Issue 131 - 2024 Summer term
Luke Sibieta from the Institute for Fiscal Studies (IFS) highlights the latest analysis showing that schools and colleges will be forced to make difficult trade-offs just to keep running.

Funding crisis

Luke Sibieta
Research Fellow at the Institute for Fiscal Studies (IFS)
School and college budgets are extremely tight, and their leaders face difficult trade-offs in trying to balance funding levels against rising costs. To get a complete understanding of the current picture, it is important to understand what has happened in the past, the current situation, and what is likely to happen in the future, as well as what trade-offs face policymakers and education establishments over the course of the next Parliament.

The past
Our analysis of education funding allows us to track school spending per pupil back to the 1970s. This shows that, over the long run, school spending per pupil has tended to grow by about 2% per year after inflation. This growth has not always been even. Growth was slower during the 1980s and 1990s, mostly about 1–2% per year. This also included some small cuts to secondary school spending per pupil during the 1990s when total spending did not keep pace with rising pupil numbers. During the 2000s, there was more rapid growth in spending per pupil, with spending per pupil growing by about 5–6% per year in real terms (that is, after inflation). By 2010, spending per pupil had reached a high point of about £7,800 in today’s prices.

From 2010 to 2019, school spending per pupil fell by about 9% in real terms. This is the largest cut in school spending per pupil we observe in our data back to the 1970s and is almost certainly larger than any cut seen in post-war history. There were many drivers of these cuts, including a nearly 25% real-terms cut in sixth form funding per pupil and a more than 50% cut in services provided by local authorities. More broadly, we see that total school spending was held constant in real terms from 2010 to 2019. However, because of a large growth in pupil numbers, spending per pupil fell by 9% in real terms.

Spending per student aged 16–18 in colleges fell by even more after 2010, with a real-terms fall of 14% between 2010 and 2019. This followed on from less growth over the 2000s, and larger cuts over much of the 1990s, when funding did not keep pace with fast rises in student numbers.
Since 2019, school and college spending has been on the rise again, with large increases set out in the 2019 and 2021 spending reviews. These funding increases meant that the government was on course to reverse past cuts and get school spending per pupil back to 2010 levels by 2024. However, even with an additional £1.6 billion, college spending per student will still be about 10% lower in 2024 than in 2010.

Unfortunately, the path has not been smooth over the last three years, with significantly higher growth in school and college costs than was expected. The recent spike in inflation drove up schools’ and colleges’ costs directly through higher energy and food costs. Teacher and support staff pay also rose more quickly than expected, partly to try to keep pace with rising inflation and increases in the National Living Wage. As a result, IFS analysis shows that school costs grew by about 6% in 2022/23 and 7% in 2023/24. Total school funding grew by a similar rate in those years, so schools were just about able to cover costs, on average. There will have been variation around that average, with some schools seeing small real-terms increases in their budgets while others saw costs grow faster than funding.

In 2023, the government announced extra funding to enable colleges to afford higher staff pay rises and to increase funding rates for GCSE retakes. However, none of this was new funding. It all came from existing plans. This left college finances essentially unchanged, with spending per student still about 10% lower in 2024. Student numbers have increased by less than expected and the government could thus increase funding rates by more than planned.

The present
This year looks even tougher. The government frequently claims that school funding per pupil is at a record high or is back to 2010 levels. However, this assumes that school costs are going up by about 1% this year when, in reality, school costs are likely to grow by about 5% according to our analysis. The 10% increase in the National Living Wage in April 2024 will further increase the cost of support staff pay and overall inflation is still likely to be about 1–2%. We also assume that teacher pay will need to go up by at least 3% in September 2024, given the growing teacher recruitment and retention problems. With funding only going up by 4%, on average, this year, we estimate that schools are about
£700 million short of covering their costs in 2024. We are likely to see similar pressures in colleges too.

The future
Looking further into the future, the government currently forecasts that the school pupil population will drop by 6% or by 800,000 between now and 2030. The cost of running a school is unlikely to fall at the same rate as pupil numbers fall, particularly in the short run. Cost pressures on schools are likely to continue too, with mounting problems on teacher recruitment and retention, and enormous pressure on the high needs budget. Savings can only really be delivered if schools reduce staff numbers, or if the government allows some schools to close as they become smaller. These are things governments like to avoid doing wherever possible.

It therefore seems unlikely that school spending will fall over the next few years, particularly as UK governments have never really cut total spending on schools over the last 40 to 50 years. There have been cuts in spending per pupil, but rarely cuts in total spending.
In colleges, student numbers are likely to continue to rise given that the mini population boom is still working its way through the system, placing further upward pressure on college costs.

While the settlement for schools and colleges is likely to continue to be tight, policymakers can improve the situation by delivering more predictability and making decisions earlier. Take teacher pay, for example. The government has delivered larger than planned increases in teacher pay in recent years, but these decisions tend to be made in mid to late July, only a matter of weeks before the pay increases are due to come into effect. The government usually provides extra funds to cover the extra costs, however, it rarely gets the credit because it all happens so late, generating a chaotic environment.

In summary, following a period of cuts to school and college spending, and even though spending has been rising again in recent years, this hasn’t gone as far as expected because costs have been rising rapidly too. The next few years are likely to see school and college leaders facing a different set of pressures on trade-offs, given the falling population, and budgets are likely to continue to be tight given the poor state of public finances.

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