The row over education spending derailed all of the government’s plans to focus on good news in education in 2003. It has led to assertions that the distribution of funds to schools is inequitable and unfair, that local education authorities have concealed or redirected funding for education and that government got its sums wrong in the first place. The outcome has been considerable bitterness and talk of redundancies for teachers and a settlement that continues to cause concern. Politically, the Treasury has been enraged at what it views as a DfES cock-up and the whole government must be wondering what it has to do to get some reward back from the ungracious and ungrateful education system.

So what happened? In 2003/04 spending for schools increased by 11.6% in cash terms which amounted to £2.7 billion. It was recognised from the start that the increases in salaries, pensions and national insurance contributions would soak up £2.45 billion leaving around £250 million for the system. At the same time there were a number of changes to the formula funding system providing the same common level of basic funding for all pupils wherever they lived with extra funding for those in deprived circumstances – identified by local education authority. There was also extra funding for local education authorities in high cost areas to recognise recruitment and retaining issues and extra funding for rural areas to recognise transport costs. At the same time, the Standards Funding was transferred to mainstream funding. Standards Funding grants for school improvement, school inclusion, pupil support, NQT induction and performance management and threshold assessment were withdrawn. The principle behind this is known as the Education Formula Spending Share and it replaced the old Education Standard Spending Assessment.

So what went wrong? At first, the blame was placed on the local education authorities and their failure to passport (a new term for handing over) budgets to schools. The DfES analysis which indicated in the Spring of 2003 that £590 million was being retained led to questions being asked of all local education authorities. Two issues were at stake. The first was whether the local education authorities were retaining funds for educational purposes and for centrally funded initiatives while the second was concerned with whether they were diverting funds into other budget headings and for other uses.

One factor that immediately emerged was that many local education authorities were increasing their spending on central services so that a larger proportion of new funding was being retained. New advisory and support posts were creating new jobs at the centre and requiring additional support. Organisations like pupil referral units were also being established. The effect of this was to limit the funding for initiatives reaching schools whose requirements for salary, pension and national insurance contributions had to be met. It was also clear that while some local education authorities were retaining considerable reserves, others were simply being slow to move the money to schools, while a few were using their education budgets to bail out their spending on social services or to bolster capital spending.

Of course, once they were investigated the local education authorities were quick to make their excuses. Those that had been contemplating doing anything other than passporting the full budget were shamed into doing so by the DfES inquiries or compelled to explain what they were holding money for. Westminster and Croydon both agreed to make extra funding available for education after being threatened with an imposed budget settlement by the DfES.

However, a Pyrrhic victory and all of this argument missed the point. The underlying reasons for the problem were, firstly, some poor decisions by the DfES in bringing the Standards Funding into revenue funding and in finding a formula that set out to respond to existing inequities in funding between the north and south and, secondly, some poor calculations in working out the increasing costs of teachers’ salaries and pensions. The local education authorities were guilty of simply spending on their centralised provision rather than disseminating budgets to schools without realising the implications. However, their defence was that they were simply doing what government asked. Faced with increasing hostility, in March 2003 the Government extended the London ‘cushion’ to thirty-six additional local education authorities to ensure that their floor funding represented an increase of at least 3.2% after the councils claimed that it was impossible for them to do that on existing budgets.

It is, of course, a myth that most education spending goes to schools. The 2003 Spending Review was working with a budget increased by almost 12% but that did not mean 12% more for schools. In practice, it meant almost 50% more for nursery education, free nursery places for three-year-olds and the Sure Start programme. There was also a big new investment in children’s centres in disadvantaged areas and in Early Excellence Centres, and money for childcare and for its management by local councils. There were major plans for the skills area with the opening of UK Online Centres and a doubling of the Sector Skills Development Agency (SSDA) budget. Even prison education was in line for a 90% increase in spending when comparing 2002-3 with 2005-6. It goes without saying that OFSTED apparently needed additional funding in spite of the move to six-yearly inspections. £15 million extra over three years largely to take account of an increased role in regulating childcare and post-16 indicated how institutions can expand while appearing to contract!

There are two other factors worth mentioning. The first is that, in the late autumn of 2002, the DfES was still talking about distributing 92% of education funding through schools and introducing a massive increase in the Standards Fund linked to the workplace agreement and the restructuring of the profession. Did it then decide to change the funding formula because it reckoned that the workload agreement would never be signed? In other words, was the government already sick of supporting its ungrateful teachers by Christmas 2002?