I welcome the School Funding Committee’s report as a significant contribution to a very important issue and I am grateful to the members of the Committee, and also those who gave evidence, for their contributions. 

 

I provided the Assembly Government’s preliminary response to the Committee’s recommendations in four key areas in my Cabinet Written Statement on 11 July.  I made clear in that Statement that I am supportive of the aims of the Committee’s recommendations to improve the transparency, objectivity and fairness in the way education funding is distributed to local authorities in Wales. 

 

Following further consideration of the report with the Minister for Finance, Local Government and Public Services over the summer, and consultation with the Welsh Local Government Association (WLGA), I am now able to provide my detailed response to each of the Committee’s recommendations.   

 

 

1.         The Committee recommends that:

The Assembly Government should investigate the reasons for the differences in funding between the key stages, in particular for Year 6 and Year 7 pupils, and report to the ELLS Committee.

 

Accept. 

 

Differences in funding between years or key stages are given in Part 2 of each LEA’s Section 52 Budget Statement and reflect the factors used in the LEA’s local funding formula to distribute its Individual Schools Budget under the Schools Budget Shares (Wales) Regulations 2004.  Information about funding differences between the primary sector (year 6) and the secondary sector (year 7) is provided in my annual reports to ELLS Committee on local authority budgets set for education.  Figures for 2006-07 show average per pupil gross delegated spend of £3,030 for the primary sector and £3,681 for the secondary sector.  This information will continue to be provided to the Committee.   

 

 

2.         The Committee recommends that:

The Assembly Government should immediately set in train a review of the weight given to factors such as transportation, sparsity and deprivation in allocating education resources within the local government settlement, to ensure that weightings are based on objective need.

 

Accept.

 

The Minister for Finance, Local Government and Public Services initiated a review some months ago of the weightings given to deprivation and sparsity factors within the local government settlement, including weightings for education services.  The review will consider ways in which “relative need” is defined and measured on an objective and consistent basis.  This may have implications both for the deprivation and sparsity indicators used, and the relative weightings attached to them.  The review will concentrate on the mainstream schools element of the formula and while the aim will be to complete the review in time for consideration in the 2008-09 settlement, there are risks associated with this timetable.

 

Financial implications: none for the review itself, however the outcome of the review may have significant implications for the distribution of the revenue settlement across the 22 unitary authorities.

 

 

3.         The Committee:

Fully supports the Wales Audit Office recommendation to the Assembly Government that there should be a review of whether eligibility for free school meals represents the best indicator of deprivation and recommends that it should be implemented as soon as possible.

 

Accept.

 

This is already being taken forward as part of the wider review referred to in the response to recommendation 2.  For the moment the eligibility for FSM indicator is the only measure which can identify pupils in terms of where they are educated as opposed to where they live.

 

Financial implications: as for recommendation 2.

 

 

4.         The Committee recommends that:

To improve transparency and budget scrutiny, the Assembly Government should make arrangements to permit relevant committees to scrutinise the local government finance budget as part of the annual budget setting procedure.

 

This is not a matter for the Assembly Government but for the National Assembly for Wales.  The current arrangements for scrutiny of the local government finance budget reflect the subject committee structure, which is constrained by the Government of Wales Act 1998 – committees and their operation must reflect Ministerial portfolios.  Under the Government of Wales Act 2006, the National Assembly will be able to adapt its Standing Orders to change the structure and operation of committees in line with this recommendation if it wishes. 

 

 

5.         The Committee recommends that:

The Assembly Government should immediately set in train a review of the local government distribution formula so that the education element is based on the current and future costs of providing education services rather than on historic costs.

 

Accept. 

 

As mentioned in response to recommendation 2, this review has already been put in place.  The review of the revenue settlement formula will focus on the education element as its first priority.  The review will assess whether historic cost continues to be an appropriate proxy for relative need or whether an alternative framework to take account of unmet need would be appropriate.

 

Financial implications: as for recommendation 2.

 

 

6.         The Committee recommends that:

The Assembly Government should commission detailed research on the effect that variations in funding have on pupil attainment after taking account of other variables such as deprivation and sparsity.

 

Accept in part. 

 

There is no evident link at local authority level between levels of per pupil funding and attainment: attainment levels in the authorities with the highest and lowest per pupil funding levels - Ceredigion and the Vale of Glamorgan – are among the best in Wales.  However, there is a strong link between achievement and the level of entitlement to Free School Meals: as the level of FSM entitlement increases, the level of achievement decreases (Assembly Statistical Bulletin 20/2006).  The key need is to break the link between deprivation and low attainment.  Our RAISE programme and the work underway to review deprivation in the settlement formula - see recommendation 2 - seek to address this.

 

Financial implications: none.

 

 

7.         The Committee recommends that:

In line with the Wales Audit Office’s recommendation, the Assembly Government should require all local authorities to issue concise annual summaries to schools in their area, showing the factors that have led to changes in schools budgets.

 

8.         The Committee recommends that:

The Assembly Government should issue guidance to local authorities to ensure that these annual summaries are comparable across local government boundaries and that clear, consistent audit trails are set up and monitored.

 

9.         The Committee recommends that:

The Assembly Government should issue a single set of unequivocal guidance to authorities on completion of section 52 budget statements to ensure consistency of reporting.

 

10.       The Committee recommends that:

In reviewing the RA accounting return, the Assembly Government should ensure that it becomes easier to compare across authorities the proportion of education funding spent directly on education and on central and other administration services.

 

Accept.

 

The Assembly Government accepted the Wales Audit Office’s recommendations which are endorsed by the Committee – I provided my response to ELLS Committee on 7 June.  We will work with local government to seek to deliver recommendation 7 by agreement but would consider the need for regulation in the light of those discussions.  In relation to recommendations 9 and 10, a working group will be established – including Assembly Government officials and local government officers – to review the RA guidance in readiness for the 2007-08 financial year.

 

Financial implications: none.

 

 

11.       The Committee recommends that;

Irrespective of any other changes, the Assembly Government should work closely with local government to improve schools’ understanding of the funding process and the funding streams. 

 

Accept. 

 

We have taken steps to improve transparency, including introducing Schools Budget Forums and publishing details of Education IBA with the local government settlement in each of the past three years.  We accepted the relevant recommendations of the WAO report to improve transparency; as did the WLGA.  We will be working with local government to improve the level and quality of information available about school funding arrangements.  In particular we will explore ways to use the Assembly Government’s website more effectively to communicate information.  We can learn from the experience of DfES, whose Teachernet website is widely used by schools and teachers in particular to access information about funding.

 

Financial implications: none.

 

12.       The Committee recommends that:

The Assembly Government requires authorities to prioritise in their distribution formulae the provision of targeted support to the most deprived schools, and demonstrate this in the proposed schools budgets reported to the Assembly Government.

 

Accept in principle. 

 

Following wide consultation on the Schools Budget Shares (Wales) Regulations 2004, which came into effect at the beginning of the 2005-06 financial year, a requirement was placed on local authorities to include a deprivation factor in their formula for determining schools’ delegated budgets.  We have obtained information from all authorities about the factors they use and how much funding is so allocated.  I will report to ELLS Committee in the autumn and in light of that will consider whether the requirement needs to be strengthened.

 

Financial implications: none.

 

 

13.       The Committee recommends that:   

The Assembly Government should publish, at the lowest level of disaggregation possible, meaningful comparisons of education spending in Wales, the other nations and regions of the UK and internationally and that it should work with other parts of Government to increase the level of detail available.

 

Accept in principle. 

 

We will continue to publish comparisons of education spend with England.  We will investigate the possibility of further comparisons but different reporting systems are likely to mean they would be spurious except at the highest level of aggregation.

 

Financial implications: none.

 

 

14.       The Committee recommends that:

The Minister for Education, Lifelong Learning and Skills should, at the timing of receipt, inform the ELLS Committee of any education-related Barnett consequential funding that is received by the Assembly Government.

 

Accept. 

 

The Finance Minister has already agreed to publish details of Barnett consequentials.

 

Financial implications: none.

 

15.       The Committee recommends that:

The Assembly Government should establish and publish minimum common basic funding requirements for school staffing, accommodation and equipment and that this information should be used to benchmark and inform decision-making at national and local levels on schools funding.  The Assembly Minister for Education, Lifelong Learning and Skills should report regularly to the ELLS Committee on progress towards establishing a minimum common funding requirement for schools.

 

16.       The Committee recommends that:

The Assembly Government should require authorities to report annually on any difference between the funding they allocate to schools and the minimum common basic funding requirement published by the Assembly Government.

 

17.       The Committee recommends that:

The Minister for Education, Lifelong Learning and Skills and the Minister for Local Government and Public Services should work closely with those local authorities who are funding schools below the minimum common basic funding requirement, to ensure that funding is brought up to this level within an agreed timescale.  Until a minimum common basic funding requirement can be established, education IBAs should be used as a target.

 

Accept in part.

 

The response to recommendation 5 makes it clear that we will review whether historic cost continues to be an appropriate proxy for relative need or whether we move instead towards a more deliberate identification of the future need to spend on education.  I set out as much in my Cabinet Written Statement on 11 July.

 

The distribution to individual authorities includes a number of objective indicators, primarily pupil numbers but also indicators relating to deprivation and population dispersal.  We have already initiated a review of these deprivation and population dispersal indicators and their weightings to ensure that the distribution reflects the actual cost of education provision and our social justice objectives. The schools element of the review is expected to be completed in time for consideration in the 2008-09 settlement - but see also the response to recommendation 2 above. 

 

Pending the outcome of our review of the formula, as an interim measure for 2007-08 I have indicated that Education IBA for each local authority will be used as the local target for education spend.  Setting the appropriate level remains the responsibility of local authorities according to their priorities for which they must be fully accountable.  On average in each of the past three years, ten local authorities have budgeted below IBA and twelve above it.  At the all-Wales level total local authority education revenue expenditure has been above total Education IBA.  Each authority will be asked to report on the reasons why it may have chosen to set a budget for education which differs from its Education IBA, and to make that report available for consideration by its Schools Budget Forum, its full Council and by the Assembly Government.  This will help to assure the public that local budgets are decided on the basis of a thorough analysis of local circumstances and will aid both transparency of funding and local accountability.

 

Local authorities are required to consult their Schools Budget Forum before setting their schools budget each year and must inform the Assembly Government of their proposed schools budget by the end of January.  The reporting arrangements will sit alongside those existing requirements.  We will be consulting the WLGA about the arrangements, including timing and format, and will publicise them in due course. 

 

I have sympathy with the objective behind the Committee’s recommendation for a minimum common basic funding level for schools in Wales, namely to ensure that schools have greater certainty about how the funding they receive relates to need to spend.  However, we need to recognise the difficulty of achieving this objective.  The Committee offered no views as to how it should be approached.  There is a history of previously unsuccessful attempts.  We would need to weigh up first how it could be done, how the work involved could be managed and what the consequences might be in terms of the effect on the budgets of individual schools.      

 

 

18.       The Committee recommends that:

The Minister for Education, Lifelong Learning and Skills should report regularly to the ELLS Committee on the progress made by local authorities in meeting the minimum common funding requirement for schools or in the interim their education IBA.

 

Accept in relation to reporting to the Committee information from local authorities which set a budget that differs from its Education IBA in 2007-08.

 

Financial implications: none.

 

19.       The Committee recommends that:

The Assembly Government should avoid initiating unsustainable policy actions through short term specific grant programmes and should aim to provide longer term funding (in alignment with the three-year budgeting proposals) to allow better financial planning by schools.

 

20.       The Committee recommends that:

The Assembly Government should ensure that the benefits of new grant schemes and streams of funding are not compromised by excessively onerous and bureaucratic bidding mechanisms.

 

21.  The Committee recommends that:

To help schools plan, when new grant schemes are implemented, that the Assembly Government prepares a report on its sustainability and on an exit strategy for each scheme as part of the guidance to authorities on the continuation of schemes.

 

Accept. 

 

We reject the suggestion that the Assembly Government initiates unsustainable policy actions through short term specific grants.  These issues are already covered by the grant protocol with the WLGA and handled accordingly.

 

Financial implications: none.

 

 

22.       The Committee recommends that:

The Assembly Government considers amending the guidance on local education authority funding formulae to ensure greater consistency across Wales and to dampen year to year changes in funding arising from variation in pupil numbers.

 

Reject. 

 

The Schools Budget Share (Wales) Regulations 2004 approved by the National Assembly following extensive consultation require 70% of funding for schools’ delegated budgets to be distributed on the basis of pupil numbers.  Authorities have discretion to distribute the remaining 30% on the basis of a range of factors - as quoted in Annex H to the report - so that they can take account of individual school circumstances, including deprivation.  One of the discretionary factors allows authorities to mitigate year to year changes in funding arising from variations in pupil numbers.  We do not consider it would be appropriate or helpful to limit this discretion. 

 

23.       The Committee recommends that:

An evaluation of the function and responsibilities of school budget fora is undertaken by the Assembly Government with a view to improving the communication between authorities and schools.

 

Accept. 

 

Such a review is already among School Management Division’s business objectives for 2006-07.  We expect the review will be undertaken externally.

 

Financial implications: costs of the review will be met from existing resources.

 

24.       The Committee recommends that:

3-year budgets for schools should be introduced as a priority.

 

Accept. 

 

The Assembly Government is committed to requiring local authorities to introduce 3-year budgets for schools using powers in the Education Act 2005.  Following agreement by the Consultative Forum on Finance on 10 July to proposals to introduce 3-year local government settlements from 2008-09, we will be working to bring in 3-year schools budgets to the same timetable. 

 

Financial implications: none.

 

25.       The Committee recommends that the Assembly Government should require authorities to report annually on their adherence to the budget-setting timetable and that this information is reported annually to the ELLS Committee.

 

Reject. 

 

Local authorities are already required to set their overall budgets and council tax levels by 11 March and to notify schools of their individual schools budget by 31 March.  We have no evidence to suggest authorities are breaching these requirements.  A reporting system as proposed would be an unnecessary bureaucratic burden on authorities without bringing any benefits to schools.

 

 

26.       We recommend that the Assembly Government should require that funding allocated to authorities for capital purposes is fully utilised on education capital spending and should consider making available additional resources if it remains committed to its target of making all schools fit for purpose by 2010.

 

Accept in part. 

 

Local authorities currently receive £74.685m annually in school building improvement grant (SBIG) and £59.331m for education services in un-hypothecated general capital funding.  Overall authorities are spending amounts of their own resources including capital receipts and prudential borrowing in excess of the total GCF figure on school capital annually.  The Assembly Government will continue to consider whether levels of funding need to be increased to make all schools fit for purpose in future Assembly budget planning rounds.

 

Financial implications: to be considered as part of future Budget Planning Rounds.

 

27.       The Committee recommends that:

The ELLS Committee and the LGPS Committee should follow up progress in responding to our recommendations, initially, within 6 months of the Government’s initial response.

 

This is a matter for the relevant Committee chairs.