Solving the Academies overspend crisis

Figures in a recent government consultation paper on the funding of academies have revealed that Gove’s policy of getting schools to convert to academies is expected to cost nearly £600 million more than planned over the two year period 2011 – 2013.


Except in the DfE, it has been common knowledge for over a year that the policy of converting schools to academies is costly and unsustainable, irrespective of its educational and social disadvantages.


A school leaving its Local Authority (LA)  becoming ‘independent’ (i.e. dependent on central government!), receives its normal funding and an extra grant called LACSEG (Local Authority Central Spend Equivalent Grant) to allow it to buy in the services it no longer gets from the LA. They also receive a £25,000 grant to help with the legal procedures involved in conversion and they get their insurance costs paid, often amounting to £90,000 depending on the size of the school.


As soon as the Bill became an Act in July 2010, Heads and Governors of ‘outstanding’ schools did their sums and soon realised that the LACSEG gives them far more than they needed to replace the LA services. The net bonus usually amounts to about 60% of the LACSEG grant. In arguing the case with governing bodies, many Heads specifically cited this financial advantage.  This over-funding directly contradicts the government’s statement that ‘it is clear that there should be no financial advantage or disadvantage for a school converting to academy status’.


The word spread quickly, hence the ‘dash for cash’ that has dominated the educational scene for the last year. Gove has trumpeted the ‘success’ of his policy, claiming that Heads are attracted by freedom and autonomy (released from the shackles of bureaucratic LAs). In practice, Heads are going for the extra money, especially at a time when school funding is tight. This has created a bandwagon effect which is far greater than the DfE had anticipated.


Where does the LACSEG money come from? It is partially recouped from the money that is held back by the LA, with the agreement of the Schools Forum, to spend on pupils with acute needs. The total set aside is simply divided by the number of pupils in the whole LA and the academies get their share. Of course, it is not really their ‘share’ because they will probably have fewer pupils who need that extra help. This in effect transfers funds from those in greatest need to those with fewest problems.


The rest of the LACSEG is calculated from what the LA spends on the administration of its schools, including its statutory and regulatory functions, school improvement and asset management. Every LA makes a Section 251 return listing these items and then the DfE simply divides that total by the number of pupils in the LA and that gives a per capita sum for each pupil which is given by the DfE to each converting school. The snag is that the amount generated by this crude method is far greater than schools actually need because many of the lines in the S251 return are not about school-based provision.


Using the argument that LAs would therefore have less work to do, the DfE agreed with the Department for Communities and Local Government (DCLG) to transfer some of the money the DCLG gives to councils to the DfE. For 2011-12 this top-slice was £148 million and in 2012-13 will be £265 million, making £413 million over the two years.


This top-slice was applied to all councils with education responsibilities, whether or not they have any schools converting to academies! This crude method incensed local councillors and officers by its unfairness. This reduction in grant, coming on top of a major reduction in general grant, was not ring-fenced to education. So Councils have been making cuts in their other services such as adult social care, libraries, youth services, road maintenance etc.


The true extent of the DfE’s under-estimate of what it will be paying in LACSEG to academies was revealed in figures published on July 19th as part of a consultation asking for advice on how to solve this problem. The figures showed that the expected LACSEG spend on academies in existence and schools likely to convert within the next year will amount to £997 million (mid-range estimates).


This leaves a gap of £584 million. This is an astonishing figure in a time of national penury. Critics have pointed out that it is tantamount to a bribe to tempt schools to convert to academies in order to justify Gove’s flagship policy.


Depending on how LAs respond, the government will either increase its top-slice across all LAs (which will further intensify the sense of outrage felt by councils with no or few academies) or they will apply the clawback specifically to each LA according to the number of schools converting in their area.  This will present some councils with a huge problem of having to find the resources from other parts of their expenditure.


In two years time there will be a new national funding formula for all schools which will treat all schools fairly. Paragraph 2.4 of the Consultation on school funding reform states: ‘It is a fundamental principle for the government that Academies are funded on a fair and equitable basis in relation to maintained schools and that any school wishing to convert to an academy is neither put off nor incentivised by the financial consequences’.


So what they should do now is simply to reduce the level of LACSEG paid to academies, probably on a sliding scale according to the size of the academy, with a 60% reduction for the largest and a 40% reduction for the smallest.


In a time of national financial crisis, it is impossible to justify spending this amount of money on a minority of schools, predominantly the most favoured.


Peter Downes is a former President and Funding Consultant of the Secondary Heads Association (now the Association of School and College Leaders), a Cambridgeshire County Councillor and Vice-President of the Liberal Democrat Education Association.

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