Assessing the Impact of Formula Funding on Schools

Abstract

Local management of schools was implemented in England and Wales from 1990/91. A crucial aspect of this implementation was the introduction of a new method of funding schools by formula. The impact of formula funding was investigated by means of statistical analysis of hypothesised determinants of the resulting budget changes experienced by all schools in one large local education authority over the financial years 1989/90 to 1991/92. While the largest determinant of budget changes was the change in pupil numbers, schools with high unit costs due to having excess capacity or being relatively small tended to lose budget. Above average staff costs contributed to budget losses in the primary sector but not in the secondary. Thus the formula promoted cost efficiency by reducing the number of schools which had large positive discrepancies between their unit costs and the average for their sector. Schools with higher proportions of socially disadvantaged pupils did not lose budget while schools with poor examination results did. The formula is shown to be a sensitive instrument by which LEAs can transmit policies such as those with respect to special needs and support for small schools.