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National funding formula: history and consultation

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Last updated on 18 July 2017
School types: All · School phases: All
In-depth article
What information is there on the future funding model for schools? We set out details of the DfE's consultation on the national funding formula and link to articles on how funding currently works. We also point to information on the reform of funding for high needs and the early years.

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  1. 1 Consultation phase 1
  2. 2 Consultation phase 2
  3. 3 Transition
  4. 4 High needs funding
  5. 5 Early years funding

The Department for Education (DfE) consulted on its proposals for a national funding formula (NFF) in two stages. The first phase ran from 7 March to 17 April 2016, while the second phase ran from 14 December 2016 to 22 March 2017.

The government published its response to phase 2 of the consultation on 14 September 2017. The education secretary also confirmed the details of the NFF and the high needs funding formula for schools in 2018-19 and 2019-20 in a statement to Parliament. 

You can read our summary of the confirmed NFF here, which includes a breakdown of the factors used in the formula and information about the transition period over the next 2 years. Or, read on to look back at the consultation process and rationale for the changes. 

Consultation phase 1

Why is the DfE changing the system?

The phase 1 consultation document says a national funding formula would mean:

  • Funding is consistent across the country 
  • Allocations would be based on up-to-date data 
  • There is more certainty around budgets, helping schools be more efficient
  • Funding is easier to explain to staff and parents

The following articles from The Key explain how school funding currently works:

Local funding formulas

The first phase of the consultation sought views on:

  • The principles that underpin the formula
  • The building blocks that will be used to construct the formula
  • The factors that will be included in the formula
  • The structure of the formula

The funding formula will apply to academies as well as maintained schools. The phase 1 consultation document said that the DfE proposed to:

  • Create a fourth block of the dedicated schools grants (DSG) – the 'central schools block', in addition to the existing blocks of 'schools', 'high needs', and 'early years'. This block would contain funding for central schools services, historic local authority spending commitments on schools and the retained rate of the education services grant
  • Calculate the schools block according to a new national funding formula
  • Move towards allocating the schools block directly to schools 

Paragraph 1.4 said that the pupil premium, pupil premium plus and service premium would be unaffected by the proposals in the consultation.

Proposed building blocks

Chapter 2 of the consultation document set out the DfE's proposal to base the national funding formula on 4 'building blocks':

  • Per-pupil costs
  • Additional needs
  • School costs
  • Geographic costs

This is illustrated in the image below:

Source: Schools NFF: government consultation - stage one, GOV.UK – DfE
Source: Schools NFF: government consultation - stage one, GOV.UK – DfE

Government response

In December 2016 the government published its response to the first phase of the consultation.

This sets out the views that were received during the consultation, and the government's response. Page 10 notes:

Overall, there was strong support for reform of the school funding system. 74% of those who responded to our question on the principles for the schools funding system agreed with the principles identified. The clear majority of responses supported moving to a national funding formula to ensure the school funding system is fair, open, and transparent.

Consultation phase 2

The second phase of the consultation covered:

  • How the DfE proposes to balance the different factors in the national funding formula
  • The impact of the formula on funding for individual areas and schools

The document for this second consultation also sets out a new timeline for introduction of the formula, which has been postponed until 2018-19. Originally, the formula was to be introduced in 2017-18.

On page 7 of the consultation document, the DfE sets out the factors it proposed including in the new funding formula. These differed slightly from those proposed in the first phase of the consultation, outlined in the image above.

Under the phase 2 proposals, the structure of the funding formula will be as follows:

Source: Schools NFF: government consultation - stage 2, GOV.UK – DfE

On page 15, the DfE sets out how these factors would be balanced within the formula. It proposed weighting the factors as follows:

Figure 3: Schools NFF government consultation - stage 2, GOV.UK – DfE

These figures do not include an uplift for the area cost adjustment, which means that some areas may receive cash values higher than the figures listed in the table.

Basic per-pupil funding

On pages 16 and 17, the stage 2 consultation document explains that the government proposes to maintain the differential levels of funding provided to schools for each primary and secondary pupil. On page 17 it says:

We are … proposing that the national funding formula should maintain the current national average distribution of funding between the primary and secondary phases. This means that the formula would allocate 29% more funding overall to secondary compared to primary, to reflect the higher costs in the secondary phase.

The document notes that this does not mean that every secondary pupil would attract 29% more funding.

On page 19, the DfE has modelled the amount of funding per pupil that schools would receive in each key stage, based on 73% of total funding being channelled through the basic per-pupil funding factor. Those values are:

  • £2,712 for each pupil in Key Stage (KS) 1 and KS2
  • £3,797 for each pupil in KS3
  • £4,312 for each pupil in KS4

On page 20, the DfE explains that the current funding system allows local authorities (LAs) to include a ‘reception uplift’ adjustment in their local funding formulas. This uplift is a way of accounting for pupils who join a school after the October census.

The Department is not including a reception uplift in the national funding formula as it feels such an adjustment adds complexity to the funding system while having a very small impact on schools’ budgets.

Funding 64x64

CPD Toolkit from The Key

We know that schools spend around 75% of their budgets on staff.

CPD Toolkit from The Key helps schools get the most out of their staff and make sure that standards stay high.

Additional needs factors

The national funding formula includes 4 additional needs factors. 18% of the funding allocated through the schools block will be based on these factors. Combined with the basic per-pupil funding, pupil-led factors account for 91% of the funding allocated to schools.

The factors are:

  • Deprivation factor – the DfE proposed to use both pupil-level and area-level factors to allocate funding through the deprivation factor. A table on page 23 of the consultation document shows that there will be 3 elements to the deprivation factor: current eligibility for free school meals, eligibility for free school meals over the last 6 years, and the income deprivation affecting children index (IDACI). The document reiterated the statement from phase 1 of the consultaiton that this will be in addition to, and not instead of the pupil premium
  • Low prior attainment – this will channel additional funds to each pupil who did not reach the expected standard at the previous key stage, for as long as they remain in the primary or secondary phase. These changes would not be introduced until at least 2019-20 following further consultation
  • English as an additional language (EAL) – pupils will attract extra funding if they meet this criterion, and have entered the state education system during the last 3 years. Data will be taken from new items in the school census related to the proficiency of a pupil’s English
  • Mobility – funding for the mobility factor will be allocated on a historic basis to begin with, while the DfE works on a more effective way to target this funding. This factor was not included in initial proposals for the national funding formula. It has been added in as a result of responses to the first phase of the consultation

School-led funding

Four elements of school-led funding are proposed in phase 2 of the consultation:

  • Lump sum – this is intended to contribute to the costs that do not vary with pupil numbers, and to give schools certainty that they will receive a certain amount each year in addition to their pupil-led funding. The DfE proposes to set the lump sum value in the national funding formula at £110,000
  • Sparsity – targeted at schools that are small and remote. The funding will be tapered, meaning that the proportion of the maximum available funding a school can receive will depend on the school’s average year group size
  • Premises factors – funding for this factor will be allocated on the basis of historic spending for the first year of the formula (2018-19), and the DfE will consult further on how this should be funded from 2019-20. The factor includes 4 strands:
    • Rates
    • Private finance initiatives (PFI)
    • Split sites
    • Exceptional circumstances
  • Growth – this is designed to make the national funding formula responsive to significant changes in pupil numbers that are not recognised by lagged funding. The funding for growth rates will be allocated to LAs on the basis of historic spending levels for the first year of the formula’s introduction

Area cost adjustment

On page 37, the consultation document explains that an area cost adjustment will be applied to qualifying schools’ budget allocations once the rest of the funding formula has been calculated.


‘Soft’ and ‘hard’ funding formulas

The phase 2 consultation document includes information about the transitional arrangements in place to support schools as the new formula is introduced. On page 59 it says:

… we have confirmed that we will move to a ‘soft’ national funding formula in 2018-19. This means that although we will use the national funding formula (once it has been finalised following this consultation) to calculate LAs’ funding allocations, LAs will still determine individual schools’ funding allocations through their local formula.

In 2018-19 and 2019-20, the national funding formula will set indicative budgets for each school

LAs will still agree their local funding formulas with schools for 2018-19. As a result, the amount that schools would get during the first year of the national funding formula (as indicated in the resources linked to in section 4 below) will not necessarily be reflected in schools’ actual allocations.

The consultation document said that from 2019-20, the national funding formula would be used to calculate each individual school’s budget, without the additional step of applying a local funding formula. This would be the ‘hard’ national funding formula.

However, on 17 July 2017, the secretary of state announced that the period of transition would be extended to 2019-20:

It remains our intention that a school’s budget should be set on the basis of a single, national formula, but a longer transition makes sense to provide stability for schools.

In 2018-19 and 2019-20, the national funding formula will set indicative budgets for each school, and the total schools funding received by each local authority will be allocated according to our national fair funding formula and transparently for the first time.

Local authorities will continue to set a local formula to distribute that funding, and to determine individual schools’ budgets in 2018 19 and 2019-20, in consultation with schools in the area. 

Further consultation will be required (as discussed above) related to some elements of the ‘hard’ formula.

Minimum funding guarantee

On page 38, the consultation document says:

We are … confirming that, under the national funding formula, the minimum funding guarantee will continue to operate at minus 1.5% per pupil, in the same way that it does currently.

The minimum funding guarantee will play an important role in managing the transition towards new funding levels. But we do not believe that on its own it would provide sufficient stability for schools.

As a result, the DfE planned to introduce a ‘floor’ that limited the reduction to per-pupil funding that any school could incur as a result of the new formula.

The department proposed to set this floor at minus 3% per pupil compared to the funding level schools currently receive. Likewise, a cap on gains would mean that schools could only gain as much as 5.5% per pupil in the first 2 years of the formula (3% in 2018-19 and 2.5% in 2019-20).

Unlike the minimum funding guarantee, the funding floor would be in place only during the transition to the new funding formula. Also unlike the minimum funding guarantee, the funding floor is not related to year-on-year changes in funding, but rather to the amount of funding a school stands to gain or lose as a result of changes to the funding system.

The document adds:

It is important to be clear that schools’ funding will still fluctuate in response to changes in pupil numbers … The minimum funding guarantee and the funding floor are applied to the school’s per-pupil funding level, not its overall funding allocation.

This means that if pupil numbers in a school fall, so too will the school’s overall funding allocation.

Another article from The Key looks in more detail at how the minimum funding guarantee and funding floor will work under the national funding formula, as well as how the minimum funding guarantee currently works:

Ringfencing of the schools budget

In the first stage of its consultation on the national funding formula, the DfE proposed ringfencing schools’ funding from the first year of the transition, effectively preventing LAs from moving money into or out of schools’ budgets into the budget for high needs.

On page 61 of the second stage consultation document, the DfE says:

While we are confirming that the schools block will be ring-fenced in 2018-19 … we propose some flexibility to transfer funds from the schools block to the high needs block if necessary in 2018-19, following local consultation and with the explicit agreement between the LA, their schools forum and a majority of primary and/or secondary schools and academies …

On pages 62 and 63, the DfE explains that such an arrangement would continue under the ‘hard’ national funding formula, with details on how this might work to be determined through further consultation.

High needs funding

You can read about the confirmed high needs funding formula in another article from The Key.

Early years funding

In 2016 there was also a consultation on proposed changes to funding for the early years. A further article from The Key sets out the details of this:

This article was updated in anticipation of members' questions about the national funding formula.

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