APPENDIX 2

EDUCATION FUNDING – REVISED ESTIMATE 2003-2004 & PROVISIONAL ESTIMATE 2004-2005

A Revised Estimate 2003-2004

The revised estimate is likely to show a NET overspending of £87,000 as a consequence of additional Home and College Transport costs (£72,700) and Higher than average inflation costs of (£94,000) in respect of Mainland Placements.

This combined Overspending of £166,700 is partially offset by the utilisation of external funding for SEN costs (£51,000cr) and an accumulation of other net savings throughout the Education budget which summate to £28,700cr.

Either an adjustment to the Directorates Cash Limit OR a Financing Proposal to offset the net increase in costs OR a combination of the two is required.

B 2004-2005 Estimate

The overriding consideration for Education Services is the REQUIREMENT to ‘Passport’ the increase in the Schools Formula Funding Share (SFSS) to schools and those services that support pupils within schools. Such services are unhelpfully referred to by the DFES as ‘Central Services’ and include SEN, Museums and LEA matched funding for Standards Fund Grants amongst other costs.

The minimum SCHOOLS BUDGET for 2004-2005 is £60,631,000 – see Paper A. This has been confirmed by the DFES in their notification of the 19^th November 2003. Passporting is NO LONGER OPTIONAL! The Secretary of State in his Press announcement of the 29^th October 2003 stated that:

“My RHF the Deputy Prime Minister and I will be writing to authorities to set out the Government’s clear expectation that every LEA passports in full its SFSS increase into a matching increase in its Schools Budget, unless there are wholly exceptional circumstances. I have statutory powers to require LEAs to set a minimum Schools Budget and I will be prepared to use those powers if it is necessary to do so”.

The DFES letter of the 19^th November confirmed this intent. It should however be noted that the increase in the Schools Budget of £2,676,139 has been matched by an increase in the SFSS for 2004-2005 – see Paper B.

In considering the Schools Budget for 2004-05 a distinction needs to be made between SCHOOLS DELEGATED BUDGETS and CENTRAL SERVICES as defined by the DFES.

1. SCHOOLS DELEGATED BUDGET – otherwise known as the ISB:

The LEA will need to demonstrate to the DFES that the percentage increase in the 2004-05 ISB is NO LESS than the percentage increase in the Authority’s SFSS when comparing the SFSS for 2004-05 with that for 2003-04.

This will require a MINIMUM uplift in the ISB of 4.739% = £2,301,781 - see Paper D. For Schools the following outcomes will result:

The Minimum Guarantee: Increased funding of £2,301,781 will be sufficient to deliver the Minimum Guarantee estimated to cost £2,059,545 and represents an average increase of 4.5% for Primary, Middle & High Schools and 4% for Special Schools. This leaves a minimal ‘Headroom’ of £242,236 within the ISB over and above the 3.4% increase in costs subsumed within the minimum guarantee requirement. – see Paper E.

NB: This figure is provisional to the extent that September 2003 individual school pupil numbers have been used in it’s calculation. January 2004 numbers will generate a different ‘mix’ of guaranteed funding levels. It is however sufficient to demonstrate affordability within the total ISB increase.

Standstill Budget for Schools: A standstill budget for schools will require an increase of £1,885,562. The cost of a Standstill Budget includes ALL known Pay & Price increases to 31.03.2005 + demographic changes for a Net increase in pupil numbers. A ‘Headroom’ figure of £416,219 is available to offset other costs – See Paper E and paragraphs 6 & 7 below.

NB: Assumed within the Standstill budget is a sum of £80,832 for property rates which will have to be funded from within the SFSS settlement if an adjustment to the Directorate’s Cash Limit is unavailable.

Some further thought needs to be given to the component parts of the ‘Standstill’ budget and the value attached to them. For instance, the provision for Salary Increments is sufficiently greater than in previous years - £588,445. This assumes FULL Funding of all Incremental payments and no downward adjustment for turnover considerations. The Schools Forum needs to deliberate on this.

This has the effect of ‘dampening down’ any NEW money available for cost pressures such Work Force remodelling and the absorption of Upper Pay Scale 2 & 3 costs. An informed debate is required.

2. CENTRAL SERVICES WITHIN THE SCHOOL BLOCK

Of the Schools Budget the sum available for Central Services is constrained to £9,757,913 which represents the difference between the Total Schools Budget for 2004-2005 £60,631,000 and the ISB Guarantee of £50,873,087 – see Paper D. This represents an increase of 3.99% = £374,512 over and above the equivalent Central Services figure for 2003-2004 (£9,383,401) – see Paper D.

The ‘Budget Plan’ for Central Services for the 2004-2005 EXCEEDS the sum available by £304,988 as demonstrated below.

Ref:	Central Service	Additional Cost Pressures	£
01	Additional Funding available as determined by the SFSS Settlement		£374,512
02	ALL Services	Salary Increments	£26,800
03	ALL Services	LG Pensions Increase 12% - 14%	£42,600
04	ALL Services	FYE Inflation 2003-2003	£25,300
05	ALL Services	Pay & Price Inflation – SAY Average of 3%	£281,500
06	Mainland Residential Placements	Planned additional placements 2004-2005 [ 3 ]	£129,100
07	Mainland Residential Placements	High Cost Inflation factor OVER and ABOVE 3% norm (7.5%)	£99,200
08	Early Years	Pre-School workers previously located at Watergate School. Funding proposal to offset against Special Schools ISB ‘scuppered’ by 4% Minimum Guarantee proposals.	£75,000
10	TOTAL COST PRESSURES (PAY & PRICES) + PLANNED GROWTH =		£679,500
11	EXCESS COST OVER AND ABOVE FUNDING AVAILABLE =		£304,988

It should be noted that the above ‘Cost pressures’ make NO ALLOWANCE for the following additional costs:

12	Early Years	Third Term Universal provision for three year olds	?
13	S.E.N. Low Incidence Statements	The budget for LOW Incidence statements has been ‘Pegged’ at the same level as that for 2003-2004 on the assumption that any NEW Statements can be contained within Base Budge provision. To some extent this premise WILL be compromised. Current expenditure trends would suggest a cost of £26,000 in a part year and £70,000 in a full year for New statements.	£30,000

3. Controls on the RATE OF INCREASE for Central Services within the Schools Budget

The Funding of ‘Cost Pressures’ within the School’s Block is not the only consideration. A rate of increase greater than that for the ISB requires prior approval by the DFES. The Secretary of State stated in his press announcement of the 29^th October that:

“I also expect spending on their (LEAs) central education budgets to rise no faster than spending on schools. I am confident that most LEAs will concentrate on increasing schools’ budgets over the next two years, but the draft regulations I have issued reflect my determination to achieve this. Under my proposals, LEAS will be able to SEEK AN EXEMPTION in exceptional local circumstances.”

Subsequent DFES draft regulations received on the 19^th November have endorsed this. HOWEVER:

1. The proposal that LEAs notify the Secretary of State of their proposed School Budget by the 31^st December 2003 remains unchanged.

2. The Secretary of State has decided after representations from a number of LEAs to put back the deadline by which an application is made to increase the level of spending on Central services within the schools Budget until the 13^th February 2004 WHERE THE AUTHORITY IS INTENDING TO PASSPORT IN FULL.

3. There are two service costs which will be ‘set aside’ from the Central Services limitation test :

A. Any additional costs incurred on Early Years expenditure ( 08 & 12 ) above.

B. Any costs attributable to ‘Transitional Support of Schools’ – see paragraph 7.

NB: The DFES have promulgated a ‘TEST’ for limiting the size of Central Service costs within the Schools Budget. This does not form part of the attached documentation as there appears to be a ‘flaw’ in the methodology which has been raised with DFES Officials and an answer is yet to materialise. It will however draw upon data concerning Devolved Standards Fund Contributions which in turn is subject to confirmation.

4. The LEA Block

The size of the LEA block IS DETERMINED by subtracting the 2004-2005 Schools Budget (£60,631,00) from the PROVISIONAL Cash Limit for 2004-2005 (£68,654,000). This determines the MAXIMUM sum available for the LEA Block – see Paper C. The Maximum available to offset costs within the LEA Block for 2004-2005 is £8,023,000. This is an increase of 2.07% = £162,539 over and above the cost of Services within this block in 2003-2004 (£7,860,461).

The ‘Budget Plan’ for Central Services for the 2004-2005 EXCEEDS the sum available by £362,861 as demonstrated below.

Ref:	Central Service	Additional Cost Pressures	£
01	Additional Funding available as determined by the 2004-2005 PROVISIONAL Cash limit		£162,539
02	ALL Services	Salary Increments	£22,400
03	ALL Services	LG Pensions Increase 12% - 14%	£35,700
04	ALL Services	FYE Inflation 2003-2003	£21,200
05	ALL Services	Pay & Price Inflation – SAY Average of 3%	£235,800
06	Home to School and Home to College transport	Excess Inflation, increased officer time and other operational cost increases	£88,400
07	Education Directorate	Appointment of a Health and Safety Officer	£25,400
08	Education Directorate	Frictional costs of wider consultation with stakeholders – room hire etc.	£9,600
09	ALL Services	Implementation costs Corporate Policies – STRESS Counselling Fees etc	£6,900
10	Education Directorate	LEA response to OFSTED recommendations and CAPACITY considerations	£80,000
11	TOTAL COST PRESSURES (PAY & PRICES) + PLANNED GROWTH =		£525,400
12	EXCESS COST OVER AND ABOVE FUNDING AVAILABLE =		£362,861

For the LEA Block, the Funding of ‘Cost Pressures’ IS THE ONLY CONSIDERATION. There is NO LIMIT placed on the size of the increase within the LEA Block. It is a matter of affordability only.

5. School Standards Fund

STILL INCOMPLETE. Clarification sought on a number of programmes within the 2004-2005 Quantum. When known this will have implications for:

A. LEA Matched Funding. As at the 27^th November 2003 it is anticipated that the provisional 2004-2005 Standards Fund Budget will be sufficient to take up the 2004-2005 programme in it’s entirety.

B. Clarification sought as to the ‘split’ between DEVOLVED and NON-DEVOLVED elements. The former is of importance in determining the ‘Maximum rate of Increase’ for Central Services within the Schools Budget – see paragraph 3.

C. There is a question mark over the achievability of a 4% increase in individual schools Devolved Standards Fund entitlements as envisaged in the Secretary of States announcement of the 29^th October 2003 where he stated that:

“In 2004-2005 schools will generally receive a CASH INCREASE of 4% on this year’s Standards Fund allocations.”

It is highly unlikely that the LEA will be in a position to make good any shortfall in Standards Fund Grants by increasing the size of the LEA contribution. For planning purposes it is assumed that the LEA will pass on to schools the funding it receives for Devolved Standards Fund activities in it’s entirety AND NO MORE.

6. Work Force Remodelling & the On-Going costs of Upper Pay Scale Two & Three:

There is no discernable means of funding the costs of the above other than the ‘HEADROOM’ that exists in the proposed ISB for 2004 2005 – see paragraph 1. The sum available after allowing for the ‘Per Pupil Guarantee’ requirement as drafted is £242,000; slightly more than 30% of the cost of Work Force remodelling alone (£800,000+ before adjustment upwards for High Schools). This would leave no additional funding for Upper Pay Scale costs over and above that part which is Grant Aided and for the second year in succession the Authority would not be in the position to make good any underfunding occasioned by current grant thresholds - SCHOOLS ARE LIKELY TO BE VOCAL ABOUT THIS!

7. Transitional Funding to ‘Support schools in Financial Difficulty’ :

The latest communiqué is a letter from the DFES dated the 19^th November 2003. The amount of Transitional Grant has now been confirmed as £734,000. The DFES letter of the same date from Stephen Bishop concerning ‘Passporting’ includes the following paragraph:

“Authorities are reminded that this grant, to be used for supporting schools in financial difficulty, and which will be paid subject to conditions being announced separately, is NOT to be included in the passporting calculation.”

In essence, it is ‘Over and Above’ the increase in funding derived by the LEA via the SFSS methodology. Strict limits have been placed on it’s use with the emphasis placed on ‘SUPPORT FOR SCHOOLS IN FINANCIAL DIFFICULTY’. Separate guidance will be made available to the Schools Forum on the criteria that will determine which schools would be eligible for transitional assistance.

Bullet Points (BP) 3, 4 & 5 of the DFES Guidance notes suggest a ‘Prima facie’ status over the Headroom identified within the ISB - see paragraph 6. This would be unhelpful and almost certainly unpopular. BP 4 and the first part of BP 5 state:

“LEAs’ SFSS increases should be sufficient to enable LEAs to target funding towards schools in difficulty, over and above what is needed to implement the minimum schools guarantee.”

“Ministers believe that targeting funding to ‘schools in difficulty’ should be REGARDED AS THE FIRST CALL ON THIS HEADROOM”.

If we are to comply with this requirement it will remove most of the flexibility to fund the additional costs identified in paragraph 6. The only source of NEW MONEY would be the small sum available in the guarantee itself which has been set a level greater than the 3.4% increase identified by the DFES in their promulgation of the Pupil Guarantee.

A King - Education Financial Services - 25.11.2003