Reflections on the Autumn Statement

On 17th November, the Chancellor delivered his long-awaited Autumn Statement. The education sector held its breath. Fear of cuts to public spending prevailed, at the very least removal of the additional funding for the National Insurance increase that was no more, with only the most optimistic anticipating any recognition of the pressures the sector was facing.

The case that investment in the education of our children is an investment in our future was heard.

school trusts will be eagerly awaiting the detail behind the announcement of an additional £2bn to be added to the Core Schools Budget in 2023/24. We anticipate publication in mid-December, in line with final DSG allocations.

In the meantime, here are my seven points to ponder on protection, pay, procurement, population, provision, policy, and premises.

Per pupil protection in real terms

In the period between 2010 and 2015, the equivalent of the core schools budget held firm in real terms. Gradual recovery since 2017, after a sharp period of austerity, brought a recovery, with adjustments in the 2021 spending review and again last week to respond to the exceptional levels of inflation. This is an important benchmark, especially when accompanied by the commitment set out in the statement.

This measure is not perfect. Firstly, it measures the change in prices using the GDP Deflator, a measure of total domestic activity, reflecting growth in the economy and domestic price changes. This might not be a true reflection of how pay and price changes affect schools, but it is not an unreasonable measure to use when considering government spending plans.

Secondly the "core schools budget” includes the schools national funding formula and supplementary grant, the high needs funding and pupil premium. This is not the totality of funding allocated to schools, nor is it an accurate reflection of the funding that eventually makes it to individual school budgets, as those school trusts with special schools will know. It doesn’t include early years funding or post 16. It is what it is.

Real terms protection in core school funding, on a per pupil basis is an important benchmark. It provides a baseline against which policy priorities, in the short and longer term, can be resourced.

Pay and pensions

The Autumn Statement included two important references to pay, a snippet about national insurance and nothing in respect of public sector pensions.

For teachers, the STRB 32^nd Report contained recommendations for both 2022/23 and 2023/24. Those for 2022/23 were accepted. The Secretary of State wrote to the Chair of the STRB in respect of teacher pay for September 2023 just two days before the Autumn Statement. The letter asks the STRB to "carefully evaluate the Department’s evidence on what it considered a fair pay award for teachers, while recognising the impact pay rises will have on the schools’ overall budgets” and to look to "promote recruitment and retention whilst taking into account the Government’s commitment to uplift starting salaries to £30,000”. We also note that the letter reminds the STRB of the importance of having regard to the Government’s inflation target when forming recommendations. That target is 2%.

In its 32^nd report earlier this year, the STRB set out recommendations for pay scales for class teachers for 2023 that would have achieved the £30,000 starting salary (a 7.1% increase), with higher earners receiving a 3% pay award. The total cost of such an award would be around 3.5-4% depending on the profile of the teaching workforce in a school. Whilst these were not accepted at the time, the STRB will, no doubt, be building on this initial work in its deliberations over the coming months.

For support staff, the National Employers took account of the increase in the National Living Wage in their offer for April 2022, with a flat rate increase that IFS estimated would cost schools around 8-9%. For April 2023, the NLW increase announced in the Autumn statement is 9.7%, with knock on implications for increases for support staff. It is unlikely that the overall cost would be held at 3%.

The Autumn Statement confirmed the government’s intentions for the following year. The Low Pay Commission’s report, also published on 17th November anticipated that an increase of 6.3 per cent will be required in 2024 (when average wage growth is expected to have slowed) to achieve this target, producing a NLW currently estimated to be £11.08.

The April 2023 increase in the NLW, and the knock-on consequences for the NJC Support Staff pay scale will affect the budgets of school trusts in the current financial year. The government’s commitment to tackling low pay, repeated in the Autumn Statement, gives an indication of the potential impact for the following year.

In respect of national insurance, the Autumn statement fixes the Secondary Threshold for employers at £9,100 until April 2028.

Procurement

Set against the backdrop of a Bank of England assessment of inflation of 11.1%, energy price instability and rising interest rates, the Autumn Statement aims to encourage economic and fiscal stability and control of inflation. All government departments will be looking for efficiencies and savings, as all school trusts are.

This context provides scope for a tight focus for the support to school trusts through the School Resource Management Strategy, provided it is recognised that savings achieved in one area of spend, simply allow for damage limitation in areas of higher priority. Efficiency savings achieved during a period of funding constraint should not be described as reinvestment as this implies scope for growth.

On the same day as the Autumn Statement, the government published the terms of reference for the review of the Energy Bill Relief Scheme, which currently supports school trusts until March 2023. Sadly, we note that "public sector organisations will not be eligible for support through the review” and heard the Permanent Secretary from the Department of Education, Susan Acland-Hood report to the Public Accounts Committee the following week that "schools are part of the energy support until March and then part of this addition is intended to help ease that pressure after that”, referring to the £2bn increase.

School trusts are likely to be facing continued high energy costs from April 2023 onwards, without the protection afforded to households or vulnerable businesses. Careful procurement, tight management of usage and investment in efficiency and generation will be important. For some trusts, prices may stabilise, but, depending on contract renewal dates, some trusts will be facing the delayed impact of the recent increase. Two thirds of the trusts that responded to our survey were in contracts with renewal dates after April 2023.

Continued improvement in procurement, combined with energy reduction and generation, will be increasingly important to school trusts. It is hoped that the SRM and sustainability strategies support this, together with capital investment and access to schemes run and held by BEIS for the wider public sector.

Population

The school age population is reducing. Primary school numbers peaked in 2019, and those in secondary are due to fall after 2024. On a per pupil basis, the core schools budget may be protected in real terms, but that allows total government spending on schools to reduce. According to the Office for Budget Responsibility, average annual growth in the core school budget between 2024/25 and 2027/28 is set to fall, in real terms, by 1.3%.

The real terms protection provided by the Autumn Statement is at a per pupil level and does not take into account the vagaries of the National Funding Formula. As most school trusts are funded on lagged pupil numbers, there is some protection for those with falling rolls, allowing time to adjust structures and staffing accordingly. With funding provided for those schools who, in contrast to the national trend, are still growing, there are more funded pupils than real ones.

We will need to watch how this affects the detailed formula factors within the NFF. We cannot simply assume that the headline core school budget increase will translate directly into per pupil increases in the budgets of every school.

Provision – specialist and AP

When additional funding for schools was announced in the October 2021 Spending Review, many were dismayed that steps were not taken to ensure that funding flowed through to special schools and AP settings. The additional funding for High Needs meant that no local authority received less than a 12% increase per head of population in 2022/23, with a further 5% already announced for 2023/24. With the majority of local authorities already reporting High Needs deficits, both in-year and cumulative, the gap between expectation and resource remains.

The £2bn increase in the core schools budget provides an opportunity for intelligent targeting of what could be £400m if the same balance was maintained between schools and high needs as seen with the SR21 increase. The increase provides headroom to consider fair and adequate funding for special schools and AP settings.

The Minimum Funding Guarantee (MFG), announced in August 2022, provides some limited protection for special schools. Set at 3% across two financial years, those LAs that did not pass on the SSG increase in 2022 will need to do so in 2023. This is helpful, but at 3%, the protection afforded to special schools is still very much lower than that felt by mainstream schools. AP settings do not qualify for this protection at all.

Place funding has not increased since the implementation of the current High Needs funding system. An increase in place funding that is in line with core funding increases for mainstream would bring consistency across the NFF landscape. A fully funded increase in place funding would ensure that the increase is passed on to special schools and AP settings without a damaging impact on local authority high needs budgets.

A financially viable special school and AP sector is fundamentally important if the aims of the Green Paper and of the Safety Valve and Delivering Better Value programmes are to be achieved. More urgently, it is, as the Operational Guidance infers, fundamental to the "ability to sustain appropriate levels of support for children and young people with SEND”.

Policy

The core schools budget funds the schools and high needs NFF and the pupil premium grant. All are formula driven, with little or no evidence base for the factor values chosen or the weighting between factors or funding blocks. The funding of around a quarter of all schools is determined through the decisions about the protection factors (minimum per pupil funding levels or the funding floor/MFG).

Formula values are published in July for the following year, including the outcome of decisions on the level of year-on-year protection afforded to local authorities and schools. For the second year running, an announcement of extra funding in the autumn, welcome though it is, will come too late to be incorporated into the various formulae, resulting in the need for a specific grant, with its own formula. Mindful of the need to include this grant in the main funding the following year, the distribution methodology is sensibly built up using the same building blocks as are used in the NFF.

The decision about how to split the £2bn between the schools NFF, the High Needs NFF and Pupil Premium Grant is a policy decision. The decision about whether to include grant conditions or other mechanisms to ensure some extra funding flows through to special schools and AP settings, overriding local authority flexibility, is a policy decision.

In June 2022, in launching the most recent consultation on the NFF, the then Minister of State for School Standards spoke of the underlying principles of fairness, simplicity and transparency and of efficiency and predictability.

An effective formula takes account of evidence and analysis and combines that with policy intention. Timely stakeholder engagement is important, but in the absence of the necessary evidence and policy clarity, the power of its impact is constrained to commentary rather than collaboration. We can do so much better together.

Premises

The Autumn Statement protected existing capital spending plans, but in recognising the impact of energy price increases and high inflation, acknowledge that the financial context limits scope for investment and growth. There is no change in the total capital budget for the DfE, over and above the levels announced in the 2021 Spending Review.

From 2021to 2026 the DfE’s Condition Data Collection 2 (CDC2) programme will visit every government-funded in England to collect data about the condition of their buildings. This data will provide a comprehensive picture of the condition of the school and FE college estate in England. This programme provides evidence for investment in the basic condition of school buildings. The strategy for climate change and sustainability adds additional urgency.

With no flexibility in revenue budgets, extremely limited scope for borrowing and, for some, PFI schemes nearly the end of their term, the hands of trusts are tied. The next spending review cannot come soon enough.

But what does it all mean?

The Autumn Statement has provided a much-needed boost to spending on educational provision. The full details for individual school trusts are not yet clear but there are some clear steps that can be taken to be ready and engaged.

• Medium term financial plans will always need to be based on assumptions, sensitivity testing and modelling, understanding the workings of each funding formula and the data that is used – the future is not certain and the risk needs to be quantified to inform decisions about a safe level of reserves.
   
• Whether a trust commits to adherence to national pay arrangements or makes local decisions, knowledge of the staffing profile and local recruitment and retention challenges are important.
   
• A comprehensive procurement strategy, with active management at a strategic level, will become increasingly important, not just in respect of energy supply.
   
• Pupil number projections underpin funding levels and structure and staffing decisions – modelling a number of different scenarios across at least three years will give the Board a strong sense of the scale of potential turbulence and financial risk.
   
• Every trust will engage with the local authority over funding levels for high needs provision, but this is especially important for those areas with the greatest financial challenge, including those within the Safety Valve or Delivering Better Value programmes – a spirit of openness and collaboration will be needed.
   
• Understanding the full extent of capital investment needs for both school condition and achieving net zero will inform local decision-making and engagement in the national debate.