School Funding Formula | Consultation

Update and Consultation – Schools Funding 2025/2026

1. Introduction

Local authorities are required to submit an annual schools funding formula to the Education and Skills Funding Agency (ESFA) which details the funding model agreed with its schools forum and the individual school budgets derived from the formula for maintained and academy schools.

Feedback from this consultation will be provided to schools forum members to aid decision making at the meeting on 6 December 2024.

2. Context

Schools in Cornwall and across the country are currently funded via the National Funding Formula (NFF). Local authorities were required to move towards the NFF from their existing local formula over a number of years from 2013 with annual changes to the funding regulations aimed at transitioning schools towards the full NFF rates and factors. The ultimate goal of the NFF is that all schools are funded on a fair and equitable basis, with similar children attracting comparable funding levels regardless of their location.

Cornwall opted to transition towards the full NFF factors and values from 2018/19 with schools forum agreeing a 3-year transition. This timeline was in part to avoid significant levels of protection or capping being required, and to fit in with the DfE’s target of implementing the ‘direct NFF’ for the 2020/21 financial year.

The ‘direct NFF’ would see the DfE calculating school budgets nationally with little or no direct input from local authorities. As schools will be aware this has been delayed for a number of years and it is expected this will now happen by 2027/28 although this is subject to any change in policy the new government may decide to implement.

The NFF is effectively a ‘one size fits all’ formula that must cover city based LAs with larger, more condensed pupil populations, to rural authorities like Cornwall where there are a high number of small schools. This approach inevitably means a formula that is simpler but less responsive to local need.

While Cornwall has transitioned to using the range of NFF factors and the values attached to them, the funding we receive from central government does not yet cover the cost and it has been necessary to cap the per pupil gains for a number of schools to ensure the overall cost of the formula remains within budget.

For 2024/25, after allowing for minimum per pupil funding and the minimum funding guarantee, to protect schools not seeing at least 0.5% increase per pupil, we were required to cap approx. £4.7m from schools budgets, setting the final gain per pupil at 3.11%. It should be noted that this figure includes the 0.5% block transfer out of schools to support high needs and central school budgets.

One of the notable impacts of the NFF since it was fully introduced is the rate at which small school budgets have notionally increased compared to the likely trajectory under the previous funding formula. Capping to budgets has primarily impacted smaller primary schools with 106 (76%) of the 139 schools subject to capping being below the average primary school size in Cornwall.

3. 2025/26 Operational Guidance and Budgets

At the time of writing the DfE have not released the 2025/26 funding regulations in full or DSG funding settlements. These would normally be available by the end of August but have been delayed due to the change of government and the Chancellors budget on the 30^{th of} October.

We do know the DfE are not proposing to make any significant changes to the regulations and that the 2025/26 formula should mirror the current arrangements. One confirmed change is that the current standalone grants for teachers pay, pensions and core budget grant will be mainstreamed into the DSG. This will mean maintained schools will see the uplift in their budget share from April 2025 and September 2025 for Academies.

The LA is proposing to offer schools forum the option to redistribute funding to support small schools and, if agreed, this would be a move away from the previous position of adjusting school budgets by capping gains per pupil only. More information can be found in section 4.

While the DfE have not yet published funding settlements for 2025/26 they have indicated an overall increase in funding following the recent budget of £2.3bn between schools and high needs. We do not have the local context but broadly this is expected to see school budgets increase in real terms by approx. 1.8% to cover pay related cost pressures and local authority managed high needs budgets by 6%.

The council expects its high needs deficit to exceed £40m by March 2025 so the above inflation uplift is welcomed, however it will only reduce the rate at which our deficit continues to grow and will not allow us to set a balanced budget for 2025/26.

4. Revised Options for capping schools budgets

Please note the following is based on the current year (2024/25) schools funding regulations and grant allocations due to delays in the DfE releasing the corresponding data for 2025/26. While we will maintain the principles set out for any proposals schools forum support, the rates used and individual impact on schools may vary.

Due to the below average funding Cornwall receives and the change in formula factors and values it was expected that it would take time for some schools to transition to the full NFF rates (without capping). It was anticipated this process would be aided by the DfE’s levelling up agenda which recognised the disparity in funding nationally and aimed to address the differences over a period of time. The reality is that while there has been movement, there has been no significant shift in funding and we remain reliant on capping to ensure the overall budget is within the funding quantum allocated.

This has seen the gap between the notional NFF and actual budget for some small schools increase since Cornwall moved to the NFF in 2020/21. This is in part due to the low per pupil capping we are able to apply each year and the DfE methodology for calculating the per pupil baseline any uplift is applied to. This takes the previous year’s post Minimum funding guarantee (MFG) budget and deducts the current year values for the below factors before dividing by the number of pupils on roll:

• Lump Sum
• Sparsity (where eligible)
• Rates

For larger schools this has little impact but works against small schools by creating a lower baseline figure for any uplift to be applied to as shown in the example below where both schools receive the maximum 3.11%:

Table 1. Impact of MFG baseline on small schools

It should be noted that while this has hindered some schools progress towards the full NFF values, the overall post MFG (including lump sums) per pupil increase for small schools has continued to increase and as of 2024/25 the average uplift since 2017/18 in per pupil funding for schools with less than 150 pupils has increased by 45% compared with 32% for schools with over 150 pupils.

This is due to the value of the primary lump sum which has increased by 62% since 2017/18 and naturally makes up a greater proportion of small schools overall per pupil budget. Many small schools also benefit from the sparsity factor which targets small, remote schools. This factor was not used for primary schools in 2017/18 but is now allocates an additional £5m to 89 schools.

Alternative Options

The use of capping budgets to deal with the variance between notional budgets and funding has been in place since Cornwall transition to the NFF. This was with a view to the DfE introducing the direct NFF and the likelihood they would continue the practice where LA funding was not sufficient to cover the full cost of the NFF.

Feedback from previous consultations has highlighted the lack of progress many small schools are making towards the NFF. Given the time that has now passed since the initial target date for the DfE to take over responsibility for funding schools it seems reasonable to revisit this approach and look at alternative options to only applying a per pupil cap to school budgets.

This is based on the premise of providing additional funds to support smaller schools. As there is no new funding, the options presented below would be a redistribution of grant with funding moving out of the secondary sector into primary (note a number of primary schools would also see a reduction of funding compared to capping alone – the amount and number of schools impacted depends on the option).

We have been mindful when looking at options that many schools will be struggling with setting their budget and that being funded at the NFF (not subject to capping) does not exclude schools from financial pressures and having to make difficult choices. The amount of funds moving between schools would range from £597k to £789k depending on the mechanism and option agreed. In all options the proposed transfer of funds between schools represents less than 0.3% of total funding (individual schools would see a maximum reduction of between 0.2% and 0.9% depending on the option selected).

There are two proposed mechanisms for redistributing funding which are detailed below. Schools should note that changes to the protection mechanism cannot see a school fall below the MFG or minimum per pupil funding levels set by the DfE. To ensure all schools see some form of uplift, or do not see a reduction in per pupil funding, we expect to set the MGF at the maximum rate allowable (0.5% for the current year).

Schools forum would continue to have the option of using capping only meaning there would be no change to the existing practise.

Method 1. Capping and Scaling gains and losses

This option would allow the LA to reduce the cap set for per pupil gains with gains and losses above the cap scaled to an agreed percentage. The same overall budget would be allocated across schools but allow schools subject to capping to receive an increased per pupil amount. To cover the cost, schools that currently see a higher per pupil increases would see their gains curtailed.

As an example, the cap could be set at 2% with the scale set at 80%. This would mean a school with a 2.7% increase in per pupil funding would receive 2% with the remaining amount scaled back by 80% reducing their per pupil increase to 2.14%. Schools with per pupil gains at or below 2% would see no change in funding.

For schools subject to capping, it would reduce the level of capping above the 2% threshold by the scaled value. For example, a school that currently experiences capping of 20% would see this reduce to 16%. The table below has two examples including the gain and reduction to their budgets if this had been applied in 2024/25.

Table 2. Examples of capping and scaling proposal based on 2024/25

As previously noted, any change to the formula will result in a redistribution of funds when compared to the actual formula currently used and inevitably this does result in a number of schools seeing a reduction in budget. The below table provides a summary of the gains and losses by phase of education along with the maximum, minimum and average changes. There are two variations which set the scale and cap at slightly different values to gives schools an idea of the impact this mechanism will have.

More detailed analysis based on pupil numbers can be found in appendix 1.

Table 3 – Impact of scaling gains and losses

Method 2. Reduction in basic entitlement with capping and scaling of gains and losses

This mechanism would see the basic entitlement factor reduced for both primary and secondary schools by an agreed percentage, with the capping and scaling method above used to balance the overall budgets.

While this option will see a similar level of additional funding move to small schools, a greater number of schools funded at the NFF contribute to the cost, due to the reduction in the basic entitlement factors, meaning the negative impact on any one school is reduced. Only those schools already receiving protection from the MFG (as their per pupil funding has not increased by at least 0.5%) would see no change to their budget.

As an authority that has already transitioned to the NFF we have limited scope to reset the values and need to keep in mind that significant change to the factor values results in greater losses for some schools and a higher number requiring protection through the MFG.

The following is therefore based on a modest 0.25% reduction in the basic entitlement factor values and for 2024/25 would have resulted in the following changes:

Table 4. Revised Basic Entitlement Factors based on 0.25% reduction.

The below table contains worked examples of this mechanism using the same schools from table 2. Due to the reduction in basic entitlement, we now see a change to the pre MFG budget as well as the capping applied to any gains and losses.

Table 5. Examples of 0.25% reduction to basic entitlement and capping and scaling proposal based on 2024/25

Using this mechanism with a 2.2% cap and 82.7% scaling of gains and losses would see a similar amount of funding directed at smaller schools, but the number of schools contributing to the cost would increase from 102 to 138. The average loss would reduce from £4,200 to £2,220 for primary and £20,754 to £12,614 for secondary schools.

The below table includes two options setting the capping and scaling values at various rates. In both options the reduction in the basic entitlement has been left at 0.25%. More information can be found in appendix 2.

Table 6. Impact of 0.25 Reduction in basic entitlement and scaling gains and losses

Total funding moving between schools in all options presented are set out below:

Table 7. Summary of funding movement

Should schools forum vote to adopt one of the proposals presented the LA would expect to seek annual agreement on the method used based on updated impact assessments which will consider any significant changes in funding or regulation. This information would also be shared with schools via the annual consultation process.

Exceptional Circumstances Factors

Cornwall uses two exceptional circumstances factors in its funding model. These are funding streams within the NFF that sit outside of the mandatory factors and are agreed by the ESFA on a case-by-case basis through the disapplication process. To continue using these factors we require schools forum approval.

• Rents - this factor supports schools with additional rent costs. It is forecast to allocate a total of £135k to 7 primary schools who have previously evidenced additional rent costs attached to classroom buildings, land, and the use of sports facilities.
• Additional Sparsity - allocates a lump sum of £50k to small secondary schools meeting the existing sparsity factor criteria and where the pupil numbers on roll are below 350. There is currently one school receiving funding from this factor and this is expected to continue in 2025/26 (total £50k).

The deadline for schools wishing to respond is 5.00pm Tuesday 3 December 2024.