2. Current System Of Funding
School funding is complex and currently lacks transparency.
While there are a series of defined and publicly available methodologies for allocating money from the Scottish Government to local authorities, largely through the local government finance settlement, there is no single or transparent approach to allocating money from local authority to education and then to school level.
This makes it difficult to establish a fully comprehensive picture of how school level budgets are determined. However, what is clear is that there is a great deal of variation across Scotland.
2.2 Education funding in Scotland
2.2.1 Role of Local Authorities in delivering education
Next Steps sets out the changing role of national and local government to support the devolution of powers to school level.
Currently, local authorities have statutory duties both in relation to the delivery of education and in how they spend public funds. Legal responsibilities for delivering education currently sit largely with local authorities, who are responsible for school education and early learning and childcare provision in their area. Under the Education (Scotland) Act 1980, they are required to deliver 'adequate and efficient' education. Under the Local Government in Scotland Act 2003, they are bound by a number of duties in relation to securing best value and accountability for expenditure. They also have a range of other legislative duties which impact on the allocation decisions they take, for example in relation to additional support for learning.
2.2.2 Scottish Government funding
The bulk of the money local authorities spend on school education and early learning and childcare provision is funded through the General Revenue Grant from the Scottish Government, which forms part of the overall local government settlement.
Central Government funding for education - and most other local authority services - is allocated to individual local authorities using a distribution formula and a series of needs-based indicators. While most of the indicators used to assess need in education relate to population bandings or pupil numbers, some relate to more specific 'need' factors, such as measures of deprivation and 'rurality'.
Funding allocations to local authorities through this route are not budgets or spending targets. The vast majority of money provided for education through the local government settlement is not ring-fenced, and it is for individual local authorities to determine how much funding should be allocated to education and then to individual schools and centrally managed education services. That assessment - generally set out in the local authority's Devolved School Management Scheme ( DSM) - is made on the basis of local needs and priorities, but also reflecting statutory obligations and agreed national priorities. Further information about DSM is set out in section 2.3.
Local authorities and schools also receive funding to support specific education initiatives or needs, for example to support teacher numbers, teacher pay or closing the attainment gap.
This system leads to a wide variation in both the level and method of allocation of schools funding across Scotland.
2.2.3 Current spending on education by Local Authorities
Education represents the largest single part of local government spending, accounting for £4.9 billion of gross expenditure in 2015-16. Nearly 90% of this was spent on primary, secondary and special schools. 8% of education spending was on early learning and childcare.
2015-16 Education Expenditure by Sector
Over two-thirds of spending on primary, secondary and special education is on staffing, with 53% spent on teachers and 15% on non-teaching staff, support services accounting for 4% and 'all other expenditure' accounting for 28% (this includes building maintenance costs, utilities, school meals and transport). These proportions have remained relatively stable in recent years.
2015-16 School Expenditure by Type of Cost
Estimated capital expenditure on education by local authorities totalled £653 million in 2015-16, 26% of total local authority capital expenditure. The bulk of this expenditure was on primary and secondary education.
2.2.4 Scottish Attainment Challenge funding
It is important that funding goes to where it is needed the most. Allocating ring-fenced funding directly to schools has therefore become a key part of the Scottish Government's work focussed on tackling the poverty related attainment gap.
In Spring 2016, the Scottish Government extended the Scottish Attainment Challenge to commit a total of £750 million over the lifetime of this Parliament to tackle the attainment gap, targeting resources at the children, schools and communities most in need through:
Pupil Equity Funding, available for headteachers to use for additional staffing or resources that they consider will help to raise attainment. In 2017-18, this funding is directly provided to schools in Scotland at a rate of £1,200 for each pupil in P1 to S3 known to be eligible for free school meals. 95% of schools in Scotland currently benefit from this funding. Headteachers are free to decide how to make best use of this funding. As with all current education funding, the scheme is administered by local authorities, who enter into a grant agreement with the Scottish Government, setting out how much funding each school will receive. Headteachers are accountable to their local authority for the use of the funding, which they will report on through current reporting mechanisms. These reports will be publicly available so that parents can understand how this funding is being used in their school.
Attainment Scotland funding, providing targeted support for children and young people in greatest need through the Challenge Authorities and Schools Programme, as well as funding a number of national programmes, including staffing supply and capacity, professional learning and school leadership. This includes working with nine Challenge Authorities with the greatest concentration of primary age children living in Scottish Index of Multiple Deprivation ( SIMD) 1 and 2 areas to implement authority wide improvement plans, based on initiatives to improve literacy, numeracy and health and wellbeing.
2.2.5 Early Learning and Childcare ( ELC)
Funding for Early Learning and Childcare is currently included within the General Revenue Grant provided as part of the local government settlement.
Local authorities then decide how best to allocate this resource in order to meet their statutory duties. This includes their statutory duty to ensure that funded Early Learning and Childcare entitlement is available to all eligible children in their area.
The Children and Young People (Scotland) Act 2014 increased the funded entitlement from 475 hours per year to 600 hours per year for all three and four year olds, and eligible two year olds. Local authorities can deliver the entitlement through their own nurseries and provision, or contract with providers in the private and third sectors.
In 2015-16 local authority revenue expenditure on Early Learning and Childcare was around £385 million, accounting for around 7.8% of total local authority expenditure on education.
This figure is expected to rise year on year over the period to 2019-20 as additional funding was provided to local authorities to support delivery of the provisions in the Children and Young People (Scotland) Act 2014, including expansion of funded entitlement from 475 to 600 hours, extension of entitlement to eligible two-year-olds and increased flexibility. However, analysis presented in the Financial Review of Early Learning and Childcare in Scotland  , published in September 2016, indicates that so far not all of the resources allocated to local authorities to support the delivery of the 2014 Act have been spent on ELC.
The Scottish Government is committed to almost doubling the funded entitlement to 1,140 hours per year by 2020. In October 2016, we set out our vision for the expansion as part of A Blueprint for 2020 consultation. That consultation sought views on the key policy aspects of the expansion, including potential funding models.
The Minister for Childcare and Early Years set out the Scottish Government's response to the consultation in A Blueprint for 2020: The Expansion of Early Learning and Childcare in Scotland  . This includes a new 'Funding Follows the Child' approach which will be introduced alongside the expanded entitlement in 2020.
This approach will ensure that funding for ELC directly supports eligible children and their families, ensure financially sustainable provision and deliver Fair Work practices across all sectors. It will underpin a more progressive and provider-neutral service model which allows parents to access a greater choice of high-quality settings and removes barriers which can make it difficult for private and third sector providers to offer the funded entitlement. The details of the new model will be developed jointly with local authorities through a Service Models Working Group, due to report by the end of March 2018.
2.2.6 Additional Support Needs
As part of general spending on education, local authorities also provide significant resource to support pupils with additional support needs. Of the £4.9 billion spent on education in 2015-16, £584 million (12% of total education spend) was on additional support for learning, an increase of £5 million on 2014-15.
In addition, the Scottish Government provides £11.3m of funding to 10 specific services dedicated to providing specialist additional support. These include: seven grant-aided special schools; Enquire, the national advice and information service for parents and carers on additional support for learning; CALL Scotland, which provides adaptations and assistive technology support for pupils with complex additional support needs; and the Scottish Sensory Centre, which provides training to teachers and other staff in supporting pupils with hearing and visual impairment.
The Scottish Government is currently considering whether the focus on building capacity of services as part of the Doran Review (a strategic review of learning practices for children and young people with complex additional support needs) could be aligned with the regional models of service delivery for children and young people with additional support needs. In its report on implementation of the Education (Additional Support for Learning) (Scotland) Act 2004 in May 2017, the Education and Skills Committee called for a financial review and for annual reporting on implementation of the Act. Ministers are already required to collect and publish information on implementation, including the cost of provision of additional support for learning.
2.3 Devolved School Management
Under the Standards in Scotland's Schools etc. Act 2000, every education authority is required to have a Devolved School Management ( DSM) Scheme and to delegate to headteachers the preparation of school improvement plans. DSM schemes set out the functions and control over a portion of the local authority's education budget that is delegated to individual schools and headteachers. The education authority is free to decide to which schools the scheme should apply, i.e. it does not have to apply to all schools.
DSM was introduced in 1993 to enhance and improve the management of resources at school level. The guidelines produced at that time required local authorities to devolve 80% of school budgets to headteachers, with the twin aims of improving local decision-making and providing more flexibility to headteachers in responding to the needs of individual schools. The guidelines were revised in 2006, with a recommendation that local authorities increase the level of devolved budgets to 90%. That advice reflected the principle that everything that could be devolved should be devolved, except for certain areas of expenditure that were not considered suitable for devolution (for example, expenditure that was centrally funded, such as capital expenditure, including all PPP/ PFI costs; school meals; school milk).
Further revised guidelines, introduced in 2012, were focussed less on the percentage of budget devolved, and based on a number of key principles grouped into the four main themes of: subsidiarity and empowerment; partnership working; accountability and responsibility; and local flexibility.
2.3.2 Current practice
While practice varies widely, DSM schemes in general are often very technical, providing only a partial view of the process by which funding is allocated to schools.
In addition to the areas of spending that have always been dealt with centrally, the portion of the budget delegated to headteachers appears to have reduced in recent years. Some local authorities now control elements of spend which were previously delegated.
Latest Scottish Government data from the Local Financial Return suggests that around a third of education expenditure is 'centrally managed'. However, the range reported by local authorities is wide and may not fully reflect actual experience, given the likely inconsistencies in the way spending is recorded.
However, national requirements, such as the Scottish Government's commitment to maintaining the pupil teacher ratio, and local requirements, such as local authority control over the staff employed by the authority and school management structures, mean that, in practice, headteachers appear to have direct control over only a very small proportion of their budgets.
It is clear that DSM schemes are not currently fulfilling their aims and full potential to empower headteachers in their spending decisions.
Chapter 3 considers the challenges presented by the way schools are currently funded, and the principles that will underpin our future approach to funding.
(a)What are the advantages of the current system of funding schools?
(b)What are the disadvantages of the current system of funding schools?
(a)What are the benefits to headteachers of the current Devolved School Management schemes?
(b)What are the barriers that headteachers currently face in exercising their responsibilities under Devolved School Management? How could these barriers be removed?
Email: Deborah Davies
Phone: 0300 244 4000 – Central Enquiry Unit
The Scottish Government
St Andrew's House