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All the funds of the fair?

Liz Nicholson and Alan Parker reflect on the difficulty of establishing an ideal funding system

Education is an expensive business. Hence the fact that education finance became increasingly controversial during the 20th century.

Local councils' responsibility for raising and disposing of public funds for education remained unchallenged from 1902 until well into the second half of the century. In the post-war years, as the costs of expansion outstripped local ability to raise revenue, central government provided a block grant to offset the shortfall.

The Bains Report of 1972 ushered in "corporate local government" and, with it, the end of earmarked education block grants. From then on, the rate support grant was to be divided among local government services according to priorities determined locally.

But by this time the size of the cake to be distributed via the annual "settlement" between central and local government was largely determined by the amount that LEAs had decided to spend in the previous year. As the oil crisis and, a little later, monetarist economics began to squeeze public expenditure, a series of control mechanisms was introduced.

Penal grant reductions for levying excessive rates - and "capping" the rate charges when that did not work - were underpinned by formula-driven judgments on what local authorities ought to be spending. These judgments still exist as standard spending assessments, but are to be replaced by "formula spending shares" under the new funding regime taking effect from 20034.

Other funding ideas have also returned in different guises. During the 1970s and early 1980s "curriculum-led staffing" models were seen as a good way of determining how many teachers a school needed. But these plans were invariably deemed too expensive. The activity-led funding model (ALF) is the modern-day equivalent of curriculum-led staffing.

ALF has been strongly endorsed by the Education Funding Strategy Group, convened in 2001 to advise the Government on how to make the funding system "fair, simple and transparent". In fact, it was the defining issue which united the many stakeholder bodies represented on this group against the officials representing government departments.

ALF's advocates believe it offers the best way to fix a nationally agreed minimum figure for funding per pupil. However, the Government disagrees and the new funding system announced last month did not include ALF. So, fundamentally, the system remains the same. The figure available for each child before extra costs (such as special educational needs) are added in simply reflects what the Government thinks it can afford.

One of the drivers behind the latest spending review was a strong lobby from a group of 40 LEAs, predominantly in the North of England, who felt disadvantaged. The new system represents a general shift of funding from South to North, but this is largely at the expense of southern and eastern counties and unitary LEAs.

However, there will be significant winners and losers within most regions.

The highest-funded inner London boroughs will gain, much to the chagrin of some other LEAs. Outer London, a loser overall, will see a significant shift of funding from eastern to western boroughs.

What tentative lessons can be drawn from this short, historical review? It would appear that a national funding system for schools that is simple, transparent and fair is unachievable - largely because simplicity tends to militate against fairness. The other obvious conclusion is that it is central government's desire to retain control that is the key factor working against greater transparency.

Liz Nicholson is chief education officer for Shropshire. Alan Parker is a former director of education in Ealing, London. Both were members of the Education Funding Strategy Group, but write here in a personal capacity.

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