School funding in England

This report by the Institute for Fiscal Studies examined school funding by answering four questions:

• How have overall levels of public spending on education and schools in the UK evolved in recent years?
• How does the English school funding system allocate money to individual schools?
• How redistributive is the school funding system, and to what degree do funding variations reflect educational needs and parental background?
• What incentives do state schools face to attract new pupils and to improve school quality?

Key points:
- Education spending in the UK has seen increases averaging 4.3% a year in real terms over the past ten years. However, this rate of increase will slow to 3.4% a year over the years 2008–09 to 2010–11.
- Schools spending in England has enjoyed larger increases than education spending as a whole over the past ten years (averaging 6.0% per year in real terms), with particularly large increases in schools capital spending.
- School spending per pupil has increased by 6.4% a year in real terms under Labour to date, compared with increases averaging 4.7% in the private sector. State spending per pupil has risen from 50% of the private sector level in 1997–98 to 58% in 2006–07.
- While the provision of schools may be the responsibility of local authorities, the vast
majority of schools’ funding comes from the central government’s education budget.
- Changes to the system over recent years have gradually reduced the discretion local authorities have in distributing these funds. This is the result of increased ‘ring fencing’ (whereby local authorities are forced to spend grants on specific purposes) and increased use of direct payments and grants that must be passed on to schools in full.
- Other changes have also reduced the discretion local authorities have over school
funding in their area, including the Minimum Funding Guarantee, which guarantees minimum increases in funding per pupil for nearly all schools.
- However, powers over funding decisions have not simply been transferred up from local authorities to central government; schools themselves now have an increasing influence on funding decisions via Schools Forums.
- Funding is skewed towards schools with relatively large numbers of pupils from deprived backgrounds. On average, pupils who are eligible for free school meals attract over 70% more funding to their school than those who are not eligible. This holds true for both primary and secondary schools, and the funding ‘premium’ that follows FSM pupils has grown over time.
- Local authorities only allocate around 40–50% of the extra funding they receive for pupils who are eligible for free school meals towards the schools these pupils attend. In other words, local authorities seem to spread the funding targeted at low-income pupils more widely. If local authorities did not flatten extra income in this way, the additional money following a low-income pupil would be roughly 50% higher in secondary schools and more than doubled in primary schools.
- Under the current system, the amount of funding that schools receive does not respond quickly to changes in their numbers of pupils from deprived backgrounds or with additional educational needs.
- Most money ‘follows the pupil’ in the English school funding system, with the majority of funding directly determined by pupil numbers (weighted by age and background).
- The current system does not live up to the ‘school choice’ programme enthusiastically
described in the 2005 White Paper, in which successful schools expand, new entrants compete with existing providers, and weaker schools either improve their performance or else contract and close.
- Rigidities elsewhere in the school system blunt the incentives created by parental choice. Of the three criteria often used to determine whether genuine ‘school choice’ exists (pupil-led funding, supply flexibility and management freedom), the English system probably ‘fails’ on the last two.
- The supply side appears to be largely inflexible, with little threat of entry from new
providers. New school entry is decided by local authorities, which have little incentive to encourage new entry.
- School management is constrained by binding collective agreements covering many aspects of school operations, including pay and conditions. Where schools (such as Academies) have been given freedom from these agreements, they appear to have responded with innovation and experimentation. However, Academies supply only a tiny fraction of school places in England, and the success of these experiments is as yet unproven.

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