National funding formula: The National Funding Formula for schools explained

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The National Funding Formula for schools explained

New plans to change how school budgets are allocated could see some schools gain, but others suffer. We explain the National Funding Formula in a guide for parents.

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In December 2016, the Department for Education (DfE) announced plans for a new National Funding Formula for schools in England.

In its consultation document, the DfE explained that a new approach to how money is allocated to schools is necessary because the current system is ‘unfair, untransparent and out of date.’ For example, in some areas, schools receive funding of over £7,000 per pupil, per year, while in others, they get just over £4,000. The current system is based on assessments and statistics from over 10 years ago, hence the need to reassess how budgets are shared between schools.

Some schools stand to benefit from the National Funding Formula, but others could end up with less money to spend.

What is the National Funding Formula?

The National Funding Formula is the method that the Government is proposing to use to decide how much money should be given to English state schools each year. Schools in Wales, Scotland and Northern Ireland won’t be affected.

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It aims to remove discrepancies in funding that have arisen from budgets being allocated by local authorities, rather than central Government, and ensure that all school budgets are set using the same criteria. The DfE believes that this will direct resources where they are most needed.

There are also plans to help schools manage their budgets better.

The National Funding Formula is set out by the Government but will be administered by local authorities, which will have some flexibility in setting funding for schools in their area. All local authorities will have to follow the formula by 2021, but most are in the process of moving across to the formula already.

How will schools be funded under the National Funding Formula?

Under the proposed National Funding Formula, there are a number of different factors – clumped together in four ‘building blocks’ – that will be taken into account when setting schools budgets.

Block A: per-pupil funding

This is the biggest factor that will be used to allocate funding to schools, set by the local authority. Every primary school will be awarded at least £3,500 per pupil per year, regardless of their location, the size of the school, or any other factors. 

Secondary schools will receive at least £4,800 per pupil.

There will also be a Minimum Funding Guarantee, which means that schools are guaranteed a certain amount of per-pupil funding each year. The majority of local authorities have stated that schools in their area are guaranteed at least the same amount of per-pupil funding year on year, but a significant minority have allowed for a reduction in funding of up to -1. 5%.

Block B: additional needs funding

This block of money will be allocated on the basis of five additional needs:

  • Deprivation.
  • Looked-after children (optional).
  • Prior attainment: additional funding based on the number of children who are assessed as not achieving a good level of development in the Early Years Foundation Stage Profile.
  • English as an additional language.
  • Mobility (optional, for schools that have high numbers of pupils leaving and joining throughout the year).

The aim is to provide extra funding for schools in deprived areas or that have a large number of pupils from a disadvantaged background, to help raise the attainment of children who statistically perform less well than their peers.

Block C: schools block funding

This is money allocated to schools independently of any factors relating to pupils. It includes: 

  • Lump sum: a fixed and equal amount given to every single school in the area by their local authority. The majority of primary schools will receive £110,000.
  • Sparsity: extra money for small or isolated schools that can’t save money by sharing services or facilities with other schools. Most local authorities are choosing not to allocate a sparsity sum; of those that do, the average payment for primary schools is £20,000 to £30,000.
  • Premises: money allocated on the basis of rates and other factors like split sites.
  • Growth: extra funding for schools that are expecting significant increases in pupil numbers.
  • Falling rolls: allocated to schools that have seen a reduction in numbers, to help them prepare for an expected future ‘bulge’ in pupil intake.

Local authorities will have to specify how much of the schools block funding schools should allocate to their special educational needs (SEN) budgets. Most schools will have to ringfence 7.5% to 12.5% of their schools block funding for SEN provision.

Block D: geographic funding

This will be a ‘weighting’ based on the school’s location, and recognises factors such as the difference in teachers’ salaries depending on region. For example, there will be a London and London Fringe weighting.

Will schools be better or worse off under the National Funding Formula?

Under the new proposals, some schools will benefit from bigger budgets, while others will see their funding cut. Initial estimates suggest that 10,740 schools will gain, but 9,128 will lose out.

For example, most local authorities are setting a ‘lump sum’ payment of around £110,000 per school. Currently, the equivalent amount awarded to schools by their local authority varies from £59,000 to £175,000.

The schools that are likely to benefit the most from the National Funding Formula are:

  • Schools where pupils have low prior attainment
  • Schools where pupils live in areas with higher than average levels of deprivation
  • Schools in areas where local authority funding is currently low
  • Small rural schools.

Geographically, the DfE believes that schools in Knowsley, Barnsley, Derby and socially deprived inner city areas in Manchester, Liverpool and Birmingham will be the biggest gainers.

However, schools in Inner London and some other urban areas like Luton and Coventry are likely to see their budgets cut, mainly because while these areas have historically been seen as deprived, and so attracted more money, deprivation has fallen in recent years and the gap between the ‘haves’ and ‘have nots’ has narrowed. 

What do the experts say?

Predictably, opinion is split over whether the National Funding Formula is a good thing for schools. Announcing the plans, Education Secretary Justine Greening said, ‘Our proposed reforms will mean an end to historical unfairness and underfunding for certain schools. We need a system that funds schools according to the needs of their pupils rather than their postcode, levelling the playing field and giving parents the confidence that every child will have an equal opportunity to reach their full potential.

But speaking to The Guardian, Adrian Prandle of the Association of Teachers and Lecturers said, ‘School budgets are already cut to the bone. Without additional funding, schools will struggle to recruit enough staff, many will have to cut staff, cut the subjects they teach, cut IT upgrades, increase class sizes, cut the maintenance of classrooms, cut extracurricular activities and charge parents for school concerts and plays.’

The Grammar School Heads Association has warned that grammar schools will be some of the hardest hit, and may have to ask parents for financial contributions.

What about pupil premium?

Pupil premium is a sum of money awarded to schools for each child who qualifies for free school meals on the basis of their family income, specifically to improve prospects for these pupils, for example by funding one-to-one or small-group support, extracurricular activities, school trips, and so on. Pupil premium is protected until 2020, but may eventually be merged into the National Funding Formula.

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  • The SEN code of practice 2014: what it means for your child

  • The primary school National Curriculum in England explained for parents

  • What is a maintained school?

  • Parental donations to school funds: what the law says

  • Reading primary school Ofsted reports: teacher tips for parents

  • What is an academy?

  • The parent’s guide to the pupil premium

  • What is a free school?

How do school funding formulas work?

How do school funding formulas work?

November 29, 2017

School funding is a blend of federal, state, and local dollars. Local funding largely comes from property taxes. Federal money, which accounts for just 10 percent of all education funding, tends to target low-income students or other distinct groups. State funding is where things get complicated.

In all but five states, statewide formulas control most school funding. State education funding formulas have been the subject of controversy, confusion, and even lawsuits. Designed to ensure adequate funding across schools—and occasionally to promote equity—funding formulas distribute revenue to districts based on a variety of factors.

These formulas often attempt to account for state and district revenue and anticipated differences among districts. What they cannot always account for, however, is how districts might respond to different incentives. In these often complex funding models, states aim to strike a balance between giving localities some control while maintaining enough control at the state level to ensure all students can access a quality education.

Here, we explore the most common funding models states use and how districts might respond to those models. No one model is best—they create different incentives for districts that can bring distinct advantages and disadvantages.

Foundation Grants: States Ensure an Equal Foundation for All Districts

The most popular model for school funding is the foundation grant. Under this model, the state decides the minimum amount that should be spent per student, calculates each district’s ability to pay, and fills in the gap.

We illustrate this model with an imaginary state that has 20 districts, each with a different level of property wealth. The yellow dotted line represents the state’s predetermined funding minimum; in this state, the combination of district and state funds must add up to at least $10,000 per student.

This state requires districts to assess a percent property tax and has estimated each district’s ability to pay based on that amount. The tax rate is indicated by the pink dots, and each district’s per-student contribution is represented by a blue bar.

As you can see, the amount each district raises through a 1 percent tax varies widely, with one raising more than $10,000 per student. Less property-wealthy districts, however, need significant help from the state to reach the minimum.

The state fills the gap between what the district is expected to provide and the predetermined minimum, as indicated with a dark blue bar.

In some cases, districts may not get any foundation funding, because they can meet or exceed the spending minimum on their own. As you’d expect, districts that raise less from local sources get more state funding.

Of course, property taxes are not always the same across districts. What happens when districts make different decisions about their local contribution?

In our example, districts are required by the state to have a minimum 1 percent property tax, but they can opt to tax up to 1.4 percent.

We’ve modeled what would happen if every district taxed at a higher rate. Critically, the state’s contribution remains the same regardless of the district’s property tax rate, so any increase in funding comes from the district’s local tax base.

As you’d expect, the property-poor districts don’t get much additional funding by raising the property tax, but property-wealthy districts can raise a lot more. Still, every district is exceeding the minimum at this higher tax rate.

Using the sliders and buttons to the right, you can model what happens as districts change their property tax rates. Changes make a bigger difference for the property-wealthy districts, though the property-poor districts will never be far above the $10,000 threshold.

This approach to funding can mean that the property-wealthy districts spend more per student than the property-poor districts. However, it also ensures that every district has at least $10,000 per student. That is, as long as the state can afford its contribution.

But what if a state isn’t able to fulfill its commitment to districts? Here, we’ve modeled what would happen if a state, facing a budget constraint, was forced to lower the minimum funding level to $6,000 per student. The curve is more pronounced now, with the property-wealthy districts far outspending the property-poor districts.

Foundation funding can minimize differences in spending across districts when states can afford to provide large grants. Since that is not always the case, however, some states use additional mechanisms to try to account for differences in districts’ property wealth.

Guaranteed Tax Base: States Balance Local Contribution

Some states’ formulas equalize not just access to a minimum level of funding, but also the revenue generated at a given tax rate. This approach, sometimes called power equalization, allows each district to tax and spend as if it had the same local property tax base, thereby eliminating the inequities that foundation funding can produce.

The guaranteed tax base approach promises districts a consistent amount of money for their tax effort. Rather than ensuring a minimum overall funding level, the state instead commits to providing a minimum amount for each percentage of property tax regardless of how much district tax revenue is actually raised by that tax.

In our example, the state guarantees each district $6,000 per student per 1 percent tax. This means that in a district where that tax rate yields $1,000 per student, the state will contribute $5,000. At a 1 percent tax rate, this looks similar to the foundation funding model, with all but the most property-wealthy districts spending $6,000 per student.

At a higher tax rate, however, the pattern changes. Whereas with a pure foundation grant, the more property-rich districts exceed the minimum by more than their property-poor counterparts, with a guaranteed tax base, all except the most property-rich districts exceed the minimum by the same amount. That is, a 0.2 percent increase in property taxes generates the same financial boost in almost every district, regardless of the tax base.

Districts that could previously only raise small amounts of revenue from property taxes can now raise substantially more with the guarantee that the state “match” their effort.

Property-poor districts now have an incentive to raise local taxes, since each additional dollar of local money raised yields more money from the state.

This model also ensures that all but the wealthiest districts remain relatively equal. Because the state guarantees $6,000 per student per percent property tax, districts that tax at the same level will always have the same amount of money per student.

Of course, the districts that don’t need a state contribution can still raise well above the minimum—but some states have found a way to control for this, too.

In both the foundation and guaranteed tax base models, some districts do not receive any state aid because their property wealth per student is higher than the minimum level established by the state.

Some states let the districts keep these funds, but other states choose to “recapture” this revenue by setting a cap on spending for these unaided districts (indicated in yellow). For example, in our power equalization model, we can decide that any local funds raised above $6,000 are recaptured by the state.

In any state funding model, however, there’s a risk to using recapture.

Those living in a property-wealthy district may have preferences for high spending on education. Under recapture, additional dollars in property taxes would not go to local students, and property values in the district may decline as a result.

(In our model, districts can keep state funding above the minimum, but not local revenue.)

If the state relies on recapture to fund redistribution to property-poor districts, the state may be forced to lower the recapture threshold year after year to continue to raise the same amount of money.

With the lower recapture threshold, property values may decline even further, causing a downward spiral of decreasing thresholds for recapture and subsequent decreasing property values.

Because guaranteed tax base formulas can dramatically change incentives for districts, states that use a guaranteed tax base model sometimes use it in combination with a foundation grant, matching dollars spent above a minimum foundation amount.

Centralized School Finance: States Control Local Contribution

So far, we’ve seen that states can either guarantee a minimum level of adequate spending or guarantee a minimum tax base for property-poor districts. In each case, districts have some leeway to choose property tax rates to raise required local funding.

Some states have opted for a different path. Rather than trying to outspend rich districts or equalize property values, some states have essentially centralized their school finance system. The state assigns a standard property tax rate for all districts. In return, it guarantees roughly the same per student amount across districts.

In our example, the state sets a standard payment of $10,000 per pupil, and each district pays a required 1 percent tax.

This model looks like a foundation grant, with the state guaranteeing a certain amount of funding, but with the centralized model, districts can’t raise more than the minimum amount.

Just like in the other models, states that use the centralized school finance model have to decide how to treat districts, like our richest district, that can raise more than the standard payment using a 1 percent tax. The state could grandfather in such districts, either temporarily or permanently, or the state could recapture surplus funds.

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How does Formula 1 earn | Forbes Life

Imagine that on Sundays, half a billion people around the world spend two hours of their personal time watching a commercial. At the same time, viewers do not just look at the screen, but get sincere pleasure from it, after which they enthusiastically tell their friends about what they saw. The idea seems crazy, but that’s how modern Formula 1 works — a traveling advertising festival presented as a sporting event.

The $2 billion global championship draws 450 million to 600 million people on TV every year. It is generally accepted that in terms of audience coverage, Formula 1 is second only to the Summer Olympic Games and the World Cup. Moreover, unlike the listed tournaments, which have to wait for four years, the Formula 1 stages are held annually.

The modern racing season lasts from March to November and usually consists of twenty Grand Prix. Each competition takes place in a new country: in a year, participants in the international championship fly around four continents.

Many companies want to join this celebration: where else can you find half a billion loyal fans looking at billboards and sponsor stickers with lust.

Permanent Formula 1 boss Bernie Ecclestone skillfully uses the generated hype and earns money from every aspect of his offspring.


Sponsorship contracts, the most obvious method of monetizing popularity, bring Formula 1 about $400 million a year. This amount includes payments from Emirates Airline, Allianz Insurer, UBS Bank, Rolex watch manufacturers and other international corporations.

The share of sponsors barely reaches 20% in the total fund. Such a low percentage testifies to the real demand for Formula 1 as a spectacle: it is the advertising component of the financial equation that is able to objectively assess the attractiveness of the tournament in the eyes of experienced market players.

Still, in a world of crisis and austerity that has won, $400 million is a hefty sum. A less technologically advanced sport would have had enough of such revenue, but the need to build new cars every year forces Formula 1 to look for other sources of funding.

Sales of TV broadcasts

Formula 1’s commercial appeal is based on its global TV audience. At one time almost 2 billion people followed the Grand Prix. Now the numbers are more modest: in Russia alone, the audience has fallen to 12 million viewers, and in terms of worldwide, the figure was 450 million people. Nevertheless, the ratings are still impressive, and broadcasters buy up expensive broadcast rights by inertia.

In the late 1990s, income from television companies completely formed the financial well-being of Formula 1: broadcasts covered more than 80% of income. Now the share has fallen to 30% — in absolute terms, this is $ 600 million a year. The main trend is the departure of Formula from free channels to closed cable networks, where races can only be watched by subscription. This scenario has already been realized in France, Italy, Finland and the UK. With disastrous results.

It was easy for spectators not accustomed to paying for Formula 1 to refuse to watch races: in the age of broadband Internet and a variety of entertainment, it was easy to find a replacement for two-hour races in a circle.

Ratings have crept down, as a result, the attractiveness of the championship for sponsors has fallen — the smaller the audience, the less profitable it is to invest in a dying industry.

The situation can still be corrected, but Bernie Ecclestone has other priorities: obsessed with momentary increase in income, the entrepreneur continues to divert Formula 1 from free channels. Bernie prefers not to think about the future — at 84, he can afford to live today.

Contributions from the organizers

The biggest and most illogical source of income for Formula 1: the championship is paid by the organizers of the races for the right to host the Grand Prix. In the most popular and profitable American racing series, NASCAR, the system works exactly the opposite. The income received by the administration of the championship goes to the maintenance of the tracks. In the US, everyone understands that race tracks are needed so that athletes have a place to compete. This logic does not apply to Formula 1: Bernie Ecclestone acts on the principle of “this is for me, and this is also for me.”

The general promoter of a racing tournament has been building up the established hierarchy for years. Ecclestone’s main tool is to create a false hype: in all interviews, Bernie talks about the desire of many countries to get a Formula 1 race for themselves. Having simulated the demand for the Grand Prix, the entrepreneur boosted the cost of the entrance ticket to $40 million per stage — that’s how much, for example, the Indians paid for the right to host the national stage of the international championship once.

In beautiful presentations, Ecclestone talks about the prestige of the country, the stimulation of tourism and the creation of new jobs, slyly silent that all costs are borne by the owners of the track. No wonder a prudent Europe is losing one Formula 1 race after another, and the legendary circuits of the past are being replaced by new buildings in oil autocracies like Bahrain, Malaysia or the United Arab Emirates. Modern projects of «formula» Grand Prix are controlled at the state level: private entrepreneurs have neither the money nor the desire to pay $40 million to the Royal Races year after year without the hope of reaching a payback.

Generous contributions from the organizers of the Grand Prix bring Formula 1 $700 million per season — the amount is growing year by year. The incessant arms race has already knocked India and Korea out of the calendar: after three years of continuous losses, the race promoters finally decided to break the onerous contracts. However, Ecclestone has nothing to complain about: Azerbaijan, Mexico and Qatar are on the way.

VIP tickets and merchandise

The smallest but most important component of Formula 1 revenue. The sale of licensed souvenirs brings the championship $100 million a year, and the sale of tickets for VIP seats brings another $200 million.

It would seem that race promoters should make money on tickets — but even here Ecclestone defended the interests of the championship by reserving the most expensive seats in the closed boxes of each circuit for Formula 1. One pass to the so-called paddock club (the main Grand Prix VIP box) costs $4,000. A championship promoter can sell up to 5,000 of these tickets over the weekend. In addition to the opportunity to watch the race from the air-conditioned area, the price includes only a buffet table with a minimum cost: the efficiency of investments in the paddock club exceeds thousands of percent.

All costs are passed on to visitors: for the money spent, they are offered to feel like very important guests.

Bernie Ecclestone has mastered the techniques of inciting vanity — not only among state rulers, but also among ordinary motorsport fans.

Who gets the money

Formula 1 divides all income received into two parts: one half goes to the participating teams, and the other half goes to Delta Topco, which owns the World Championship through an extensive offshore network. Ecclestone himself is among the owners of Delta Topco, but the main shareholder is the British investment fund CVC Capital Partners. CVC currently owns a 35% stake in Formula 1.

The full list of CVC beneficiaries is kept secret, but several companies have disclosed the details of their investments in the investment fund. For example, the pension fund of California uses the services of CVC: due to the world’s main racing tournament, the profitability of investments of this organization reaches 17% per annum.

Now that Russian budget money is being spent on holding its own Formula 1 Grand Prix on the Black Sea coast, one can console oneself with one thought: at least California pensioners will make good money on this.

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