2005/06) to £1.67bn (2006/07)

· Balances as a % of total revenue in 2006/07:

	National	Southeast region	Hampshire
	%	%	%
Secondary	3.6	3.3	5.0
Primary	6.8	6.7	6.3
Special	7.2	7.6	9.8
Nursery	17.6	15.1	18.7
All Schools	5.3	5.1	5.9

· The percentage of schools in deficit were 9.1% (National), 8.5% (South East region) and 4.7% (Hampshire).

2.5 In addition to the above, the balances held as a percentage of planned budget has changed between 2004/05 and 2006/07:

· In Hampshire +0.5%, in South East region -1.0% and nationally -0.5%, this shows a local movement against the national and regional trends

· Analysis shows in both Secondary and Special school sector, Hampshire's figures are above the national and regional trend.

2.6 Now looking at the local position for 2007/08, assurances were received from schools that historic balances would be largely committed during 2007/08. Despite that net year end balances (all surpluses less all deficit balances) have again increased by £5.8m. This reflects the official net book figure which will be presented in the County Council's accounts. However, due to various technical adjustments (primarily relating to `cheque book' schools where transactions cross the year end), the actual balances held in schools accounts is £47.0m (£41.0m at 31 March 2006).

2.7 As at 31 March 2008, 23 schools were in deficit to a total value of £0.8m.

2.8 The balances analysed below do not include any funds held by early years centres. Table 2 below analyses surplus balances with the total and increase in surplus balances shown by school phase.

Table 2 - Change in surplus balances only
School Phase	2007/08	2006/07	Change	Average Balance per school 2007/08
	£m	£m	£m	£
Nursery	0.5	0.4	0.1	160,000
Primary	22.1	21.2	0.9	51,000
Secondary	20.1	17.8	2.3	314,000
Special	4.4	3.1	1.3	183,000
Total	47.1	42.5	4.6	93,000

2.9 Surplus balance returns were requested from all 508 schools that expected to be in surplus. Returns received from schools have been based on estimated year end balances. This comprehensive exercise was undertaken in the knowledge that only 347 schools were likely to be over the thresholds quoted in 3.2 above.

2.10 In order to build up a historic pattern of spending over time returns have for the past few years been requested of all schools with any unspent funds. It is considered important that this data continues to be gathered as many schools have only identified a committed purpose for funds above the criteria.

2.11 The school returns were analysed to show the reasons for holding balances and Table 3 below includes a comparison with 2006/07. All returns were subject to checking to ensure that assignments identified met the criteria as set out in the agreed SfFM.

Table 3 Analysis of assignments
Spending Commitment	2007/08 £m	2006/07 £m	Change £m
Building Works	12.8	12.5	0.3
Capital Works	5.9	5.8	0.1
Number on Roll	6.2	5.6	0.6
Staffing	7.7	6.7	1.0
Adult Learning, Specialist Status, Cluster Money and Unofficial Funds	5.1	3.6	1.5
General Contingency	9.4	8.3	1.1
Total	47.1	42.5	4.6

2.12 Further breakdown of the returns from schools indicates that £30m of assigned surplus balances will be spent during 2008/09. In 2006/07 schools indicated that £27m would be spent in 2007/08 but balances have increased by £5m. In addition, in 2005/06 the planned commitment was £35m but again balances increased by £3.8m. If this year commitment plans are implemented there will be a significant fall in total school balances, but past history suggests that this is most unlikely to happen in practice.

2.13 Schools have also indicated that £4.8m is to be used in 2009/10 and a further £1.2m in 2010/11. The majority being earmarked for building and capital work or staffing/ Number on Roll changes.

2.14 In addition, it is worth noting that as at 31 March 2008, £18.56m was carried forward as unspent Devolved Formula Capital. This is an increase of £4.04m over the previous year.

3 Activity during 2007/08

3.1 During 2007/08 all schools' annual budgets and three year plans were scrutinised by Education Financial Services (EFS) to see if they complemented the assignment of balances return. A particular focus was placed on all schools with a balance of over £100,000 at 31 March 2007. Meetings with Headteachers, Bursars and School Governors have taken place across the county to encourage improved integrated planning. As a result of this work EFS identified some 23 schools which could potentially have been subject to clawback in previous years and worked to challenge their budget plans in greater detail. Another group of 60 schools holding larger balances were written to suggesting a thorough, robust budget revision process should be undertaken.

3.2 In December, EFS reviewed the revised budgets set by schools for 2007/08 comparing revised budgets with surplus balance returns and identified and challenged those schools that could be subject to claw back. This involved working with 80 schools during the final quarter. The particular emphasis was trying to tease out prudent budgeting (hidden contingencies) in some schools where final outturn was likely to be well in excess of revised plans.

3.3 During the year all schools received the termly newsletter (Money Matters) reminding all that forward financial planning was critical and the claw back mechanism was in place and likely to be applied. This was supplemented by the usual round of workshops, network meetings and training sessions for bursars, admin officers and Headteachers. EFS staff have taken on the dual role of supporting schools with good financial management practice and challenging schools with plans for deficits or large surplus balances.

3.4 Schools Forum considered the approach to claw back for 31 March 2008 and agreed that it was critical for the process to involve school representatives. As such they agreed that a sub group of Forum would consider any appeals against claw back proposals.

3.5 At the same time schools have been noting that some of the reason for ongoing surplus balances in schools with capital projects is the late recovery of school contributions by the County Council. During 2007/08 work was undertaken with Headteacher Resources Groups and Schools Forum to develop an agreed process for taking school contributions at an earlier stage in the process, with a consistent approach for all schools. This was agreed with Schools Forum in February and is being put in place for 2008/09.

4 Implementing Claw back

4.1 The criteria to be used for redistribution of any claw back balances was discussed and agreed at Schools Forum on 15 February 2008. It is a national requirement to notify both the school and the DCSF if there is an intention to claw back any uncommitted excess balances by 31 May. Nine schools were proposed for claw back. Schools Forum had agreed that these schools should have a right of written appeal to a group of their peers and set up a sub committee of the Forum to hear the appeals. The appeals were held on 26 June 2008 and recommendations made to Schools Forum at its meeting on 8 July 2008. Seven schools appealed and one appeal was upheld. Schools Forum confirmed the claw back from eight schools totalling £215,798, which represents an average of 1.27% of budgets shares for the schools involved or 3.48% of their balances.

4.2 Any funds identified as unassigned by an individual school are subject to claw back and redistribution but remain part of Schools Budget for distribution to schools. These funds are not lost to the local authority and cannot be diverted to support funding pressures elsewhere in the Children's Services or County Council's budget. Schools Forum agreed the sum clawed back would be distributed to schools in 2009/10, retaining funds within phase, on the basis of low attainment in line with its previous decision on this.

4.3 Further issues have arisen from the claw back process this year and these are set out below.

4.4 The current Scheme for Financial Management (SfFM) as drafted clearly needs tightening up as the trend in balances remains in the wrong direction and schools are able to earmark significant funds. It is therefore proposed that a strengthened SfFM be taken to Schools Forum and then the Executive Member in the autumn term. This would include a more explicit Hampshire guidance on the holding of uncommitted funds. To develop this, research into other local authorities' approaches will be undertaken. In addition, guidance will be sought from the Department of Children, Schools and Families (DCSF) regarding the accounting treatment of capital funds used for revenue purposes. Depending upon the scale of the proposals it may be appropriate to consult with all schools.

4.5 Schools Forum also agreed to write to all schools in the autumn term giving the outcome of claw back for 2007/08. It is also clear that more peer pressure is required by collective Heads and Governors to influence a change in behaviour. As such it was agreed that presentations would be prepared for use at Area headteacher and governor meetings in the autumn. County Councillors may also want to be aware of the position of schools in their areas, and so it is proposed that they be sent the Section 52 detail for their schools following its publication later this summer.

5 Analysis of 2007/08 position

5.1 The first analysis of the figures shown in table 4 below explores the geographical split of the sums held, taking into account the location of each school. In the county there are three areas and eleven districts, the table below identifies where the larger unspent funds are held. In addition, to take account of the number of schools in each area, an average balance figure has also been provided.

Table 4 - Geographical Analysis of Funds held at 31 March 2008

School Revenue Balances 2007/08
Area Director Analysis (3)		No. of		£		Average
		Schools				Balance
North East		191		15,482,206		81,059
South East		127		12,344,911		97,204
West		212		19,222,083		90,670
		530		47,049,200		88,772
District Council Analysis (11)
Basingstoke & Deane		74		6,693,022		90,446
East Hants		51		5,336,624		104,640
Eastleigh		38		6,085,621		160,148
Fareham		40		3,152,345		78,809
Gosport		31		2,396,010		77,291
Hart		35		1,527,632		43,647
Havant		49		5,317,080		108,512
New Forest		67		5,350,297		79,855
Rushmoor		38		3,404,403		89,590
Test Valley		60		3,513,936		58,566
Winchester		47		4,272,230		90,899
		530		47,049,200		88,772

5.2 Secondly, as in previous years, further work has been undertaken to show where the growth in balances has occurred. The analysis comparing 2007/08 with 2006/07 is shown in the table below, which identifies that the main budget share funding is the major source of the growth.

Table 5 - Funding source of growth in revenue balances

5.3 Further analysis shows the growth in balances identified by sector. The table below shows that the major growth in balances for 2007/08 has been in secondary schools. As in previous years very little of the increase is down to other funding sources.

Table 3 - Growth analysis by school sector and source of funds.

	Total	Secondary	Special	Primary/Nursery
	£m	£m	£m	£m
Main Budget	5.5	3.4	1.0	1.1
Specialist Status	0.3	0.3
Unofficial Funds	-0.1	-0.1
Community	0.0
Adult Education	0.3		0.3
Total	6.0	3.6	1.3	1.1

5.4 Finally, the school returns identified delayed capital and buildings projects which are due to commence in the next financial year as a reason for holding balances. The total commitment in this area from this year's returns is £18.7m, which is similar to a number of local authorities. As set out above a new process for charging schools for revenue contributions to capital schemes will be put in place for 2008/09 which should ensure that the delays reduce. However further analysis has been done on the levels of school revenue contributions to capital schemes over the last seven years, which shows that annual contributions vary between £231,000 and £1,961,000 with an average of £1,223,000. This suggests that the sums totalling £18.7m in school balances currently explained as for building or capital works would take 15 years to spend. That does support the need to review the definition of commitments to ensure balances are assigned for defined and committed projects.

6 Corporate aims and objectives and the five outcomes

6.1 This decision supports the following Hampshire County Council priorities "Maximising well being" and "Enhancing our quality of place" - by seeking effective management and use of school budgets and balances for children currently in Hampshire schools.

6.2 The five outcomes for children are all central to the effective operation of schools and thus their effective use of resources. In particular enjoying and achieving by providing a high standard of education for children through full and effective use of revenue funding.

7 Legal implications

7.1 None.

8 Financial implications

8.1 These are set out in the report.

9 HR implications

9.1 Some of the balances are held for staffing and workforce, linked to falling roles, workforce reform and Pay and Benefits. These issues will be taken into account in considering revisions to the claw back criteria.

10 Impact assessment

10.1 The proposals contained in this report are not considered to be discriminatory.

Or

Section 100 D - :Local Government Act 1972 - background documents

The following documents discuss facts or matters on which this report, or an important part of it, is based and have 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.

(Quote list of documents here: either "none" if 1 or 2 above apply; or list the relevant letters, memos, etc and their location).

Scheme for Financial Management for schools

http://www.hants.gov.uk/education/schools/lmscheme/index.php

Section 52 outurn report for 2006/07

Schools Forum report to 8 July 2008 meeting

http://www3.hants.gov.uk/education/education-meetings/education-meetings-schoolsforum.htm