Section 3: Planning and setting the school budget print

Fri 14. Apr 17 11:25

Planning and setting the school budget


This unit looks at the complexity of school funding. It identifies the common themes of good financial budgeting processes and how they should be linked to the long-term school improvement planning process. The school business manager plays a vital part through reviewing previous income and expenditure, forecasting future needs and advising the governing body in the budgetary decision-making.

This section discusses:
  • national and local funding schemes
  • the budgetary process
  • the budgetary cycle
  • setting a balanced budget
Learning outcomes
On successful completion of this unit, you will be able to:
  • understand the main sources of funding for schools and the principles behind them
  • understand the budget planning process, including the cyclic aspects of budget setting
  • evaluate past financial performance and forecast future budgetary trends
  • report on a school's financial performance systems and planning processes
Useful documents
For this unit, you will need to refer to the following documents from your school:
  • school improvement plan
  • school annual budget
  • school multi-year budget

Funding terminology

When looking at school budgets, there are several terms you need to understand.

Schools receive both delegated and devolved funding:

  • Delegated funding has no particular conditions on how the school uses it provided any expenditure supports the core purpose of the school. Small balances can be carried forward to the next financial year.
  • Devolved funding is aimed at a specific purpose and may have conditions on how it may be used. Examples of devolved funding are ‘Pupil Premium’, which has to be used to improve the achievement of pupils eligible for free school meals or looked after by the local authority, and ‘Devolved Formula Capital Funding’ that has to be spent on long-term assets such as building or equipment.
Funding is also divided into capital and revenue:

  • Capital funding can be spent to acquire or improve a long-term asset such as equipment or buildings and usually includes the kitting out of new buildings with equipment and furniture. This includes major technology purchases.
  • Revenue funding can be spent to provide services and buys items that will be used within a year. Examples include salaries, heating, lighting, services and small items of equipment. Routine repairs are revenue expenditures and can include significant repairs that do not extend the life of the asset or do not improve the asset (the repairs merely return the asset to its previous condition).

2.1: Analysis of school funding

Obtain a copy of your school's budget for the last financial year.

Investigate the types of funding your school receives.

What proportion of the funding is delegated to the school?
What proportion of the funding is received as ‘Pupil Premium’?
What proportion of the funding is received as ‘Devolved Formula Capital Funding’?
What proportion of the funding is obtained from other sources such selling goods and services, lettings, charitable donations and so on.
Present the information in an appropriate graphical form, for example a pie chart, and comment on the effect that the pattern of school funding has on budget planning.

Sources of funding for state-funded schools

State-funded schools primarily receive public money provided from sources such as taxes. This applies to academies and free schools, which are designated as 'independent state-funded schools' as well as maintained schools. However, schools may also fund themselves with private money raised from donations, entrepreneurial activities such as lettings, or other private funds such as collections for school trips.

Funding received from the state, which may be referred to as the individual school’s budget (ISB) or their delegated budget must be spent to the benefit of the young people attending the school, and schools are required to comply with certain reporting processes for this public funding.

The funding received for school trips, donations, and so on may be kept in a separate account if the school wishes. However there are still expectations that this money is managed prudently and used expressly for the purpose for which it was collected and audited on an annual basis.

The diagram 'Funding sources for publicly funded schools' provides an overview of the various funding sources for maintained schools.


HM Treasury is responsible for determining the budgets for central government spending departments, including the DfE. This happens in a three-yearly cycle and is called the Comprehensive Spending Review. Public spending is allocated to support explicit policy objectives for which measurable targets can be set.

The DfE budget is allocated across all areas of its responsibilities. Delegated and devolved funding streams are allocated to local authorities and schools through formula funding schemes developed by the DfE. The funding schemes are under regular review and aim to provide:

  • adequacy
  • equity
  • stability
  • transparency
Local funding formulae

Local authorities, on receiving their school budget from DfE, are allowed to retain a percentage of the funding to enable them to meet their legally necessary functions and maintain core services. After deducting funding for local authority responsibilities, the remainder of the school budget is allocated to schools, using their own local formula. Local authorities may add their own contribution, raised through local taxation, to the budget allocated to schools. The local authority formula for allocating schools’ budgets must be agreed by the Schools Forum.

The money that maintained schools receive is in the form of delegated funding called the 'dedicated schools grant' and devolved funding for capital works, called the 'devolved formula capital grant'. All state-funded schools also receive devolved funding to improve the achievement of deprived pupils called the 'Pupil Premium', which is allocated on the basis of the number of pupils who have been eligible for free school meals at any time in the last six years and the number of 'looked after' pupils attending the school.

The Education Funding Agency (EFA) determines how much each academy receives. It uses the local funding formula as the basis of its calculations and it aims to ensure that academies have the same purchasing power as other maintained schools in the local authority.

Each local authority is legally required to provide a budget statement, called the Section 52, before the start of the financial year. This statement explains the formula used to allocate the budget to each individual school and shows the funding for each school, broken down into the various formula headings. Local authorities have a statutory duty to publish their outturn statement by a prescribed date in autumn. This element of the Section 52 shows the income and expenditure of each school for the previous financial year.

Academies and other state funded independent schools have a funding agreement under in which the secretary of state enters into an obligation to pay grant funding to the school as follows:

General Annual Grant (GAG) is paid in order to meet the normal running costs of the school. The amount received is equivalent to that which would be received by maintained schools in the same local authority.
Education Services Grant (ESG) which is paid in order to meet the costs of providing services that would formerly have been provided centrally by the local authority such as education welfare service, school improvement service, music service, outdoor education and so on.

Schools Forum

Schools Forums are statutory bodies, set up under the requirements of the:

Schools Standards and Frameworks Act 1998
Schools Forums (England) Regulations 2002 (as amended with effect from 30 December 2005)
School Finance (England) Regulations 2006

Membership of the forum is made up of representatives of headteachers and governors of all phases of school in the local authority as well as other key stakeholders such as the diocesan, early years and 14–19 partnership representatives. They are an advisory body with which the local authority must consult on all key funding decisions; in some instances the Schools Forum will make the final decision.

For further information on the role of the Schools Forum, visit your local authority website.

School funding reform

In 2011, the Department for Education (DfE) launched a consultation on the reform of school funding. In the Foreword to the DfE publication 'School funding reform: Next steps towards a fairer system' (DfE, 2012), Secretary of State for Education, Michael Gove, asserted that:

quote_print.pngThe current system is opaque, inconsistent and unfair with huge differences between areas

The government’s aim is to move to a national funding formula and to simplify local funding arrangements. They wish to ensure that as much funding as possible is delegated to schools. The first steps in this reform were taken in 2013–14 when regulations were introduced to reduce the variation in local funding formulae, which had been enormous. The number of criteria or factors included in the local funding formula was reduced from as many as 37 to 10 common factors. The government also declared their intention to make changes in the Schools Forum arrangements and to give a role to the Education Funding Agency in upholding the fairness of local decision-making


2.2: Funding streams

Identify the funding streams which are relevant to your school – this will be different for local authority schools, academies, faith schools, free schools, and so on.

Refer to your budget allocation based on your funding agency's formula and identify how the funding is allocated to your school.

Identify any other significant sources of income for the school.

Consider which sources of income are determined by pupil numbers and which are based on different formulas. Analyse what would happen to your school's funding if pupil numbers:

rose by 10%
fell by 10%

Why are budgets necessary?

In schools, the budget is the financial dimension of the school improvement plan. This means that the budget is really a plan that informs and empowers spending decisions and facilitates the achievement of the school's educational aims.

The school improvement plan considers the school's mission, aims, educational objectives and how these can be achieved over a three to five year period. The budget informs decisions within that plan, about whether or not the school can afford to finance its wishes, usually by defining and quantifying financial resources.

The following table shows the two aspects that the school budget supports.



The budgetary process

A range of factors should be considered when setting a budget (see the diagram 'Factors which support the budget planning process') and each school must decide on its own priorities and modes of operation based on its requirements.

We will now look at each of these factors in more detail.

A balanced budget

Proposed expenditure must not exceed projected income. This might appear to be an obvious statement, but historically some schools have taken the view that if they cannot balance their budget then they will set a deficit.

In principle schools can no longer set deficit budgets. If a school cannot balance its budget, it must negotiate a recovery plan to eliminate the deficit with their funding authority (for maintained schools this will be the local authority for academies this will be the DfE funding agency). If a school does not make adequate effort to achieve a balanced budget then the funding authority has the power to issue a notice of concern which can remove budgetary control from the governors.

Multi-year budgets

As the budget should reflect the School Improvement Plan, it is not a document that will apply to only one financial year. Hence budgets are usually prepared on a minimum of a three-year basis. When preparing the budget, the school business manager will usually present a review on a five-year basis:

two years in retrospect
the current year
two years in forecast

Such a time perspective makes it easier to identify trends.


2.3: Multi-year budget planning

Reflect on the positive aspects of multi-year budget planning, linked to the school improvement plan.

Identify any restraining factors that may cause the process not to work smoothly in practice.

Share your reflection on multi-year budget planning with colleagues from other schools.

Best value

Schools are required to apply the principles of best value. This ensures that schools have arrangements in place to secure continuous improvement that go beyond the value for money aspects of economy, efficiency and effectiveness.

Best value is discussed in greater in depth in the unit 'Procurement and value for money'.

Cost base

Budgets are frequently prepared on a historical basis by considering previously occurring patterns of income and expenditure and applying an inflationary adjustment.

An alternative approach is the zero-based budgeting method which starts with a blank sheet of paper, free from past decision making, and links directly to the school improvement plan. Such a fresh view can be very effective, but requires significant resources and discipline.

The zero-based approach can be applied to some areas of expenditure on an annual basis and introduced to review different areas of expenditure cyclically over several years.


2.4: Planning expenditure

Consider the following questions.

Does your school use historic costs or the zero-based approach when making expenditure plans

Is there a different approach for each budget heading? If so, why might this be?
Are there any areas in which its expenditure calculations or forecasts are inaccurate? What suggestions would you make for improvements?


While it is sound financial management to retain a small surplus, schools are discouraged from carrying forward large balances. It is expected that the revenue funding is used for salaries and learning resources to support the young people in school now. In extreme cases, local authorities are encouraged to make use of their power to claw back excess, uncommitted balances and redistribute the proceeds back to local schools in consultation with the Schools Forum.

Accounting systems - static or dynamic

A static budget remains fixed for its life: a dynamic budget changes (through regular review) to accommodate change. The approach taken depends on the circumstances of the school, however most schools experience some turbulence and change so it is advisable to review the budget on a regular basis in relation to the changes that are occurring.

Budget profiling

Budgets should be profiled to determine a month-by-month pattern of income and expenditure by budget heading. In this way, summary figures can be calculated in advance for each month, thus avoiding cash crises for schools that hold their budget in a bank account.

This is discussed in greater detail in Unit 3, 'Managing the budget'.

When and how is the budget defined?

Production schedule

If a budget is to be accurate and reliable, it should be produced at a measured pace and not dashed off at the last minute. Accordingly, many schools prefer their budgets to be produced by a series of actions at stipulated calendar points, allowing for information to be collected and included at ideal times. This budget calendar is closely linked to and cannot be separated from the school improvement planning process based around the school’s review and self evaluation processes.

The budgetary process, as with most planning activities, follows a cyclical progression (see 'The four-stage budgetary cycle' diagram) which involves planning (forecasting), implementation, evaluation and review. These are not separate stages, but interlink and feed into each other to provide ongoing financial management.


Maintained schools are required to run their budgets in line with the local authority financial year of April to March. This can be problematic as the financial year does not run parallel to the academic year of September to August. This means that for the first 5/12ths of the financial year, the school is operating with the previous year's curriculum and staffing plan.

Although the budget will have been set using informed projections for the new academic year, it may be that in September there is a considerable change to the school's number on roll (NOR) and the cost of staffing. These changes can impact on income or expenditure, or both.

Academies' budgets run parallel to the curriculum year and therefore can potentially avoid such budgetary issues.

The diagram 'The budgetary processes for maintained schools and academies' provides an overview of the different production schedule for maintained schools and academies

The budetary processes for maintained schools and academies


1. Factors in setting the budget
As a school business manager, it is important to identify those factors which are most likely to affect budget decisions and make sure the information obtained is as reliable and accurate as possible.

Factors to consider in the budgetary planning process are closely linked to information gathered for the school improvement plan:

  • review of past performance
  • pupil number forecasts
  • curriculum requirements
  • staffing requirements
  • other resource requirements
Select the left-hand tabs for more detail on each of these factors.

2. Review of past performance
By reviewing past performance against previous budgets, the school can gain a good idea of:

  • its cost base
  • the accuracy of cost estimates
  • areas where underspends and overspends have occurred
  • lessons learned from procurement and contract management
  • areas where better use could be made of resources
3. Pupil number forecasts
Forecasting pupil numbers as accurately as possible is very important, as it has a direct impact on funding, as well as having implications for staffing, curriculum delivery and accommodation.

The school should ensure that it utilises all available sources of information, such as:

  • census information
  • local authority information and data
  • local feeder schools' information
  • historic trends
  • admission policies of their own and neighbouring schools
It is advisable to consider different pupil number scenarios to ensure that baseline funding will be sufficient to meet needs.

4. Curriculum requirements
Each school must determine a method for its delivery in terms of resources, staffing and accommodation requirements.

A review and comparison of exam or assessment results with projected results during the autumn term provides an indication of which areas of the curriculum may require a change or further financial input.

5. Staffing requirements
Identification of changes to the curriculum and projected pupil numbers are used to link the curriculum planning to staff planning.

It is important that the staff plan is fully costed, taking into account:

  • scale progression
  • pay rises
  • projected rises in costs
The staffing budget is by far the most significant ongoing cost. The planning stage should reflect possible variations in staffing levels and the effects on the budget.

6. Other resource requirements
As well as the factors described above, you will need to identify all other basic costs, such as:

  • heating and lighting
  • insurance
  • maintenance of premises
  • equipment replacement
  • educational supplies
  • accommodation strategy
  • any capital development work

2.5: Providing information for decision-makers

What data do you provide to the governors and senior leadership team for budgeting purposes?

Review how the data is presented and describe how presentation could be improved to assist the understanding of those who do not have a financial background.

Further information


This page contains a range of additional resources you may want to use to extend your learning in this unit.

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