The Opposition was asked to "refresh their maths" by Education Secretary, Nicky Morgan, last month, when she was presented with IFS figures estimating that spending per pupil will, on average, decrease by 8 per cent over this Parliament. In response to this criticism, the Department for Education has cited the additional funding allocations to schools set out in the last Budget, including funding to support the roll-out of a national funding formula. This has provided a justification for claims that schools funding will be protected, even in real terms.
Do these claims stack up? New analysis by Reform presented here shows that the new money announced in the Budget mean schools funding will indeed be protected in real terms. However, when this is calculated on a per pupil basis, there is a projected decrease of 5.5 per cent over this Parliament. This significant downward pressure will be further amplified by increasing school costs, which Reform estimates are not as large as currently thought. This makes efficiency savings crucial for schools: they need to deliver more while spending less.
Changes to schools funding
Before the last Budget, those who argued that the new Government had discarded a twenty-year ring-fence on schools funding would have been right. The Government had previously committed to protect the Dedicated Schools Grant (DSG), the main source of school income, only in cash terms per pupil, as well as the Pupil Premium. This funding settlement alone would have led to a real-terms cut in overall schools funding by the end of the Parliament, as pupil numbers are not projected to rise as fast as inflation.
However, the 2016 Budget brought the schools ring-fence back. It announced additional funding for a school sports premium, longer school days and breakfast clubs, the implementation of the national funding formula and academisation, and funding specifically targeted at schools in the North. By 2019-20 these additions will amount to £670 million in cash terms, and ensure that schools funding sees a real-terms increase of 1.4 per cent. As Figure 1 shows, this has made it legitimate for Nicky Morgan to claim that the overall schools budget is being protected in real terms, and that the schools ring-fence is still in place.
Yet this simplistic view of schools funding ignores the tangible pressures on individual school budgets. Despite a real-terms increase in schools funding over this Parliament, funding per pupil will still see a significant decrease. Below is a chart showing spending per pupil in real terms over this Parliament, divided into its different components. Combined average spending per pupil will fall from around £6,190 to approximately £5,850 − a decrease of 5.5 per cent.
Cost pressures
In addition to decreased schools funding per pupil, increases in staffing costs have come into effect over the past year. Pension contributions for teachers rose from 14.1 to 16.48 per cent and National Insurance contributions increased to 13.8 from 10.4 per cent. The 1 per cent freeze on public sector wages goes some way to limiting these costs on schools, but it is not quite enough. Real-terms staffing costs will be above 2015-16 levels for most of this Parliament.
Figure 3 shows Reform's projection of school costs, using workforce data for spending on teachers’ salaries and financial reporting data for all other school expenditure. The overall school costs are projected to fall by 0.5 per cent by 2019-20. Before this decrease, caused by the public sector wage freeze, they are predicted to peak in 2016-17. The costs are not displayed per pupil, as this would insinuate that school costs decrease as pupil numbers go up and this is not the reality that schools face. They are instead shown in total, based on an assumption of a constant workforce (with 2016 pensions and NI contribution levels continuing), and all other expenses rising with inflation.
Ultimately, the estimation of school costs presents more uncertainties than the estimation of schools funding. Adding to the uncertainty is the implementation of the new national funding formula, of which the effect on individual schools is still unknown. However, the estimate provides a useful context in which to consider the general financial situation schools find themselves in. Just between the financial years 2015-16 and 2016-17, schools funding has fallen by 1.4 per cent per pupil and costs risen by about 1 per cent, meaning that schools, on average, will need to save 2.4 per cent of spending per pupil. By 2019-20 this will increase to 5 per cent.
The need for greater efficiency
The funding pressures present a real challenge for schools to reform. Already, schools are reported to have responded differently to these circumstances. Some have negotiated better rates on utilities and consultancy services, while others are planning a reduction in staff.
There can be no question that it is positive for schools to negotiate better prices with their suppliers. And although lower staffing levels is often considered an inherent negative, evidence for the adverse effects of larger class sizes is very weak. The Education Endowment Foundation has furthermore made an overall evaluation of employing teaching assistants, concluding that it is a costly and inefficient intervention.
The strain on school finances may therefore help schools make better spending decisions. Reform is currently undertaking research to find common characteristics of schools that provide good value for money, and it will be essential for schools to observe and apply the characteristics of such schools.
Meanwhile, there is no doubt that funding per pupil is facing significant real-terms cuts, and the Government should not attempt to brush it off as bad maths. Instead, they should focus on engaging with schools and help them achieve the improvement in value for money that so many of them desperately need.
