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Session 2001- 02
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Delegated Legislation Committee Debates

Local Government Finance (England) Special Grant Report (No. 96)

Second Standing Committee

on Delegated Legislation

Tuesday 30 April 2002

[Mrs. Marion Roe in the Chair]

Local Government Finance (England)

Special Grant Report (No. 96)

4.30 pm

Mr. Graham Brady (Altrincham and Sale, West): On a point of order, Mrs. Roe. First, I welcome you to the Chair and assure you that we are all looking forward to serving under your chairmanship this afternoon. I seek your guidance. My reading of the report suggests that either an insignificant typographical error or an omission has been made in the printed copy, which raises concern given the detailed formulae before us.

I refer hon. Members to part II of the document, on page 5, which goes from paragraph 1a through to f, to paragraph 2 and then to paragraph 3(a) to (n) before jumping to paragraph 5. It is not clear whether there should be a paragraph 4, which has been omitted, or whether there has simply been an error in numbering the paragraphs. I see no amendment on the Table to correct whatever error has been made. As the report is already complex, will the Minister clarify the matter?

The Minister for School Standards (Mr. Stephen Timms): Further to that point of order, Mrs. Roe. I welcome you to the Chair on this gloomy afternoon. I had not spotted the numbering inconsistency in those paragraphs. The hon. Gentleman would probably agree that the argument is spelled out with great lucidity on pages 5, 6 and 7, and there appears to be no gap in it. I believe that the error is simply with the numbering of the paragraphs. I see from the reassuring nods of my officials that that is the case.

Mr. Brady: Further to that point of order, Mrs. Roe. I am grateful to the Minister and accept his reassurance if there is merely a numbering error. However, if the nods of reassurance prove to be unjustified, I presume that we would have to reconvene to consider the report in its correct form.

4.33 pm

Mr. Timms: I beg to move,

    That the Committee has considered the Local Government Finance (England) Special Grant Report (No. 96) (HC 710) on Special Grants for School Standards and Support of Post-Sixteen Budgets.

The purpose of the provision is to allow my right hon. Friend the Secretary of State to pay two types of grant to local education authorities. The grants will improve school standards and help to deal with the effects of transferring funding responsibility for sixth forms to the Learning and Skills Council.

On 18 July 2000, we announced that the school standards grant introduced in 2000–01 would continue for at least the following three years to help schools to make progress with our ambitions for raising standards. In 2001–02, the total payable for all types of school was increased to £640 million. When we

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announced the continuation of the grant, we said that it would be uprated by 2.75 per cent. per annum. The amount payable in 2002–03 is, therefore, £657 million.

The grant will be payable to all local education authorities when they have provided the relevant section of their budget statements, and the amounts will depend on the number of schools of each size in an authority. The full range is set out in the report, but the amounts will be between £7,200 and £49,400 for primary schools, £59,600 and £84,300 for secondary schools, and £20,600 and £28,800 for special schools. The funds will be welcome to those schools. Nursery schools, pupil referral units and, outside the local authority sector, non-maintained special schools, city technology colleges and sixth form colleges will also benefit from the grants.

We have already made regulations that require LEAs to include the sums in school budget shares. We expect schools to have access to their total grant from the middle of May, and authorities will not be able to top slice any part of it. Schools will be able to use the funding in any way that they wish for the benefit of their pupils, so we are supporting our commitments on standards with substantial extra resources. As well as the higher formula capital grants announced by my right hon. Friend the Chancellor in his Budget speech, the largest secondary school will be given £114,000 in direct funds in the coming financial year.

Part II of the report deals with the post-16 budget support grant. A significant change in education funding took place on 1 April when the LSC assumed responsibility for funding school sixth forms. That will allow an integrated approach to planning and funding provision for 16 to 19-year-olds in each area, through a partnership between the LSC and its local councils, LEAs, colleges and schools.

The council is evolving its own formula for funding sixth forms, but that is supported by a real-terms guarantee that provides a minimum below which a school's sixth form funding cannot fall, provided that its pupil numbers do not fall. The higher of the two sums calculated from the real-terms guarantee and the LSC's formula is allocated to schools.

When a new funding system is introduced, the transition must be managed with care, as has certainly been the case in this instance. The funding used by the council for sixth forms has been deducted from the education standard spending assessment, which is used to calculate LEA funding. The deduction for each authority is equal to the grant that it receives from the council for allocation to schools, so the effect on total LEA spending is neutral.

As LSC funding includes resources for inflation, demographic change and the extra work arising from changes to 16-plus qualifications—those are set out in ''Qualifying for Success''—the LSC has been able to fund more schools than originally expected under its own formula rather than the real-terms guarantee. In several education authorities, that resulted in allocations higher than would otherwise have been spent on sixth form funding, therefore implying a shift of resources from other schools to such funding. That could have had a damaging effect on younger pupils.

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We are therefore paying post-16 budget support grant to several LEAs. The qualifying criteria for payment are set out in the report, but for the main category 1 grant, they broadly relate to the resources available for education outside sixth forms. Category 2 grants relate to adjustments made to LSC allocations between the end of January and 7 March, which resulted in a lower overall allocation.

Authorities that receive the grant are adding it to their local schools budget, so that their own judgment determines the priorities for the available funds in setting the appropriate level for pupils of different ages. The total grant payable at the start of 2002–03 is £20,099,000, distributed between 50 authorities. A small tranche of grant will be payable next March to authorities that have reduced overall sixth form allocations after in-year adjustments. Without that further tranche, too much would have been deducted from the education SSA of those authorities. We wanted to put that right, and the payment next March will do that.

I should make it clear that the funding is completely additional. LSC grant and the remainder of authorities' education SSA increases already represent a 5.75 per cent. increase in resources compared with 2001–02. These measures provide slightly more than £20 million, which comes on top of that, reflecting our commitment to the smoothest possible transfer of responsibility for sixth form funding to the LSC.

The grants are important for schools, as they will help to put them in a position to continue their work on improving standards for pupils, and I commend the report to the Committee.

4.40 pm

Mr. Brady: Listening to the Minister's clear exposition of these rather complicated matters leaves me wishing that my mathematical qualifications were as good as his.

A number of points arise from the report. First, what is the Minister's thinking on how the banding of the school standards grant operates and what the justification for that may be? Clearly, in applying any such grant, which differs with the size and nature of the school, it is necessary to find a way to differentiate between the amounts that will be paid.

However, potentially serious anomalies could arise under the approach taken by the Department. For instance, a primary school with 100 pupils qualifies for a grant of £7,200, but a primary school with 101 pupils qualifies for £13,900. One additional pupil triggers £6,700 of extra grant income. That is welcome for the school with 101 pupils, but perhaps less so for that with 100.

The anomaly gets worse up the scale of school sizes. A primary with 200 pupils would receive a grant of £13,900, but it would receive £24,700 if it had 201. One additional pupil attracts extra income of £10,800, and that trend continues. I will not go through all the permutations, but the system produces staggering discrepancies at the top of the primary schools scale, where a school with 600 pupils qualifies for £30,900,

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but one with 601 pupils qualifies for £49,400—an increment of £18,500, which could be attracted by just one pupil. That trend also continues for secondary schools.

Any banding system such as that adopted in the report will include cliff edges and thresholds, wherever the bands are fixed. I accept that that is a problem with which Ministers must wrestle, but why have they chosen to maintain the potential anomalies instead of considering a system without banding for all primary, secondary and special schools that takes into account the number of pupils on the roll and calculates the special grant accordingly?

That approach is simpler and fairer, and it would allow greater predictability for heads and governors, who would no longer face either the potential loss of income if the school roll were to fall below a certain number or a more welcome, but no more predictable, sudden increase in income should numbers increase by just one pupil to take the school up to another grant level. Have Ministers considered other ways in which the grant might be calculated?

Let us consider the impact of the recent Budget on schools. Will the Minister confirm that although any increase in the school standards grant would be welcome to schools, that increase would be more than wiped out by losses incurred through increased employers' national insurance contributions, which start next year?

Indeed, the Minister confirmed that last week in a written answer, which makes it clear that schools will lose out to the tune of £150 million from next year in respect of the costs of employing teachers and other staff. A further burden of some £30 million will fall on LEAs during that financial year. I understand that those figures do not include further education colleges. The Minister might want to comment on that.

The school standards grant is welcome to heads and it allows them additional flexibility in running their schools, but an underlying reason for introducing direct grants for schools was to help to even out the imbalances in education SSA among authorities around the country. Will the Minister comment on the prospects for the financial year 2003–04, following the introduction of new school and LEA funding arrangements? Will he also comment on how the grant might take into account changes in the balance of responsibilities between schools and LEAs arising from the Education Bill, which is before the House of Lords, and the new LEA financing systems?

The Minister mentioned the history of the school standards grant, the grant's extension and the fact that pledges were given about the increase. Will he confirm that the grant is to remain part of the Government's approach to schools funding, even after the transition to the new local government and LEA funding regime, and is the rate of increase in the grant to be maintained or accelerated?

On a technical note, do the Government intend and expect any such future or continuing grant regime to be paid under the Local Government Finance Act 1988 or would they use the powers in the Education Bill?

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I am sure that the Minister accepts that, although the direct payment to heads is welcome, it raises concerns for them. They are not always certain that such a funding flow provides security for the future. Does he agree that one reason for heads being keen to maintain school balances such as those we see currently is that this is an apparently arbitrary payment confirmed year by year? For how long does he promise on the Government's behalf that the grant will continue and for how long will he guarantee uprating of 2.7 per cent. per annum?

I turn to part II of the report—the post-16 budget support grant. The Minister made it clear that that is a one-off regime that was introduced because of the special problems arising from transferring post-16 sixth form funding to the LSC regime, particularly the instances where the transfer to LSC funding leads an LEA to cut other parts of its education budget. We all know of LEAs with serious problems resulting from the introduction of the new regime.

The Minister referred to the real-terms guarantee, under which funding per pupil in sixth forms cannot fall, but surely it is anomalous and unfair that per capita funding does not necessarily rise if the sixth form increases in size. I would appreciate his comments on that point.

The real-terms guarantee is, in itself, recognition of the problems of transferring from one funding regime to another, but as the Minister and the report made clear, the guarantee applies only for the coming financial year. As I suspect he is painfully aware, the problems afflicting LEAs and schools with sixth forms may not continue for just one year, so will he explain his approach to dealing with those problems beyond the coming financial year?

Will the Minister look sympathetically on schools whose sixth form funding is not maintained at what they are used to? Will he also look sympathetically on the plight of LEAs that continue to experience problems beyond the post-16 budget support grant period and address those problems in future years?

We have already considered some detail of part II, but I ask the Minister to explain the categories and formulae in a little more depth. Categories 1a and b include those authorities that qualify on the basis of the relationship between SSA and LSC grant. The formula under paragraph 5 applies if the finalised allocation is equal to, or less than, the initial allocation. The formula under paragraph 6 applies if the finalised allocation is greater than the initial allocation. I refer the Committee to the report:

    ''Category 2: Authorities qualifying for grant due to a reduction in their LSC Sixth Form Allocation between the amounts taken into account in SSA deductions announced by DTLR on 31 January 2002 and the amounts announced as finalised initial allocations on 7 March 2002 . . . Category 3: Authorities qualifying for grant due to a reduction in their LSC Sixth Form Allocation between . . . 7 March 2002''—

that is, supposedly, the finalised figure—

    ''and adjusted allocations announced during the financial year 2002–03.''

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Will the Minister explain the process by which adjustments may take place following publication of the finalised figures on 7 March? Will he also give the cost of grants under categories 1a and b and category 2? I think that he gave a total of £20.6 million for the cost to date, but he did not break down the figure. I would also be grateful if he gave us an indicative or projected cost of grants likely to arise under category 3.

Will the Minister confirm that the total cost to date of the special grants arising from transition to the LSC arrangement is £20.6 million? Will he also confirm the projected total cost of the grant regime? He made it clear that that cost will be, in his words, entirely additional, but is it to be met from the Department for Education and Skills budget, the Department for Transport, Local Government and the Regions finance settlement or new and entirely separate funds?

4.54 pm


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