3. Aims And Principles: The Case For Change
3.1 Fair funding principles
The Governance Review consultation proposed that any future approach to funding should:
- Support excellence and equity - ensuring every child and young person has the same opportunity to succeed
- Be fair - placing the needs of all children and young people at the centre
- Be simple, transparent and predictable - ensuring the costs of delivering education can be easily understood and explained and that schools are able to manage and plan ahead with certainty
- Deliver value for money - ensuring that every penny spent is used effectively
Responses to the Governance Review were generally supportive of these principles and the principle more generally of supporting excellence and equity through funding. There was some concern about an overly formulaic approach to funding, but support for greater flexibility over funding and budgetary control, for example, in relation to procurement.
A number of other points were made in response to the consultation, for example the need for adaptability to local circumstances and situations, affordability, and the need to ensure that Getting it Right for Every Child ( GIRFEC) principles are taken into account in the provision of local services. Some respondents were also concerned that there could be a tension between achieving simplicity and fairness and about the inclusion of value for money as a guiding principle.
The Scottish Government believes that the current system of funding schools falls some way short of meeting these principles.
3.1.1 Supporting excellence and equity; fairness
Because the allocation of funding in schools is - for the most part - a matter for local authorities, there is wide variation in the amount of spending per pupil between authorities. We recognise that national policy initiatives, in particular the commitment to maintain the pupil teacher ratio, have restricted the extent of this variation to a degree (given that staffing costs generally account for almost 70% of spending) but the available evidence shows that it continues to exist.
For example, Scottish Government figures show that, in 2015-16, the average spend per pupil in Scotland was £4,877 in primary and £6,920 in secondary. However, per pupil spending in primary ranges from £4,200 in one central local authority to £8,968 in one of the island authorities.
Gross Revenue Expenditure per Pupil,
by Local Authority, 2015-16
The Accounts Commission in its 2014 report on School Education in Scotland  , found those authorities with more island or rural areas generally spend more per pupil, for a number of reasons, including:
- the lower than average number of pupils in each school;
- the greater population dispersion and therefore distances that pupils have to travel;
- the greater number of primary schools required, leading to higher maintenance and running costs; and
- the difficulty of recruiting permanent and supply teaching staff without offering financial inducements.
That greater need is reflected in the share of funding islands and rural areas receive through the needs-based formulas within the local government settlement.
However, even among urban authorities, there are still large differences in spending per pupil, with those differences mainly influenced by how much is spent on teachers, and the composition of the teaching workforce, which will in part be influenced by the need to maintain the pupil teacher ratio.
This variation suggests that pupils or schools with similar characteristics in different local authority areas may attract very different levels of funding. That is significant given the OECD and Accounts Commission's findings that there is variation in attainment and achievement levels between local authorities and that some schools and local authorities achieve better attainment levels than others with similar socio-economic profiles  , and the Accounts Commission's finding that the positive impact of funding on attainment could be more significant if it was targeted at those schools and pupils where the need to improve attainment was greatest  .
However, local authority Devolved School Management Schemes suggest that the majority of education funding is allocated to schools by reference to pupil numbers or the number of teachers required to support the pupil roll, with relatively little funding allocated on the basis of additional needs-based factors such as deprivation, which we know can impact on an individual pupil's likely attainment.
There is also substantial variation in the content and operation of Devolved School Management schemes across Scotland, and in the proportion of education spending allocated for central purposes or delegated to schools. This suggests that there is considerable variation between local authorities in the influence that headteachers have on decisions about spending, and the flexibility they have within the budgets devolved to them.
If we are to create a more equitable system, where we can be sure that funding reflects need and schools are at the heart of decision-making, this variation in approach and outcome across Scotland must be addressed.
3.1.2 Simplicity, transparency and predictability
The system for allocating funding to schools is complex, opaque, and varies widely between local authorities. While the local government settlement uses a series of defined methodologies for allocating money to local authorities which take account of a wide number of needs-based factors, there is little transparency over the method of allocating funds from local authorities to education, and then to individual schools.
There appears to be substantial variation in how local authorities spend and allocate their education budget, and how they record that spending. Those differences make it difficult for teachers and parents to understand what level of funding their school receives and why, and for local authorities to understand the differences between them and other local authorities. Addressing these issues is important, given the Accounts Commission's findings that 'to ensure services are being provided as efficiently as possible, councils must fully understand the factors influencing their spend per pupil, and how this compares to other councils'  and that it is how local authorities decide to spend their education budget - rather than the overall spend - which has the most impact on attainment levels.
Because of the range of factors that need to be taken into account in funding individual schools, and the services supporting it, no approach to funding can ever be truly simple. Similarly, the specific amount of money that a school will receive in the future can never be entirely predicted, as that will depend on a number of factors, including the local authority's available budget. Nevertheless, these principles are important if we are to fully understand the impact of different spending decisions. The Scottish Government believes that a new approach to funding could go some way towards ensuring greater simplicity, transparency and predictability.
3.1.3 Delivering value for money
Funding must support how education is organised and the Scottish Government's focus on a school and teacher-led system which puts children and young people at the heart of education policy and practice.
While some respondees to the Governance Review expressed some concerns about the inclusion of value for money as a key principle, it is an important driver in ensuring that funding is fair. Value for money is not about cutting costs, but about maximising the impact of each pound spent to improve the outcomes for all children in Scottish education; ensuring the optimal use of resources to achieve the best outcomes, and that our schools are spending effectively. Lack of transparency, variation and the relatively small amounts of funding allocated on the basis of more complex additional need factors, such as rurality or deprivation, means that we cannot currently be sure that funding is being directed to where it is needed most.
The Scottish Government proposes that these principles should be reflected in any future approach to funding.
How can funding for schools be best targeted to support excellence and equity for all?
Email: Deborah Davies
Phone: 0300 244 4000 – Central Enquiry Unit
The Scottish Government
St Andrew's House