Essex Small Schools

Essex Schools Funding Formula Review

Archive for the category “Lump Sum”

Again on Lump Sum

Mr Adams tells me that the discussion over lump sum at the meeting on the 6th June revolved mainly around two values £80,000 and £93,354, depending on how the MFG computation eventually works. These figures are odd, and well below expectation.

Two basic principles – not necessarily consistent – have been suggested by various members as a way to determine the lump sum element:

  1. Choose the lump sum to be an accurate reflection of the fixed costs of running a school.
  2. Choose the lump sum such that the funding turbulence in schools, introduced as a result of this formula review, is minimized.

The values of £80k and £93k are not consistent with either principle, as I outline below.

Are these an accurate reflection of the cost of running a school?

As I pointed out in a previous post, the mean fixed costs of running a school in Essex are around £150k. The lower quartile was £135,202. Not a single school reported a fixed cost of less than £100k.

Are these values that minimize turbulence?

As I suggested in a previous post, a lump sum in the region of £117,180 would – on average – reproduce the effect of the 2011/12 formula. Even if we allow for the 1.5% reduction in per pupil funding most small schools are currently on as a result of the 12/13 formula change, this gives a lump sum of £115k. The figure of £93k therefore will cause significant turbulence to the smallest schools.

In order to illustrate this point, I have generated the graph below (primary schools only). This shows what happens if you distribute the funding that in 2012/13 went into lump sum, key stage funding, and minimum funding guarantee, under a variety of scenarios. These are:

  • The 2011/12 small school funding, lump sum, and an average of the TCA allocation, with the remainder distributed proportionally to pupil number.
  • As above, less 1.5% to model the status quo for small schools who have found themselves on MFG as a result of the 2012/13 formula changes.
  • The 2012/13 small school funding and lump sum, with the remainder distributed proportionally to pupil number.
  • A lump sum of £93,354, with the remainder distributed proportionally to pupil number.
  • A lump sum of £115,000, with the remainder distributed proportionally to pupil number.

The plot has been zoomed in to see the impact on small schools. It is clear from the plot that the value £93,354 represents yet another significant cut for small schools in Essex – and indeed on a significantly greater scale than the cut last year!

This should not be a surprise: under the current formula, very small schools get a top up in the region of £30k on top of their lump sum of £77k. This is down around £4k from what they received in 2011/12 (a loss of around £8k in small school subsidy and an average of £3k in TCA, but an increase of £7k in lump sum). This cut pales into insignificance compared to the £14k cut when moving to a £93k lump sum.

MFG or no MFG

Returning to the two figures Mr Adams mentions, £80k and £93k, it is worth pointing out that these are not only inconsistent with the above-mentioned principles, but also with each other. Under lump-sum MFG exclusion, to achieve the same net effect in 13/14 as having a £93,354 lump sum with MFG re-costing, would require a lump sum of £85,461, not £80k. A greater lump sum would be required to maintain this net effect beyond Year 1.

I hope that this coming week we can return to discussion in the range £100k to £150k.


MFG Pains

Today was the 2nd SGRG meeting. As agreed at the last meeting, we were presented with papers at today’s meeting with tables illustrating how each Essex school would be affected by setting the lump sum to £100k, £125k, or £150k.

Unfortunately, things are not straight forward, due to the interaction of two changes mandated by the DfE: the change to the new formula structure, and the way that the MFG works. The DfE is proposing to change the MFG so that lump sums are excluded from the MFG calculation in a similar way to that we currently exclude rates.

In theory this makes perfect sense: only protect by MFG those elements of the funding formula that vary with pupil numbers, adding back in the lump sum afterwards. This way small schools that shrink in pupil numbers won’t see their lump sum protection shrink too, and those small schools which grow in pupil numbers won’t see disproportionate gains from that growth. Sounds sensible?

The problem comes with authorities who – up to this point – have woefully inadequate lump sum values. If we, in Essex, simultaneously move from a £77k primary lump sum to a £150k lump sum (say) the year the MFG regulations change, then under the proposed system £77k will be deducted from the 2012/13 budget before subtracting the 1.5% MFG level, and then £150k will be added back on. The net result will be a boost to the school much larger than we expect.

Now remember: this is not just small schools, it’s all schools. The LA have modelled this, and under a £150k lump sum, *every* primary school in Essex will end up on MFG, and some £65m of a total primary budget of £405m would be spent on MFG.

Members of the SGRG were not happy – quite reasonably so – with this essentially artificial level of MFG.

The decision was taken to write to the DfE requesting that the MFG operate in a different manner: either allowing us to maintain the current way of calculating MFG for this transition year or allowing us to discount the new lump sum value rather than the old lump sum value when calculating MFG. I am supportive of this move.

In the mean time, we must prepare for the possibility that the DfE does not allow this to happen. In this case, there will unfortunately be a tradeoff between giving small schools what they deserve in the long term and avoiding funding disruption in the short term. This should not be the case.

To the credit of the SGRG chair, he has requested that we initially take a principled look at the data without the MFG complication.

The LA have therefore been asked to produce the following data for the next meeting:

  1. A model assuming no minimum funding guarantee payouts, i.e. all the £65m referred to above is rolled into per pupil funding, to provide a better indication of the long-term position of the schools.
  2. A model assuming the DfE agrees to our proposal on MFG calculation.
  3. A comparison of both models to the 2012/13 budget share of each school in Essex.
  4. Extension of the existing data to a lump sum value of £80k and £90k in addition to the already-modelled values of £100k, £125k and £150k. I am not supportive of a lump sum below £100k, for reasons I discuss in a previous post and I will elaborate upon soon.
  5. Ordering of the data by number of pupils, so we can clearly see the impact on different sizes of schools.

Fixed Costs: Interim Data

I have been collecting data from small schools in Essex on their fixed costs. Many costs in a school do not increase with pupil numbers, such as software and support subscriptions, basic administration and reprographics leasing, buildings maintenance, headteacher costs, governing body support, and several other costs enumerated in a survey sent out to small schools. I hope these data will be useful when determining an appropriate lump sum element. As noted in my previous post, setting the lump sum to an artificially small value not only threatens the survival of efficient small schools but also funds inefficiencies in large schools via artificially inflated AWPU funding. There will, of course, be the need to drill into this data in detail, but I thought small schools may themselves be interested in the histogram below of reported small school fixed costs.

The mean reported fixed cost is currently in the region of £150,000.

Essex LA Response to DfE Consultation

I requested the response provided by the Local Authority to the DfE’s recent consultation on school funding reform. I am very pleased that their response to Question 4, “Where within the £100k-150k range do you think the upper limit [for lump sums] should be set?” states “None“. The commentary provided by Essex LA states:

The Lump Sum will be dependent on the number of schools and the proportion of small schools in each authority. Local authorities with rural areas are more likely to have small village schools and therefore local discretion is critical in ensuring that small schools are able to exist.


Funding Inefficiencies

When the lump sum element of schools funding is discussed, the question of funding inefficiencies always arises, usually in the context of the need to avoid a large lump sum as this funds inefficiencies in small schools. Of course if the lump sum were very large, this might be the case. However, what is often less well recognised is the flip side to this argument: a lump sum that is too small funds inefficiencies in large schools. If the funding in the primary sector is fixed, then saving obtained by reducing lump sum from any given nominal value is redistributed through age-weighted pupil units (AWPU). Thus an artificially low lump sum results in an artificially high AWPU value and vice versa. The impact can be seen in the simple plot below (click to zoom in).

Impact of Lump Sum on “Efficiencies”

It is therefore absolutely critical that the lump sum element of our new funding formula correctly reflects the fixed cost of running a school and that it is neither underestimated nor overestimated. The current lump sum only forms “a contribution to the unavoidable fixed costs of running a school”. It will be the job of the SGRG over the coming month to ensure that this changes to “an accurate reflection of the unavoidable fixed costs of running a school” as small school subsidy ceases to exist.

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