Monday, 2 February 2015

What do Conservative spending plans mean for schools?

Just after the Prime Minister's speech on education earlier today I tweeted:

"PM confirms Tory school spending plans for next Parliament - flat cash per pupil. Combined with NI/pension changes = at least 10% cut".

This got picked up by a few news outlets this afternoon as a source for how big the cut would be. So I thought I better explain my working and add a few other points too detailed for a tweet.

I derived the "10%" from two things.

First, over the next couple of years schools will need to pay around £350-400 million more into teacher pensions as employer contributions increase. In addition there will be an additional £550-600 million more national insurance for schools to pay as a result of changes to state pensions in 2016. These figures come from a very helpful paper produced by the Association of Colleges. The schools budget is £41.6 billion so these changes represent a cut of around 2.5%.

Secondly, the "flat cash per pupil" settlement announced by the PM today means that from 2016 schools will not see their income rise in line with inflation. Based on the latest Bank of England estimates I've assumed inflation will run at: 0.5%; 1.5%; 2%; 2%; 2% over the next Parliament - 8% in total.

Add 8% to 2.5% and you get a 10.5% reduction in the amount schools receive per pupil. Obviously if inflation is lower the cut will be lower and if higher the cut will be higher.

Some additional points:

  • The vast majority of school spending is on staff and we can probably expect pay rises of 1% to continue (though schools have freedom over this so could choose to pay more or less). This means that, in practice, they won't feel the full 10.5% cut as their main area of expenditure will increase at levels below inflation.
  • On the other hand the protection announced today doesn't cover either the pupil premium or 16-19 budgets. These could be cut by more. 16-19 has been cut over this Parliament so schools with sixth forms are already hurting.
  • Moreover other budget cuts to welfare and social care have knock on effects on schools that aren't accounted for. This is, naturally, especially true of schools in poorer areas.
  • It is not yet clear whether these cuts will hit all schools equally. The current Government plans to shift to a National Funding Formula after this election. This could mean some schools in currently overfunded areas lose more while others receive some protection. As schools have surpluses of £4.5bn at the moment - that are not evenly distributed across the country - this would be sensible.

It's also worth noting that, given overall Conservative spending plans, this settlement will still leave schools much better off than other non-health departments like the Home Office. Moreover schools have had a relatively generous settlement this Parliament - seeing their revenue funding increase on average by 1% per pupil in real terms (not including 16-19 spending).

Labour and the Lib Dems plan to cut less over the next Parliament so have more leeway. Labour have not yet revealed their plans, and I'll update this blog when they do. The Lib Dems have promised to protect all education funding from 3-19 in real terms but have not yet said if this will be a "red line" in coalition negotiations. As all parties have accepted the NI/pensions changes even "real terms protection" will feel like a small cut.


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