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Introduction

1 Local Management of Schools (LMS) was one of the most significant of the reforms introduced by the Education Reform Act 1988 (ERA). Underpinning the statutory detail, and the guidance issued by the Department, are two fundamental principles: allocating resources to schools on an equitable and open basis, and giving schools considerably greater autonomy in the management of those resources.

2 Statutory LMS schemes came into force in 87 Local Education Authorities (LEAs) on 1 April 1990, in a further 10 LEAs on 1 April 1991 and in 12 inner London LEAs on 1 ApriI 1992. Initially, these schemes related only to primary and secondary schools, but 8 LEAs have extended their schemes to cover special schools with effect from 1 April 1993, and all other LEAs are required to do likewise with effect from 1 April 1994.

3 Under sections 34-35 of the ERA (as amended by section 274 of the Education Act 1993) LEAs are required, when preparing or revising LMS schemes, to 'take into account any guidance given by the Secretary of State ... as to the provisions he regards as appropriate for inclusion in the scheme'. The Secretary of State's guidance may be general, or specific to particular LEAs or classes of LEA. This Circular sets out the Secretary of State's consolidated general guidance on all aspects of LMS. It draws heavily on Circulars 7/88 and 7/91, which are withdrawn; on amendments to LMS legislation introduced by the Education Act 1993; on new secondary legislation; and on the outcome of consultation's last year on a new LMS framework, announced on 23 June 1993.

4 The Circular is in 12 Parts, dealing with:

Part 1: Principles
Part 2: LMS Schemes
Part 3: Schools Covered by Schemes
Part 4: The LMS Budgetary Framework
Part 5: PSB Delegation
Part 6: Formula Funding
Part 7: Delegation: Miscellaneous Financial Issues
Part 8: Staffing
Part 9: Competitive Tendering
Part 10: Other Duties of LEAs and Governing Bodies
Part 11: Withdrawal of Delegation
Part 12: Publication of Information

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Part 2: LMS Schemes

Preparation of schemes and initial approval

11 Sections 33 and 34 of the ERA, as originally enacted, required each LEA to prepare an LMS scheme, consulting the governing bodies and head teachers of all county and voluntary schools maintained by the authority, and taking into account guidance from the Secretary of State. The scheme had then to be submitted for approval by the Secretary of State. All 109 LEAs in England now have schemes in place.

12 Section 34(4) of the ERA, as amended by section 274 of the Education Act 1993, now requires wider consultation in the preparation of schemes, involving

a. the governing body and the head teacher of every county, voluntary and special school maintained by the LEA;

b. the governing body of every grant-maintained (GM) school in the area of the LEA; and

c. the governing body of every grant-maintained special school in the area of the LEA or formerly maintained by the LEA.

14 A scheme is a set of rules for the allocation and management of resources. Subject only to the limits specified in Parts 5 and 6 of this Circular, the level of funding to be allocated and managed - both in total, and in respect of individual formula components and centrally-retained budget heads - is for the LEA to decide. Since a bare statement of the rules would thus give little indication of their likely impact in practice, scheme submissions have customarily included, for example, budget exemplifications based on proposed or hypothetical levels of expenditure, and other background information explaining or justifying (rather than defining) the rules. For the avoidance of doubt, this distinction between rules and supplementary information was reflected in a schedule (reproduced at Annex A to this Circular) attached to each initial scheme approval letter from the Department, listing the scheme elements formally approved by the Secretary of State. Change affecting the substance of any of these elements, or any element subsequently approved by the Secretary of State, constitutes a formal variation or revision of the scheme.

15 The effect of section 274 of the Education Act 1993 (see below) is that sections 33-34 of the ERA - insofar as they relate to the preparation and approval of new schemes - have no practical application in relation to an LEA with an approved scheme already in place, since any changes which such an LEA may wish to make in its LMS arrangements will fall to be treated as revisions of the existing scheme.

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The provisions relating to the initial preparation of schemes will however apply to new LEAs created as a result of the current review of local government: such LEAs will receive supplementary guidance from' the Department as necessary.

Scheme revisions

16 Section 35 of the ERA, as amended by section 274 of the Education Act 1993, provides for LEAs to revise the whole or part of their approved LMS schemes, and for the Secretary of State to make directions revising the whole or any part of a scheme after consulting the LEA concerned, and such other persons as he thinks fit.

17 As noted above (paragraph 14 and Annex A.), by no means all changes to LEAs' LMS arrangements constitute formal revisions to schemes. In particular, cash values attached to particular factors in the allocation formula are not approved elements of schemes and may therefore be altered without a formal revision; and while the purposes for which funds are held centrally by LEAs are approved elements, the precise deployment of resources between these 'excepted items' is not. Also, many LEAs' formulae contain lump sums, which are allocated to schools. Changes to the cash values allotted to those lump sums do not constitute formal scheme variations, so long as no additional differentiation between groups of schools is introduced.

18 Formal revisions to schemes fall into two categories: 'significant variations' and 'minor revisions'. These are subject to different procedures.

Significant variations

19 The Education (Significant Variations of Schemes for Financing Schools) Order 1993 (reproduced at Annex B) sets out the descriptions of scheme variation under section 35 which are to be regarded as significant. In general, any changes to schemes which might run counter to the key objectives of LMS are deemed significant. For example:

a. the introduction of a new discretionary excepted item (or the extension of the scope of an existing one). This could run counter to the objective of increased delegation of resources to schools;

b. the introduction of a new basis for allocating funds through the formula. The Secretary of State will wish to satisfy himself that any such factors will be objective and will not compromise the important principle that schools should be funded mainly on the basis of pupil numbers;

c. the introduction of new conditions or restrictions on governing bodies of schools with delegated budgets. This would run counter to the objective of increased delegation of powers to school governing bodies.

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variation as he thinks fit after consulting the LEA; and he may also attach conditions to his approval of a variation. Significant variations come into force when they are approved, or on such date as the Secretary of State may specify in giving his approval.

Minor revisions

21 Any change to an approved element of a scheme which does not fall within the definition in the Order constitutes a minor revision. Where an LEA considers that a proposed change to the scheme constitutes a minor revision, it must notify the Secretary of State, specifying the date on which the revision is to take effect. Notification must be before the variation takes effect. The Secretary of State then has two months in which to satisfy himself that the proposed revision is indeed minor. Assuming that it is, the LEA must then publish details of the revision, including the date on which it is to come into force.

22 There is no statutory duty on LEAs to consult their schools before making a minor revision. However, the Secretary of State wishes to encourage LEAs to consult schools (including GM schools) wherever possible, particularly for those variations which may have a major impact on their budgets - as will often be the case, for example, with changes to the pupil age weightings.

23 Where an LEA is uncertain whether a proposed change to its scheme would constitute a significant variation or a minor revision, the Department will be willing to offer advice.

Submission of variations for approval: timing and presentation

24 Section 33(5) of the ERA requires that schemes should provide for the 'amounts relevant to the determination of a school's budget to be determined initially before the beginning of the financial year'. This means that the formula funding rules which are to apply in respect of any financial year must be fixed before the beginning of that year. The school budget shares are then calculated and, once this is done, the formula rules cannot subsequently be changed by a retrospective variation.

25 Significant variations should be submitted for the Secretary of State's consideration in good time, to ensure that the statutory process can be completed to allow the variation to be made before the beginning of the new financial year. LEAs should endeavour to submit such significant variations by the end of January, and at the latest by 14 February, before the financial year in which they would come into effect. The Secretary of State does not guarantee to be able to complete the approval process for variations submitted later than that; nor can he guarantee to do so in relation to submissions which are received within this timescale but do not meet the requirements set out in paragraph 26 below. Minor revisions can be made later, and the Secretary of State notified accordingly. However, in the event that the Secretary of State judges such a variation to be significant, he does not guarantee completion of the approval process in time for 1 April if the notification is made later than 14 February.

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26 Submissions seeking the Secretary of State's approval for a significant variation should

a. set out the exact wording of the proposed variation as it will appear (if approved) in the LEA's published LMS scheme, and indicate clearly all passages in the text of the existing scheme which will need to be deleted or otherwise amended as a result of the new provision;

b. indicate (where this is not self-evident) the reasons for the proposed changes and their anticipated effect;

c. in the case of new formula factors, provide sufficient information (with exemplifications where appropriate), to make clear how the factor will actually operate;

d. confirm that the consultations required by statute have been carried out, and provide a brief indication of the overall response from the schools consulted.

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Part 3: Schools Covered by Schemes

Formula funding

27 Under section 33(3) of the ERA a school is required to be covered by a scheme - ie to have its funding determined by the LEA's resource allocation formula - if (a) it is an existing county or voluntary school, or (b) at any time during the year it becomes such a school, either by being established as a new school or by becoming maintained when previously it was not. County and voluntary boarding schools are covered by schemes.

28 The amount calculated by reference to the formula is each school's 'budget share' as defined in the Act. Each school must be allocated one and only one budget share. Thus where two or more schools are grouped under a single governing body under the provisions of sections 9 and 10 of the Education (No 2) Act 1986, each school must receive its own budget share, and (where the schools have delegated budgets) the governing body must administer and account for each school's budget separately from any sums delegated in respect of other schools in the group. Conversely, it is not in order for an LEA to allocate separate budget shares to what are, in law, departments of one school (eg the infants and junior departments of a primary school).

29 By virtue of section 33(2)(a) of the ERA, each school covered by the scheme must be funded at the level of its budget share. This means, on the one hand, that LEAs may not properly fund spending by a school in excess of its budget share (including any surplus brought forward, see paragraph 153 below), except to the extent that the excess constitutes a legitimate claim on contingency provisions or other funding "devolved" on the basis described in paragraphs 96-98, or is covered by provisions in the scheme which enable schools, in specified circumstances, to anticipate their budget shares for the following year (paragraph 154). Conversely, no part of a school's budget share may be withheld by the LEA unless the scheme makes specific provision for this (eg in connection with the recovery of deficits, see paragraphs 155-156).

30 The rule that schools must be funded at the level of their budget shares applies whether the schools have delegated budgets or not. Where they have not, responsibility for controlling their expenditure will rest with the LEA (subject to section 49 of the ERA, see paragraph 44): but their budget shares may not be aggregated and the LEA may not vire between them.

31 Nursery schools are excluded from the definition of county and voluntary schools by section 9(2) of the Education Act 1944, and therefore fall outside the scope of schools required to be covered by a scheme under section 33(3).

32 Special schools were not originally required to be covered by schemes. However, section 43 of the ERA, as amended by section 276 of the Education Act 1993, empowers the Secretary of State to make

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regulations requiring or authorising schemes to cover maintained special schools. The Education (Application of Financing Schemes to Special Schools) Regulations 1992 authorised LEAs to include special schools in their schemes for the 1992-93 and 1993-94 financial years, and required them to do so by 1994-95. LEAs were required to submit proposals for this purpose by the end of September 1993. This requirement extends to the funding of hospital schools and residential special schools. The Education (Application of Financing Schemes to Special Schools) Regulations 1993 reaffirm the requirement to cover special schools from 1 April 1994. These regulations are reproduced at Annex C.

33 As part of the process of revising their schemes to take account of special schools, LEAs have been required to submit to the Secretary of State a statement of their special needs policy, concerning

a. the arrangements for identifying children with special educational needs (SEN), including the part to be played by LEA central staff, schools, district health authorities (DHAs), social services departments (SSDs) and voluntary agencies;

b. the role of primary, secondary and special schools;

c. the arrangements for providing education for children in hospital and at home, and for placing and monitoring pupils in independent and non-maintained special schools;

d. the arrangements for co-ordination, including the management and availability of support services, and collaboration with neighbouring LEAs, SSDs and DHAs; and

e. the arrangements for:

(i) monitoring the performance of all schools and support services;

(ii) ensuring that children with statements receive the provision specified in their statement; and

(iii) reviewing the appropriateness of that provision at least annually.

35 Section 298(2) of the Education Act 1993, which will come into force on 1 September 1994, clarifies the legal status and conduct of free-standing units which LEAs may operate now or in the future to provide education for children of compulsory school age who, by reason of exclusion from school or otherwise, may not otherwise receive suitable education. These units will be known as Pupil Referral Units (PRUs). Though legally classified as schools maintained by LEAs, PRUs are not included in the definition of county and voluntary schools in section 9(2) of the Education Act 1944 and therefore they are not schools required to be covered by a scheme under section 33(3) of the ERA.

36 In sum, by 1994-95, all LEA maintained schools, with the exception of nursery schools and (from 1 September 1994) pupil referral units, in all 109 LEAs in England will be covered by an LMS scheme.

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Delegation to schools

General

37 By virtue of section 36(5) of the ERA, the governing body of a school with a delegated budget may deploy the resources provided through the school's budget share as it thinks fit, subject only to such restrictions as may be imposed by or under the scheme, and to the overriding requirement that the budget share may be spent only 'for the purposes of the school'. This latter requirement precludes the use of funds from the delegated budget to support non-school activities, even where these take place on the school premises and the governors and head have overall responsibility for their management: any subsidy which the LEA may wish to make available for such activities must be separately funded from sources outside the General Schools Budget. Nor may governing bodies make use of their delegated budgets to support the further education which they are now empowered to provide by section 12 of the Further and Higher Education Act 1992 (see section 12(6) of that Act).

38 As to the provisions of schemes, the Secretary of State considers (see Part 7 below) that these should restrict governing bodies in the exercise of this discretion only to the minimum extent necessary to safeguard the LEA's capacity to discharge its own statutory educational and financial responsibilities. In addition to the powers conferred by section 36(5), substantial responsibility for appointments, dismissals and other staffing matters is vested in the governing bodies of schools with delegated budgets by sections 44-46 and Schedule 3 to the ERA. Part 8 below deals in more detail with these responsibilities.

Primary and secondary schools

39 LEAs were required originally to give delegated budgets to all their secondary schools, and to primary schools with 200 pupils or more, by 1 April 1993 (1994 for the 12 inner London LEAs). The Education (Financial Delegation for Primary Schools) Regulations 1991 subsequently required LEAs to extend delegation to all primary schools by 1 April 1994.

Special schools and units

40 Section 43 of the ERA as amended by section 276 of the Education Act 1993 empowers the Secretary of State to require or authorise schemes to extend delegation to special schools. In relation to England, the Regulations reproduced at Annex C

a. require all schemes to provide for the delegation of special schools' budget shares no later than the 1996-97 financial year;

b. authorise LEAs to provide for such delegation in the 1994-95 and 1995-96 financial years if they so wish; and

c. provide for the Secretary of State to be able to require individual special schools to receive delegation earlier then their LEA is proposing. In other words, it will be open to any special school to apply to its LEA for delegation where the LEA does not intend to provide it before April 1995 or (as appropriate) 1996. If the LEA turns down the application, the Secretary of State will be willing to consider requiring the extension of delegation to the school.

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41 Under the terms of paragraph 76 of Circular 7/88, LEAs have been able to retain centrally funding for any special unit attached to a mainstream school and under the overall direction of the headteacher and governing body of that school. From April 1996, the Secretary of State will require delegation of funding for such units attached to mainstream schools, or for special classes, which cater for pupils with SEN including those on the roll of the host school. Provision for units or classes which are for pupils with hearing, visual, or speech and language impairment may however continue to-be retained centrally. Free-standing special units providing for pupils of school age who are not on the roll of a mainstream school will in future fall within the scope of section 298(2) of the Education Act 1993 and become Pupil Referral Units (PRUs), unless they become part of a host school or LEAs seek to have them approved as special schools. Further material on this will be in the Department's new guidance on the education by LEAs of children otherwise than at school.

42 Although the delegation requirement does not extend to units for pupils with hearing, visual or speech and language impairments, delegation is not ruled out if that is what LEAs and schools wish. PRUs cannot have delegated budgets. In addition, the Secretary of State is willing to consider proposals from LEAs to retain central management of new units for a time-limited period beyond 1 April 1996. He would not normally expect this dispensation to last for more than two years after the establishment of the unit.

43 Where a pupil has a statement, responsibility for arranging the necessary provision will remain with the LEA maintaining the statement, regardless of whether the funding is delegated or not. Where the funding has been delegated, LMS schemes must therefore include conditions requiring governing bodies to ensure that the provision specified in the statement is made. This applies in relation to all pupils with statements, whether in special or mainstream schools. The scheme should also set out the monitoring arrangements by which the LEA will satisfy itself that these conditions are being met.

Schools without delegated budgets

44 Virtually all schools will have delegated budgets by April 1994, the only exceptions being special schools (if the LEA has chosen to defer delegation until 1995 or 1996), and any individual schools from which delegation has been for the time being withdrawn (Part 11 below). As noted in paragraph 30, a school without a delegated budget must nevertheless be funded at the level of its budget share as determined by the LEA's formula; and while the provisions of sections 36(5) and 44-46 of the ERA do not apply to such a school, it is entitled to the more limited form of delegation, formerly laid down in section 29 of the Education (No 2)

. Act 1986 and carried forward by section 49 of the ERA, which requires LEAs to delegate a sum for books, equipment and stationery to the governing bodies of all maintained schools other than nursery schools.

New schools

45 The application of LMS to new schools is the subject of detailed provisions in section 48 of, and Schedule 4 to, the ERA. The main features of these provisions are summarised in Annex D.

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Part 4: The LMS Budgetary Framework

The general schools budget

46 The starting point for any LMS scheme is the LEA's General Schools Budget (GSB). This is defined in section 33(4)(a) of the ERA as 'the amount appropriated by the authority for meeting expenditure ... in respect of all schools required to be covered ... by any scheme'. From 1 April 1994, this will include expenditure on all county, voluntary and special schools (including residential and special schools established in a hospital) maintained by the LEA.

47 The GSB covers not only direct institutional costs such as salaries and repairs and maintenance, but also indirect costs for services used by the school or attributable to it, for example school transport or recharged central administration. The total of the GSB must be determined at the start of the year, and should not normally be altered in-year except in the case of major contingencies.

48 Examples of expenditure items which should not be included for the purposes of determining the GSB are:

a. costs to be incurred in respect of schools not covered by the scheme, ie nursery schools and (from 1 September 1994) pupil referral units. This should include any expenditure on central support services which is attributable to such schools;

b. costs of non-school activities taking place on school premises, for example any further education (whatever its source of funding);

c. recoupment payments to other LEAs; expenditure on non-maintained school fees; expenditure on the provision of services (eg home to school transport) by the LEA for grant-maintained school pupils: and sums required of the LEA by the Secretary of State under section 81 of the ERA in respect of GM schools' maintenance grant. None of these items constitutes expenditure by the LEA on its own schools;

d. costs arising from the annual indexation of pensions payable to former non-teaching staff who were members of the Local Government Superannuation Scheme;

e. the costs of providing education otherwise than at school, including the costs of pupils on the roll of LEA or GM schools who are receiving home or hospital tuition (other than in a hospital special school) or who are attending units for excluded pupils which are not attached to a mainstream school;

f. costs of provision for children aged under 5 with special educational needs who are not on the roll of any maintained school;

g. such central administrative expenditure as properly falls to be attributed to 'service strategy and regulation' as defined by CIPFA ('Accounting for Education', February 1992);

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h. capital charges (including depreciation) to service revenue accounts, as defined in the CIPFA/LASAAC 'Code of Practice on Local Authority Revenue Accounting in Great Britain' (CIPFA, September 1993, as revised from time to time).

a. provision for pupils aged under 5 being educated in primary (other than nursery) schools, whether for primary or nursery education;

b. expenditure on extra-district pupils in the receiving authority'S schools covered by the scheme;

c. the cost of providing education in special units formally attached to schools covered by the LEA's scheme;

d. provisions for the schools' library service and the schools' museums service attributable to schools covered by the scheme; and

e. costs of premature retirement compensation and severance attributable to schools covered by the scheme.

51 The question of contingency provision, in relation to the GSB, is considered in paragraphs 70-74 below.

The aggregated schools budget

52 Section 33 of the ERA indicates that having fixed the General Schools Budget, LEAs then need to deduct

a items 'excepted' from delegation by the Act itself or by regulations made under it; and

b. other items 'excluded' by the LEA using its discretion under section 33(4)(b)(ii) of the Act.

53. What remains after deduction of the mandatory and discretionary exceptions is known as the 'aggregated schools budget' (ASB). It is this amount which must be allocated to individual schools' budget shares on the basis of the resource allocation formula embodied in the scheme.

The potential schools budget

54 The Secretary of State's minimum requirement as to the level of funding which should be included in the ASB is expressed as a percentage of the Potential Schools Budget (PSB).

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55 The PSB is the GSB less expenditure on a defined list of 'excepted' items. These items themselves fall into two categories. The first is that of 'mandatory exceptions' under section 38(4) of the ERA. These may not be delegated to schools. The second category is that of certain 'discretionary exceptions' identified by the Secretary of State. LEAs may delegate these to schools, in which case the costs are included in the PSB. But if they do not, the expenditure which they incur on them centrally will not count towards the limit imposed on such expenditure. These are known as discretionary exceptions not subject to the limit.

Mandatory exceptions:1993-94 and 1994-95

Capital expenditure

56 Capital expenditure varies significantly in its incidence between schools and is not readily susceptible to formula distribution. It forms an essential part of the responsibilities of the LEA as the owner of most school premises, and may involve projects requiring considerable technical expertise. 'Expenditure of a capital nature' is accordingly excepted from delegation by section 38(4)(a) of the ERA, while section 38(4)(b) excepts 'all expenditure in respect of the repayment of the principal of, the payment of interest on and the discharge of any other financial obligation in connection with any loan raised to meet expenditure of a capital nature'. Section 01 (1) of the ERA provides for the exact definition of expenditure of a capital nature to be that used by the LEA.

Central government and EC grants

57 Section 38(4)(c) of the ERA empowers the Secretary of State to make regulations defining as mandatory exceptions any 'expenditure falling to be taken into account in determining central government grants of any prescribed description'. Prescribed in respect of England are Education Support Grants (ESGs); Local Education Authority Training Grants (LEATGS); grants under Section 11 of the Local Government Act 1966; grants for the education of travellers and displaced persons under section 210 of the ERA; TVEI grants under section 2 of the Employment and Training Act 1973; and urban programme grants under section 1 of the Local Government Grants (Social Need) Act 1969. These are prescribed by The Education (Financial Delegation to Schools)(Mandatory Exceptions) Regulations 1989, which are under revision to take account of the amalgamation of ESGs and LEATGS (Education Act 1993, section 278), and the establishment of the Single Regeneration Budget, announced by the Government on 4 November 1993. The new regulations will be laid before Parliament shortly.

58 Section 38(4)(d) of the ERA empowers the Secretary of State to prescribe, by regulation, other items of expenditure as falling within the category of mandatory exceptions. The 1989 regulations place in this category 'expenditure falling to be taken into account in determining specific grants from the European Economic Community which support activities in schools'.

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59 In the case of specific grants, the Secretary of State considers that it is essential for the LEA to retain control of the expenditure, in order to ensure that the priorities supported by the grants are met, and that LEA expenditure on these activities is effectively monitored. The freedom of schools to redeploy resources within delegated budgets should not apply to these funds. For the same reasons, the regulations also exclude the LEA's required contribution to the grant-supported expenditure as well as the portion directly met by the specific grant. However, it will be open to LEAs to continue the existing practice of devolving expenditure supported by specific grants to schools outside their delegated budgets, ie earmarking funds for the specific purpose (see paragraph 96).

Further mandatory exceptions to be added in 1995-96

60 The Secretary of State reviews and adjusts as necessary the list of mandatory exceptions prescribed under section 38(4)(d) in the light of experience. Following consultations in early 1993, the following items will be added to the list of mandatory exceptions for the 1995-96 financial year:

a. provision for premature retirement and dismissal costs. The LEA is the compensating authority in the case of these costs in respect of staff at any LEA-maintained school. Under section 46(5) of the ERA, an authority may not deduct the costs from schools' delegated budgets without good reason. The fact that the costs had been delegated would not, of itself, constitute good reason. Delegation does not, therefore, make sense;

b. provision for the educational psychology and education welfare services. These are both services whose work is mainly involved with meeting LEAs' statutory responsibilities. The psychological service is inextricably linked with the function of assessing and preparing statements of special education needs, an area which will remain the responsibility of LEAs for pupils both at their own and at GM schools. The work of the education welfare service relates primarily to the enforcement of statutory duties in relation to school attendance. This will also remain the responsibility of LEAs for pupils at all types of maintained schools. LEAs will not be required to distinguish between expenditure on these services related to their statutory responsibilities, and expenditure related to other activities, which are often closely linked with statutory duties and cannot easily be separated;

c. the administrative costs of arranging statutory assessments and the maintenance of statements fall to LEAs and are clearly incapable of delegation since it is work which can only be carried out by an authority. This work may include the administrative task of writing statements as well as the administration of the educational psychology service. Where the organisation of this work allows such costs to be precisely identified, this expenditure may be included as a mandatory exception to delegation.

61 Two items currently fall into this category, and will continue to do so in the future. They are the major areas of school meals and home-to-school transport.

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School meals

62 In relation to school meals, milk and other refreshment provided under section 22 of the Education Act 1980, the scope for delegation is tightly constrained. As Annex E explains in more detail, the overall effect of section 22 is that funding for this service cannot lawfully be delegated to governing bodies except on the basis of strict conditions requiring them to make provision in accordance with standards - and, in the case of paid meals, at prices - prescribed by the LEA.

63 Delegation is, nevertheless, possible within these constraints. The Secretary of State wishes to encourage LEAs to consider delegation (on expiry of an arrangement under the competition requirements of the Local Government Act 1988 or an external contract entered into voluntarily by the LEA), where schools can demonstrate that they are able to arrange for a service which meets the LEA's standards to be provided at least as cheaply as under arrangements made by the LEA itself. County and controlled schools wishing to provide their own in-house service would have to comply with the requirements of the Local Government Act 1988 on competitive tendering (see Part 9 below). In considering delegation, the LEA will also want to take into account the significant investment in equipment which school meals can involve, and the implications where, for example, large schools provide meals facilities for pupils from smaller schools without their own facilities.

Home to school transport

64 Much expenditure on home to school transport is an inescapable consequence of statutory duties and is largely determined by distances between homes and schools. To secure value for money, it may often be necessary to co--ordinate the arrangements for transport to different schools, and also to ensure co-ordination between schools and other services (particularly in regard to specialised transport for pupils with SEN). Moreover, funding for school transport does not easily lend itself to allocation by formula at the outset of the financial year, since it relates very largely to statutory obligations which can only be costed, at the level of the individual school, once all its pupils' addresses are known.

65 The Secretary of State will, however, consider any delegation proposals put forward by LEAs where they consider that home to school transport can be organised most cost effectively on other than a central basis.

Discretionary exceptions to be removed from the PSB, with effect from 1995-86

66 In addition to school meals and home to school transport, four areas of provision will count as discretionary exceptions outside the PSB and therefore not subject to the limit from April 1995.

Pupil support

67 Pupil support includes provision for uniforms, clothing and footwear, board and lodging, and maintenance grants for post-16 pupils arising from LEAs' statutory responsibilities. Because the need for such provision is likely to vary significantly between individual schools, the Secretary of State recognises that lEAs may not consider a formula-based allocation to be appropriate, or achievable in practice. In addition, even where funds were delegated, schools would effectively have no choice but to spend them for the statutory purposes involved.

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Governors' insurance

68 As noted in paragraph 2350below, LEAs will need to arrange insurance cover for governing bodies against any potential liability in negligence towards staff or third parties incurred in the exercise of their responsibilities. In general, the Secretary of State would expect such provision to be retained centrally by LEAs in order to ensure that governing bodies are fully covered and that an undue proportion of individual schools' delegated budgets is not taken up by external insurance premiums. Governing bodies for their part will wish to ensure that appropriate insurance arrangements are made by the LEA.

LEA initiatives

69 The Secretary of State recognises that, as part of their strategic role, LEAs will need to retain some flexibility to initiate new developments for their schools from sources other than specific central government grant These might typically be in the areas of curriculum or management development There are obvious difficulties in delegating provision for such initiatives, in terms of both timing and the development of an appropriate formula-based distribution. However, whilst LEAs are free to hold back provision for such initiatives without this counting towards the maximum amount of funds which may be retained centrally, the Secretary of State expects individual initiatives to be limited in extent and duration. He intends also to require schemes to provide for the funds held back to be equivalent to no more than 0.5% of each individual LEA's GSB, with effect from 1995-96.

Contingencies

70 LMS schemes should reflect the general principle that aJI expenditure expected to be incurred on schools should be included in the GSB defined at the start of the financial year. This should include a sum for contingency provision attributable to schools, so that as far as possible any necessary in-year additions to schools' delegated budgets are met from identified schools' funding rather than authority-wide services. Amongst the individual school-specific contingencies likely to arise are

a. large and unforeseen changes in pupil numbers or characteristics (eg special needs);

b. correction of significant errors in the application of the resource allocation formula;

c. emergency costs, for example the additional recurrent costs arising from serious fire damage at a school;

d. for special schools where the number of pupils in a school exceeds the number of planned places at the school. Authorities should, however, bear in mind that changes in the number, or sex of the day or boarding pupils for which the school makes provision constitute statutory alterations of special schools. Authorities would therefore have to submit proposals to the Secretary of State who would then consider whether or not to approve the proposed alteration;

e. additional funding to meet the exceptional special needs of an individual pupil with a statement, for example, the purchase of specialist equipment or additional support.

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71 By its nature, a fund for such contingencies within the GSB cannot be allocated to school budgets at the beginning of the financial year. The Secretary of State therefore expects that these funds will be held centrally. At the same time, he expects schemes to incorporate clear conditions governing their use. While the concept of an 'emergency' may not lend itself to precise and exhaustive definition, entitlement to contingency payments should wherever practicable be determined by clear quantitative criteria. This applies in particular to a., b., and d. above. By its nature, contingency funding is for use in exceptional circumstances only: in the Secretary of State's view, such provision in budgets should not exceed 1% of the LEA's GSB.

72 The Secretary of State would not normally expect contingency provision to be made in the case of higher than expected inflation. In line with public sector policy more generally, school budgets should be set as cash limits, taking into account what the LEA regards as a realistic forecast of in-year cost increases.

73 In the event of large, unforeseen cost increases which schools cannot meet from within their cash limits, and which cannot be funded from the provision for school-specific contingencies within the GSB, LEAs are free to draw on a service-wide reserve. This might cover, for example, any provision for unpredictable major emergencies affecting many schools, such as gale damage, or in-year cost increases which. are very substantially greater than the forecast underlying the GSB. LEAs will not be expected to budget in advance for such costs, which will arise exceptionally, if at all. Once any provision is identified for schools, it should be included in the GSB and passed on to schools to the extent that it relates to delegated items.

74 Insofar as a scheme provides for all claims on a particular form of contingency provision to be met if they satiSfy the specified criteria, the LEA will be bound to meet all such claims even if the funding set aside for that purpose runs out part way through the year. In such circumstances an LEA would need to secure additional funds from elsewhere in order to meet the needs of schools.

Summary

75 To summarise, the items to be counted as mandatory exceptions and discretionary exceptions outside the PSB for the 1993-94 and 1994-95 financial years, and for 1995-96 and onwards are as follows:

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Mandatory and discretionary exceptions outside the PSB

*to be restricted to no more than 0.5% of GSB

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Part 5: PSB Delegation

Percentage requirement

76 Except in the case of 12 inner London LEAs - to whom separate requirements currently apply, as set out in Annex F - LEAs have been required to allocate at least 85% of the PSB for 1993-94 through the formula. This requirement will continue to apply in 1994-95. However, for 1995-96, when the PSB will be redefined as described above, the minimum delegation requirement will be increased to 90% (except in the case of the inner London LEAs, who will move by the steps indicated in Annex F to meet the 90% target in 1996-97).

77 As noted in paragraphs 32 and 40, the Secretary of State requires LMS schemes to extend to all special schools no later than 1 April 1994, and requires LEAs to give delegated management in respect of all special schools by 1 April 1996 at the latest (and earlier if LEAs wish). When an LEA's scheme does extend to its special schools, expenditure in respect of those schools is included in the GSB and - except insofar as it falls within the categories of excepted expenditure shown in the Table in paragraph 75 - the PSB. It must therefore be taken into account in calculating the LEA's delegation requirement (which relates, however, to the PSB as a whole and is not separately applicable to that portion of the PSB which is intended for special schools).

Discretionary exceptions within the PSB

78 The range of excepted items counting towards the permitted percentage 'holdback' varies from LEA to LEA, and the Secretary of State has no wish to impose absolute uniformity. But he would expect provision for an excepted item to be made only where one or more of the following criteria is satisfied:

a. the funding in question would be difficult to allocate satisfactorily by formula, because the needs to which it relates are variable and unpredictable in their incidence, as between schools and/or over time;

b. cost-effective maintenance of a satisfactory level of service/activity is more likely to be achieved if some at least of the expenditure is managed centrally;

c. the expenditure relates to central administrative and related activities essential to the effective discharge of the LEA's statutory responsibilities.

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purchase of books, equipment and other goods and services which schools can reasonably be expected to require - should be included in the ASB, allocated by formula; and managed by the schools themselves. Where there is evidence of systematic use by an LEA of excepted funds to support routine expenditure of this kind, the Secretary of State will consider using his powers under section 35(7) of the ERA (as amended) to secure the deletion of the excepted item(s) in question from the LEA's scheme.

80 In the light of these principles, paragraphs 81-94 below deal with certain expenditure heads which have featured particularly commonly in LEAs' schemes as 'excepted items', while paragraph 95 discusses the use which LEAs may in future wish to make of excepted expenditure in the context of the provisions of the Education Act 1993 relating to failing schools.

Structural repairs and maintenance

81 Circular 7/88 included an Annex, prepared with the aid of advice from the Royal Institution of Chartered Surveyors, which set out a suggested basis for the division of responsibility between LEAs and governing bodies for building and grounds maintenance. This Annex is reproduced as Annex G to the present Circular.

82 Circular 7/88 made it clear that LEAs would not be expected to adhere to this division in every detail, and various local modifications, sometimes in the interests of simplification, have been approved. The Secretary of State expects nevertheless that scheme provisions - however expressed - will have the effect of delegating responsibility and funding to county and controlled schools for the items listed in Annex G as 'school responsibilities', subject only to minor variation. Schemes should also provide for schools to have power to carry out minor emergency repairs to items (eg roofs, pipes and gutters) which would otherwise fall within the LEA's responsibility, and provision for this should be made within the ASB.

83 Although Circular 7/88 assumed that LEAs would wish to fund the generality of structural maintenance centrally, some have chosen to delegate in whole or in part, and others are understood to be considering doing so. Scheme revisions which restrict the scope of an excepted item do not require the Secretary of State's approval; and while the Secretary of State would be reluctant to introduce such a requirement in the present case, he will keep this matter under review in the light of concerns which have been expressed to him. Given the scale of the expenditure which may be involved and its sometimes unpredictable incidence, delegation could, on occasion, leave schools with responsibility for substantial bills and force them into deficit unless they have been maintaining undesirably large balances, or unless provision has been made by the LEA to counter the risk, eg through the retention of some funding centrally to cover exceptional cases or through the operation of arrangements, akin to insurance, whereby the LEA agrees to meet the structural maintenance needs of its schools in return for an appropriate 'premium' paid by each school from its budget share. LEAs contemplating the delegation of structural maintenance are asked to give careful consideration to these options.

84 Insofar as responsibility for structural maintenance remains with the LEA, schemes may-empower the LEA to charge a school's delegated budget in respect of additional structural work where the need for this is clearly attributable to some action or omission by the governing body in the

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exercise of its own maintenance responsibilities. Such a power should not, however, be applicable to costs arising from 'inherited conditions' or other factors beyond the governors' control. In the light of certain disputes between LEAs and schools which have been referred to him, the Secretary of State would wish to stress the importance of ensuring that scheme provisions of this kind are clearly and unambiguously expressed.

85 Voluntary school premises (other than playing fields) are generally owned by the trustees of the school, whose maintenance responsibilities broadly correspond to those of the LEA in the case of county schools, as set out in Annex G. Insofar as any building or grounds maintenance costs (including structural maintenance costs) fall to the LEA in respect of an aided or special agreement school, these costs should be fully delegated unless the governors themselves wish the LEA to retain the responsibility. This will involve delegation of some items which the LEA may choose not to delegate to county schools, and the distinction will need to be reflected in the LEA's formula.

86 Conversely, LEAs will wish to ensure that their formulae do not have the effect of allocating funds to aided and special agreement schools in respect of items which are the statutory responsibility of the governors and are eligible for grants from the Secretary of State. It is, however, lawful for the governing body of a voluntary aided or special agreement school with a delegated budget to use savings which they have been able to make after meeting other calls on that budget, to finance the cost of building work at the school which falls to be treated as a governing body's responsibility under section 15(3)(a) of the Education Act 1944: any earlier uncertainty on this point has been resolved by section 282 of the Education Act 1993. LEAs need simply make clear in their schemes that governing bodies of voluntary aided and special agreement schools with delegated budgets can use their budget shares for such work by virtue of section 36(5) of the ERA which entitles governing bodies to spend any sum made available to them in respect of the school's budget share for any financial year as they see fit for the purposes of the school. The Secretary of State expects that LEAs will do so for their 1994-95 schemes. This will mean some LEAs removing provisions from their present schemes which specifically prevent governors from using their budget shares for section 15 work.

Premises and equipment insurance

87 Where they own school premises, LEAs will need to ensure that their investment is properly covered through the insurance of premises and large items of equipment for which they retain responsibility. In general, therefore, they may wish to retain provision for insurance premiums on such items centrally. However, LEAs will be free to delegate this responsibility to the governing body as day to day managers of school premises, subject to appropriate conditions in the scheme, where they believe this is desirable.

Special staff costs: supply cover and salary safeguarding

88 In general, supply cover should be regarded as a routine item for which provision should be delegated via the ASB, and the scope of any 'excepted item' should be restricted to meeting needs which can reasonably be regarded as falling within the terms of paragraph 78a. above. Such needs would include, for example, the provision of cover for individual teachers regularly absent either on some form of public

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service (eg as magistrates or councillors) or because they hold senior positions in teacher associations: for teachers summoned for jury service: and also for teachers on long-term sickness leave or maternity leave. In this latter connection, LEAs will wish to bear in mind the implications of national and European equal opportunities legislation; it has been suggested to the Secretary of State that, where schools are required to meet the substantial costs of maternity leave cover from their delegated budgets, they may be tempted to discriminate unlawfully against staff (or job applicants) in respect of whom this financial liability has arisen or might arise.

89 While central provision for salary safeguarding should be strictly limited, LEAs may in exceptional cases compensate schools from excepted funds for the additional cost of taking on a teacher with a safeguarded salary. This might be the case, for instance, following a school closure, where safeguarded teachers moving from the closed school would otherwise not be affordable within the receiving school's budget. Compensation for the additional costs may continue, if necessary, until the safeguarding or protection comes to a natural end, either through retirement or movement to a post which carries a responsibility commensurate with the safeguarded salary: but it should relate only to the extra cost of the safeguarding, not to the full cost of the teacher.

LEA support teams for pupils with SEN

90 All schools need to have access to external advice to assist them to implement their policies for fulfilling their responsibilities towards all of their pupils with SEN and in their duty to have regard to the Code of Practice on the identification and assessment of special educational needs. These services must be specialist, rather than general and unskilled, and can include matters such as IT advice for SEN pupil needs.

91 Given the responsibilities for and control of SEN provision for their pupils which fall to individual schools, the Secretary of State envisages that SEN support services are capable of delegation where schools would welcome the opportunity of seeking such advice from sources other than their own LEA. For example, where schools have extra-district pupils they may wish to approach those pupils' home LEAs and will be in a better position to do so if they have delegated funds from which they can pay for their own services. Even where schools opted to use their own LEA's services, they might consider that buying these back afforded greater influence over what was actually provided.

92 Where delegation does take place, LEAs and schools should pay due attention to the guidance of the Code of Practice on the identification and assessment of SEN which, subject to Parliamentary approval, will have effect from 1 September 1994, and the forthcoming Circular on the provision by LEAs of SEN support services. It is good practice to have specific arrangements for monitoring schools' use of the delegated funds for support services. The use of Service Level Agreements provides an effective basis for such monitoring without replication of the delegated function.

93 At the same time, the Secretary of State recognises that in some LEAs schools may not want to substitute their judgement for those of existing central expertise in support teams. It will remain open to LEAs to choose not to delegate this provision in such circumstances. In particular, the Secretary of State believes that LEAs should consider carefully the case for retaining centrally low incidence SEN support services, notably those for pupils with visual, hearing and speech and language impairments.

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'Transitional excepted items'

94 When LMS was introduced for primary and secondary schools, LEAs were originally permitted to retain expenditure centrally in respect of certain contracted-out services - notably school building cleaning and grounds maintenance - if initial contracts were still in force or specifications had been published by the LEA in accordance with the statutory requirements for compulsory competitive tendering. Except in relation to Inner London (Annex F) and special schools (for which LEAs may retain expenditure centrally until 1 April 1996 where the conditions indicated above are met), this category of 'transitional excepted items' has largely ceased to exist. To the extent that funding continues to be held centrally for these purposes, it falls within the PSB.

Support for schools requiring special measures

95 Where a school has been found to be in need of special measures within the meaning of Part V of the Education Act 1993, the LEA may wish to provide additional resources or other special support for the school on a temporary basis, and is likely to wish to manage these resources itself, whether or not the governing body's right to a delegated budget has been suspended (see paragraph 246 below). In principle, such resources may be provided either from an excepted expenditure head created specifically for this purpose or from one or more existing heads, provided that the expenditure falls within the -r scope of these heads as defined in the LEA's LMS scheme. Either way, LEAs will need to ensure that their schemes provide the necessary authority for the intended use of the resources, and bring forward amendments as necessary. By virtue of Article 3(i)-(ii) of the Significant Variations Order (Annex B), such amendments are likely to require approval as significant variations, and will be sympathetically and expeditiously considered by the Secretary of State.

Earmarking of devolved funding

96 LEAs may make provision in their schemes to enable themselves to pass on funds from any excepted expenditure head to their schools, on an earmarked basis. In the case of expenditure supported by specific government grants, for example, LEAs may wish - and are in some cases required - to hand over day-to-day administration of the resources to their schools, subject to conditions requiring them to use the funds for their designated purpose. Similar arrangements have been made by some LEAs in relation bother categories of excepted expenditure, thus enhancing the influence of schools over the use of the resources while retaining some strategic control centrally. Funding made available to schools on this basis is often referred to as 'devolved' (as distinct from delegated) funding.

97 However, funding devolved on this basis remains 'excepted expenditure' and is not part of the ASB or of the schools' budget shares (which cannot be determined otherwise than through the LEA's allocation formula). Schools must therefore be required to account separately to the LEA for the expenditure of such funds, so as to enable the LEA to satisfy itself that they.have been spent for purposes consistent with the scope of the budget heads (as defined in the LEA's scheme) under which the funds were excepted.

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98 This does not preclude all virement: as the LEA may itself vire funds in-year between excepted items, so it may allow schools to vire (unless the funding is subject to conditions externally imposed on the LEA, as in the case of specific grant-related expenditure). But the rules on virement must be clear and must in any event preclude assimilation of the devolved funding into the schools' budget shares. If funds from devolved allocations are unspent at the end of the financial year, they must revert to the LEA and must not be taken into account in the calculation of the school's surplus or deficit.

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Part 6: Formula Funding

General

99 After the LEA's ASB has been fixed by deducting the excepted items from the total resources available, section 38(1) of the ERA requires each LEA to determine a 'formula' for allocating a share of the ASB to each of the schools covered by its scheme (the school's 'budget share' - see paragraph 28 above).

100 Section 33(2)(a) requires the budget share of each school to be determined on a financial year basis. This will fit in with the LEA's own financial process, and should also allow the effects of any fluctuations in pupil numbers between academic years to be moderated.

101 Under section 38 of the ERA, the formula

a. may include 'methods, principles and rules of any description, however expressed' (section 38(2)). The formula does not have to be expressed in purely algebraic form, but it must apply a consistent set of criteria for distributing resources;

b. shall include 'provision for taking into account, in the case of each school required to be covered by the scheme in any financial year, the number and ages of registered pupils at that school on such date or dates as may be determined by or under the scheme in relation to that year' (section 38(3)(a)). The formula must include an element for age-weighted pupil numbers; and

c. may include "provision for taking into account any other factors affecting the needs of individual schools which are subject to variation from school to school'. The formula can take account of relevant factors other than age-weighted pupil numbers, including in particular 'the number of registered pupils at a school who have special educational needs and the nature of the special educational provision required to be made for them' (section 38(3)(b)).

a. the basic rules of the formula should be as simple as possible and predictable in their impact, so that governors, head teachers, parents and the community can understand how it operates and why it yields the results it does, and can include it as a key factor in their planning for future years. The rules should also be clearly expressed, so as to minimise the scope for time-consuming disputes about their interpretation;

b. the formula should reflect schools' objectively-measurable needs rather than their historical patterns of expenditure, in order to ensure that resources are allocated equitably;

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c. for county and voluntary schools, the central determinant of those needs should be the number of pupils in each school, weighted for differences in their age; the formula may also incorporate weightings for different subjects or course-levels within sixth form provision, and for primary school pupils in designated nursery classes. For special schools the formula will normally be centred around the number of places at a school, weighted for types of need.

d. In the Secretary of State's view, formulae should include at least two other specific factors, namely:

(i) variations in the additional costs of making provision for pupils with special educational needs (including pupils with SEN but without statements);

(ii) the additional costs in small schools of maintaining a curriculum comparable to that available in larger schools, where the LEA considers that appropriate.

County and voluntary schools: pupil-led funding

104 In order to ensure that the central determinant of need is met and that schools have a clear incentive to recruit and retain pupils, the total of resources allocated on the basis of the number of pupils must account for at least 80% of the LEA's ASB, less the total of the budget shares for the authority's special schools. This requirement does not apply to inner London LEAs until 1 April 1995 (see Annex F); for 1994-95 it is 75% for them.

105 For the purposes of LMS formulae, the pupil-led element may include weightings for age (or year-group or key stage); by subject in respect of sixth form pupils; for pupils in deSignated nursery classes; and for pupils with special educational needs so long as the resulting allocations are clearly pupil-led, in the sense that a pupil with a given level of need will attract the same funding regardless of the school which he or she attends. Subject to what is said in paragraph 106, proxy indicators may be used to determine the numbers of non-statemented pupils in each school who are to be counted as having SEN for the purposes of the formula. In total, however, the amounts allocated through additional factors or weightings in respect of non-statemented pupils with SEN may not exceed 5% of the ASB - any further amounts which an LEA proposes to allocate on the basis of additional needs or social deprivation factors will count against the 20% not allocated on the basis of pupil numbers.

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106 The Secretary of State expects any weightings for non-statemented SEN pupils to be both valid and reliable measures of educational need. It is open to LEAs to make use of proxy indicators where this is judged appropriate by LEAs and their schools. However, the Secretary of State hopes also that LEAs will consider, as an alternative to proxy indicators, moderated SEN audit schemes such as those which are now in use in some areas. Such schemes may be used in allocating funds according to the incidence of pupils with SEN but without statements, and may support schools in following the guidance set out in the Code of Practice. It is essential, however, that such audit schemes maintain an objective basis for the funding of schools: a process of moderation is therefore vital.

107 Particular issues arise in the case of pupils educated in special units in mainstream schools, and pupils with statements of SEN who are placed individually or in small groups.

108 For the first group, delegation of resources is required no later than 1 April 1996 in respect of most units (paragraphs 41-42 above). LEAs will be allowed to fund such units through a place-led factor (paragraphs 113-116 below) which can count, from April 1995, as pupil-led for the purposes of the 80% requirement.

109 For the second group, the Secretary of State favours delegation (on the basis indicated in paragraph 43 above) wherever an LEA considers it practicable to undertake this. But he recognises the difficulties involved in constructing a formula which will deliver an appropriate sum to a school to enable it to meet the needs of pupils with statements where there is not a special unit attached to a school, or where such pupils do not form a group large enough to produce a substantial aggregated sum. Moreover, the special needs of a pupil with a statement will not be entirely centred in the individual and will be affected by his or her school environment. For instance, a school which does not already have a particular kind of support teacher may need to employ one for a child with a statement, but if such a teacher is already employed the additional cost of meeting the needs of another statemented pupil may be marginal.

110 Of the possible approaches to this problem, two which might be considered are:

a. funding schools more favourably for the first pupil with a statement and less generously for subsequent pupils up to a given number;

b. publishing a table of a range of funding appropriate to particular needs which would establish a notional maximum and minimum so that a measure of flexibility is available to take account of individual circumstances. It would be incumbent on an LEA to justify, if challenged, the basis of individual allocations.

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for pupils with statements. Alternatively, where an LEA wishes to introduce delegation but needs more time to consider the basis on which this is to be done, the Secretary of State would be prepared to give time-limited approval to proposals for full delegation at actual costs, provided this is demonstrably a prelude to the introduction of formula-based delegation at the end of the period in question. Amounts allocated on this basis, or in the ways suggested in paragraph 110, will also count from April 1995 towards the 80% minimum for pupil-led funding.

112 The Secretary of State does not prescribe a uniform pattern for any of the above pupil weightings. He requires only that schemes should specify clearly the number of weightings and their relative values, and apply them consistently across all county and voluntary schools covered by the scheme as a whole.

Special schools: pupil and place-led funding, and outreach

113 As indicated in paragraph 104 allocations from the ASB to special schools are exempt from the 80% pupil-led funding requirement; and while resources must be allocated to these schools on a basis which takes some direct cognisance of their actual pupil numbers (ERA section 38(3)(a)), it will in general be more appropriate to fund special schools principally by reference to the number of pupils for which each school will normally be expected to cater. This implies the inclusion, in the allocation formula for special schools, of

a. an element per planned place at a school; and

b. an element per pupil on roll, on the lines of the arrangements for mainstream schools, with weightings for age etc as considered by the LEA to be appropriate.

115 Where place-led funding is used in schemes, it is up to the LEA to identify the place factors necessary to support the range of provision which its SEN policy requires. These should be listed as a schedule to the scheme, with a brief description in each case of the nature of the provision to which the factor relates.

116 Schemes should include a statement of the relative weightings attached to the different place factors, although it is not necessary in the scheme itself to state how many places are to be funded at each school, nor their absolute cash values. The Secretary of State does however expect LEAs to provide consistent levels of funding through common place factors where two or more schools are required to offer provision of essentially the same nature. Where a single school offers a variety of provision, the formula will need to allocate funding to that school through more than one place factor.

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117 It is for each LEA to determine the balance between place and pupil elements in their schemes as they cover special schools. Typically, the pupil element is set at a low level, reflecting the expected costs of consumable items such as books, stationery and inexpensive equipment, which are related to actual pupil numbers, and, for some older pupils, examination fees: while the place element is set at a high level, reflecting the importance which LEAs attach to stability of funding for their special schools. However, the Secretary of State is prepared to approve schemes (or revised schemes) with a different balance where, in addition to all other requirements, he is satisfied that the scheme embodies adequate arrangements

a. to protect schools from excessive fluctuations in budgets should projections of pupil numbers not be realised, or be subject to significant variations during the course of the financial year; and

b. to ensure that pupil-led funding for special schools does not act as a disincentive to the integration of pupils with special needs into mainstream schools.

118 It is a distinctive feature of the work of many special schools that their staff are engaged in 'outreach' work, often in collaboration with neighbouring mainstream schools. Such arrangements are in keeping with the emphasis on integration and are widely agreed to be beneficial. LEAs may wish to facilitate such work by including financial provision within the budgets of some or all of their special schools so that, for example, specialist staff can support the integration of pupils with special needs into a mainstream school.

119 It is thus open to the LEA to designate certain places at some or all of its special schools (or special units for pupils with SEN attached to mainstream schools) as bearing enhanced funding in respect of specified outreach work to be undertaken by the school. Where places are so designated, this must be specified in the schedule listing the place elements in the scheme. It will also be necessary to include conditions in the scheme to ensure that each participating school plays its part in the overall provision.

120 Staff in mainstream schools also provide services to special schools. Where the LEA judges that the delivery of the national curriculum is best achieved by outreach work from mainstream schools into special schools, it is open to the LEA to enhance the budget share of the mainstream school to take account of the additional costs incurred.

121 Where a special school has a delegated budget, teaching and non-teaching staff engaged in such outreach work who work in the special school will be subject to the management arrangements set out in Schedule 3 to the ERA. Both the LEA's special needs policy statement and its schedule of excepted items should make clear the distinction between such school-based staff and LEA-managed central support teams.

Actual/forecast pupil numbers

122 For the purposes of determining budget shares, each school's pupil numbers must be determined in accordance with the provisions of the scheme. In detail, there is a considerable variety of practice, although

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most schemes now provide for the use of composite figures based partly on Form 7 figures for the January immediately preceding the financial year in question and partly on forecasts of some kind. The Secretary of State sees no need to press for absolute uniformity of practice as between LEAs, although he is concerned that the impact of changing numbers (either way) should not be unnecessarily deferred.

Money following pupils

123 In general, school budgets should not be altered in-year, other than in cases for which contingency funds, either within or if necessary outside the GSB, need to be called upon. However, there are two sets of circumstances in which schemes must or may provide for money to follow pupils in-year as they move within the system.

124 Section 262 of the Education Act 1993 provides for money to follow pupils in-year when they are permanently excluded from a school, whether LEA or grant maintained. In the case of an exclusion from an LEA school, this will be done by reducing the budget share of the excluding school in that financial year by an amount to be determined in accordance with regulations. Depending on the provision then made for that pupil the LEA would either:

a. transfer that amount out of its GSB and use it to off-set some of the cost of providing education otherwise than at school or placement in a PRU for that pupil for the remainder of that financial year; or

b. arrange the payment of an amount to a GM school which admitted that pupil for the remainder of that financial year; or

c. arrange the payment of an amount to a LEA maintained school which admitted that pupil for the remainder of that financial year. Where the LEA maintained school is in the area of another LEA the amount should be transferred to that LEA for the purpose;

d. in cases where a pupil excluded during the course of a year returns to mainstream schooling after a period of 'education otherwise', arrange payment as at b. or c. above for the remainder of that financial year.

126 Details of the way in which the money to transfer should be calculated will be set out in regulations made under section 262(2). The amount concerned is expected to be the pro rata share of the age-weighted pupil unit for the remainder of the financial year in which the permanent exclusion takes place. Regulations will not be made until the spring of 1994, so LEAs will not be able to reflect them in their scheme variations due to be submitted by 14 February 1994. Nor will it make sense for them to institute their own separate arrangements pending the national model.

127 Schemes should therefore be amended to incorporate a formula factor in the following terms:

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'Where, during the course of a financial year, a pupil is permanently excluded from a school covered by the scheme, that school's budget share for that year will be reduced by an amount required by Regulations made by the Secretary of State under section 262(4)(a) of the Education Act 1993.'

'Where, during the course of a financial year, a school admits a pupil who has been permanently excluded in that year from a school maintained by the authority or a school maintained by any other local authority, or a grant-maintained or grant-maintained special school, the authority will allocate to that school an amount for the rest of that financial year required by Regulations made under section 262(4)(b) of the Education Act 1993.'

128 The Secretary of State is also prepared to consider proposals from LEAs for in-year transfer of resources where pupils with statements of SEN transfer between schools in the course of the year, particularly where this is judged to be in the interests of the pupils' welfare, as well as being the most efficient use of specialist resources. As with all factors, the scheme will need to set out clearly and objectively the circumstances in which in-year transfers would take place, and apply the factor consistently across its schools.

Actual/notional costs

129 Section 33(2)(a) of the ERA requires all schools to be funded at the level of their budget share, ie the amount which the LEA plans to spend on them in the relevant year as determined by the formula. The Act does not allow for higher or lower amounts to be spent by notionally deeming costs to be different from their actual level. Schemes therefore need to provide for charging actual sums, including actual pay, against schools' budgets. Having reviewed this policy, the Secretary of State continues to believe that it secures a key aspect of delegation by making local managers directly responsible for the costs of their services, and giving schools an incentive to manage the total resources under their control effectively.

130 The Secretary of State recognises, however, that small schools may face particular difficulty in adjusting their teaching costs to a budget share determined by the formula. Accordingly LEAs may, if they wish, make provision in their formulae to take account of the extent of variations between the actual teaching costs of small schools and the LEA's average costs of employing teachers, due to the number of qualification and experience points held by teachers and the incidence of salary safeguarding (except to the extent that safeguarding costs are met centrally by the LEA: see paragraph 89).

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131 Except in the case of special schools, such adjustments should be confined to schools with not more than 10 teachers excluding the head and deputy, or 330 pupils; and within these limits, the Secretary of State would expect the degree of protection (or limitation of gain) to be tapered according to the size of the school. Within that framework, it is for LEAs to determine which schools' budgets should be subject to adjustment, the extent of the cost variations to be taken into account and the degree of protection or limitation of gain to be provided. For the avoidance of doubt, the permitted arrangements for salary protection in small schools can be applied to heads and deputies as well as classroom teachers, and to salaries in their entirety rather than specific components of them.

132 Such arrangements for 'small school' salary cost adjustments are not subject to any time limit, although the Secretary of State would expect LEAs to keep their operation under careful review. Funding allocated through such factors (except in respect of special schools) must be accommodated within the 20% of ASB which may be allocated on other than a pupil-led basis.

Curriculum protection in small schools

133 As noted in paragraph 102d., the Secretary of State expects LEAs to allow through their formulae for the scale diseconomies necessarily entailed in sustaining the curriculum in small schools. This may be achieved, for example, by providing a minimum 'base' cash allocation for every school regardless of its size, or by means of a higher weighting per pupil or group of pupils below a specified number. It is for LEAs to determine what size of school should be regarded as 'small' for curriculum protection purposes, provided only that their criteria are clear and are consistent in their application. Separate arrangements may be made in respect of smaller special schools, if the LEA considers this appropriate. As in the case of salary protection, funding allocated through small school curriculum protection factors counts towards the 20% ceiling for non-pupil led funding.

Premises factors

134 A significant proportion of premises costs will vary to a large extent with pupil numbers. These will include, for example, day to day and emergency repair provision and water use. The Secretary of State recognises, however, that some elements of premises costs do not vary directly with pupil numbers. Subject to the overall 20% limit, LEAs are able to include in their formulae one or more of the following additional factors to take account of premises costs:

a. the area of the school premises;

b. the type of premises; and

c. for special schools up to April 1996, the condition of the premises (in the case of county and voluntary schools, the time-limited approval given to factors of this kind will be renewed only very exceptionally and on the basis of clearly-demonstrable need).

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136 As noted above, the Secretary of State does not expect that significant amounts of expenditure on premises costs should be allocated on the basis of factors other than those set out above. To include a significant number of additional factors is likely to add to the complexity of the formula, without necessarily making it more equitable. The Secretary of State is willing to consider formulae including one or more of the following factors where LEAs believe that exclusion of the relevant factor would result in significant differences between schools' overall budgets and their need to spend:

a. variations in the type of fuel used by schools and the efficiency of their buildings with regard to energy needs;

b. the existence of special facilities, such as swimming pools; and

c. the actual cost of rates or rent (to the extent that this cannot be allowed for through factors related to the size and age of premises and pupil numbers, as described above).

138 It is for the LEA to determine to what extent premises factors applying to mainstream schools should apply to special schools. The formula may take account of the presence of specialist facilities, and may set weightings for some of the premises factors applying to its special schools. Where premises factors are to apply to special schools, allocations should be based on the characteristics of the school's premises and grounds, and not on the basis of historical costs or estimated actual costs, except in the case of rates or rent.

Transitional arrangements

139 LEAs have been able to build transitional arrangements into their schemes to moderate the speed of adjustment required by individual schools to funding on a formula basis. However, the Secretary of State has made clear that the formula should be designed to operate without such arrangements by the end of four years from the date of the introduction of the approved scheme in the case of mainstream schools. For special schools, transitional arrangements are required to come to an end by 1 April 1996, irrespective of the date on which the relevant scheme variations come into force.

140 The Secretary of State is, however, prepared to consider sympathetically proposals for selective extension to the four year transition period in respect of individual schools facing unacceptably large budget reductions because of high inherited staffing costs. As LEAs may already provide protection for small schools, this measure will apply, in the main, to secondary schools which have unusually low staff turnover. But it should only apply where, because of high inherited staffing costs (ie. from before the outset of LMS), the school would face an annual reduction of 1 % or more in its total budget for each year after the four-year transitional period; and the extended transitional protection must end once the school's annual budget loss

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attributable to this cause is less than 1%. Moreover, at the end of the transitional period the subsidy involved in these arrangements may not be met by capping the gains of other schools. There will thus be a net cost to such arrangements which will not be pupil-driven and which will therefore count against the non-pupil driven limit of 20% of the ASB. The transitional period ends at 1 April 1994 for all but 12 inner London LEAs, who have till 1 April 1996 to phase out transitional cushioning.

Limitation of year-to-year budget changes

141 More generally, LEAs may provide indefinitely through their formulae for the limitation of the variations in a school's total budget between years, after the application of all other factors in the formula, to a specified maximum proportion. The Secretary of State does not prescribe a specific level for this. However, he would not expect such a factor in the formula to be applicable to changes of less than 5% in real terms. Provision for the limitation of budget changes counts towards the 20% limit on resources allocated other than by reference to pupil numbers.

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Part 7: Delegation: Miscellaneous Financial Issues

142 By virtue of section 36(5), (11) and (12) of the ERA, a governing body's discretion to manage its delegated budget may be constrained by conditions imposed by or under the scheme. Schemes must specify these conditions clearly; they may be supplemented by more detailed regulations, provided that schemes make it clear that these regulations will be valid only to the extent that they are consistent with the conditions set out in the scheme and with the provisions of the scheme as a whole.

143 As emphasised in paragraph 38, the Secretary of State considers it essential that such conditions Should be no more restrictive than is reasonably necessary to enable the LEA satisfactorily to discharge its own statutory responsibilities. He has likewise sought, through his scheme approval powers, to ensure that financial benefits deriving from the effective exercise of a governing body's delegated powers should accrue to the school for which the governing body is responsible.

144 In paragraphs 145-166 below, various specifically-financial issues are considered in the light of these principles.

Virement

145 Schools should be able to vire between heads within their delegated budgets (though not at the expense of their statutory duties including, for example, the duty to use their best endeavours in securing appropriate provision for pupils with SEN). On the basis that LEAs may themselves finance capital expenditure from ordinary revenue, schools should be free (subject to general requirements in relation to value for money and health and safety) to redeploy expenditure from their delegated budgets into capital projects, although the LEA will be required to include this expenditure in certain statutory returns and should therefore be notified. Schools should also be free - where services are provided by the LEA with excepted funds - to redeploy resources from their delegated budgets to purchase additional provision. This may apply, for. example, to in-service training and to professional advice of various kinds. To avoid confusion and unnecessary expenditure, LEAs should ensure that schools understand what levels of service they can expect to receive free of charge from centrally-retained resources.

Income

146 In order to provide an incentive for schools to obtain funding for education from a range of different sources, schools should be free to raise income from fees and charges and fund-raising activities, subject always to relevant statutory controls. Schemes should provide for schools to receive the benefit of any income accruing from activities such as lettings, or from donations or endowments. Where a school derives income from the sale of an asset for which responsibility is

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delegated (eg small items of equipment) or which was purchased by virement from its delegated budget, schemes should provide for the income to be retained by the school. However, income from the sale of items purchased from funds retained centrally by the LEA, such as large items of equipment, should go to the LEA.

Charging

147 Sections 106-:-11 and 118 of the ERA established a statutory framework for charging policy in maintained schools, on which guidance was given in DES Circular 2/89. In relation to music tuition, further provision has now been made by section 280 of the Education Act 1993, which came into force on 1 October 1993 and enables schools and LEAs to charge not only for music tuition to individuals (which the ERA permitted), but also for tuition for small groups of four or fewer pupils. Charges may not however be made if the tuition - whether given in or out of school hours - is required as part of the syllabus for a prescribed public examination for which the pupils are being prepared at the school, or is required by the National Curriculum.

148 Section 109(9) of the ERA provides that for activities where charging is permitted, the decision as to whether and how much to charge shall be determined:

a. where the activity is paid for from funds at the disposal of the governing body (either from its delegated budget or from a sum provided under section 49 of the ERA), by the governing body; and

b. in any other case, by the LEA.

150 School governing bodies will wish to consider (subject to any directions and guidance from the LEA: see paragraphs 227-230) what policies to adopt in setting the charges they make for the use of the school's premises by outside bodies. Broadly, the options open to them are to charge the full marginal costs of lettings to all users of the premises: or to recover more than the marginal costs on some lettings, perhaps with the aim of offering discounted rates in other cases. These might include the voluntary youth service, and community groups, which are often very much dependent on the availability of school-based accommodation for their activities. Governing bodies will also wish to consider how pricing policies can assist the expansion of after school care which is being supported by Government funding channelled through local Training and Enterprise Councils (TECs).

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151 As noted in paragraph 37 above, section 12 of the Further and Higher Education Act 1992 confers new powers on the governing bodies of LEA-maintained schools to provide courses of further education. A circular letter from the Department ('Further Education in Schools') was sent on 11 October 1993 to all maintained school governing bodies, offering guidance on these provisions. As explained in that letter, governing bodies may not use funds from their delegated budgets to support courses provided under section 12; income raised by way of fees for such courses may however be used for the purposes of the school, should the governing body so wish.

Savings and surpluses

152 In order to maximise the incentive for schools to make best use of their delegated budgets, savings should be retained by the schools making them, and schemes should not take an individual school's success in making savings in a previous year into account in allocating its budget for the next year. However, where savings result from action by the LEA rather than by the school (eg through the installation of more efficient energy systems) LEAs will be able to take account of this in their formulae.

153 The ability to make savings in one year and deploy them in the next (eg to purchase a piece of equipment) is an essential feature of schemes of local management. These should make it clear that any savings on delegated budgets will accrue to the school; and they should include provision, with appropriate conditions, for the carry over of savings from one financial year to the next and for schools to enter into commitments which extend into a subsequent financial year.

Deficits

154 As noted above (paragraph 29) LEAs are in general precluded from funding expenditure by schools in excess of their budget shares. As a corollary, schemes should prohibit governing bodies from planning deliberately for deficits, except to the extent that the LEA may think it reasonable to make provision in their schemes to allow schools, in certain specified Circumstances, to anticipate their budget shares for the following year in order to finance some major planned item of expenditure (such as a major internal redecoration project) for which the full cost cannot readily be accommodated within the current year's budget share. Where provision is made in schemes for arrangements of this kind, their operation should be subject to clear controls, and to the overall spending plans of the LEA.

155 Where deficits nevertheless arise - either through the permitted anticipation of the following year's budget or in other circumstances - schemes should make appropriate provision for their recovery (normally from the following year's budget share, except where clear practical considerations preclude recovery on this timescale).

156 Some LEAs may wish to provide in their schemes for interest to be charged to the school on the amount of any deficit carried forward and, conversely, for the payment of interest on savings. LEAs who wish to do so should set out clearly in their schemes the criteria for paying and charging interest. It will not be appropriate in all cases to charge interest to schools. For example, it might be appropriate to do so where a school wishes to anticipate its budget to purchase a piece of equipment, but not where changes in pupil numbers in-year lead to an

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unplanned deficit. LEAs should ensure that the circumstances of individual schools are taken into account in determining whether interest is charged.

Financial control and propriety

157 Section 39(12) of the ERA specifically empowers LEAs to impose conditions relating to:

a. arrangements for the management of delegated expenditure, in particular for authorising expenditure, or transactions involving commitments to expenditure;

b. the keeping and audit of accounts and records; and

c. the provision to the LEA of copies of accounts and records, and any other relevant documents and information that the LEA may from time to time require from the governing body.

159 By virtue of section 151 of the Local Government Act 1972, the Chief Finance Officer (CFO) of each local authority is responsible for the probity and regularity of the authority's financial activities, and schemes may provide for the CFO, or a member of his staff acting on his behalf, to have the right to attend meetings of governing bodies to give advice, or to report, on major financial matters affecting that responsibility. The criteria for this should be set out in the LEA's scheme.

160 The Secretary of State does not require the approval of LEAs' financial regulations and standing orders as part of schemes. But as noted in paragraph 142, any such regulations or other forms of guidance applicable under schemes should only have force in relation to schools with delegated budgets to the extent that they are (a) relevant to such schools, and (b) consistent with the general conditions contained in the scheme and with the provisions of the scheme as a whole. For example, the Secretary of State expects that within reasonable value for money requirements, schools should be able to purchase goods and services from whatever sources they think fit, taking into account quality and convenience for the school as well as price.

Banking arrangements

161 The overwhelming majority of LEAs have included in their schemes provision for secondary schools to choose and operate their own bank accounts for non-salary costs. The Secretary of State has informed the small minority of LEAs which have not done so that he would propose to direct them to change their schemes if asked to do so by their secondary schools. The Secretary of State encourages all LEAs to extend this facility to primary and special schools with delegated budgets, where the schools themselves consider that this would be beneficial.

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VAT

162 When the governing body of a school enters into a contract to spend part of its delegated budget, it does so on behalf of the LEA. The LEA will retain ownership of any goods or equipment purchased from the school's budget share, and will have the ultimate responsibility for ensuring that contracts are fulfilled and invoices paid. LEAs' ability under section 20 of the VAT Act 1983 to claim refunds of VAT on purchases in respect of their non-business activities is therefore not affected by local management. As regards purchases by governors of voluntary aided and special agreement schools, LEAs are only able to claim refunds of VAT under section 20 of the VAT Act 1983 on purchases relating to the statutory responsibilities of the LEA: this excludes expenditure by the governing body on capital work and external repairs to school buildings, which are its own responsibility.

163 The introduction of school bank accounts and local payment arrangements does not alter the school's status as an agent of the local authority for VAT purposes. Schools must not attempt to register for VAT in connection with activities involving the use of official budgets delegated under LMS schemes.

Service agreements

164 Under LMS, the nature and costs of services currently provided to schools by their LEAs increasingly need to be more clearly defined. As more items are delegated to school level, more support services will be bought in. Often the provider will be the LEA, but in some cases it may be an alternative supplier. In the case of a private sector firm, there will be a legally binding contract for services. In the case of the LEA, there will not be a legal contract, but a formal service agreement should be drawn up specifying the scope, quality, duration and cost of the service to be provided.

165 From time to time schools should be able to exercise the option to use an alternative source of supply. The desirability of agreements which give the LEA time to plan ahead needs to be balanced by the advantages to the school of considering alternatives. The optimal length of an agreement may well depend on the nature of the service involved. But the Secretary of State does not in general expect the duration of such agreements to be longer than three years; and for many agreements a shorter period will be appropriate.

Monitoring

166 Effective monitoring arrangements established by the LEA are a key condition for successful schemes of local management. In order to exercise their advisory and corrective role, including their power to withdraw delegation where necessary (see Part 11 below), LEAs need to have accurate and up to date information on the performance of schools. Schemes should include a brief description of their procedures. In order to monitor the impact of their schemes locally, LEAs need (a) effective financial monitoring arrangements, (b) appropriate management information systems in schools and centrally, and (c) performance indicators for the financial and wider management functions of the governing bodies of schools with delegated budgets: these should be based on and take into account the indicators used by schools themselves.

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Part 8: Staffing

Genera!

167 Governors' responsibilities in respect of staffing are an integral part of local management. Section 44 and Schedule 3 (in respect of county, controlled, maintained special and special agreement schools) and section 45 (in respect of aided schools) of the ERA, together with section 46, set out the allocation of responsibilities for staffing matters as between school governing bodies and LEAs. These have effect for all individual schools with a delegated budget under a scheme approved by the Secretary of State.

County, controlled, maintained special and special agreement schools

168 For county, controlled, maintained special and special agreement schools, Schedule 3 to the ERA sets out the arrangements in some detail. When such schools do not have delegated budgets, the staffing provisions of the Education (No 2) Act 1986 apply.

Appointment

169 The main features of the arrangements in relation to the appointment of staff are as follows:

a. within the constraints of the school's budget, it will be for the governing body to decide how many staff should work at a school. The LEA has no power to set a required complement, but may wish to give governing bodies advice about the staffing levels which it judges would be broadly consistent with the school's budget and with the delivery of the National Curriculum. The governing body will wish to seek the advice of the head teacher on staffing levels;

b. when there is or is to be a vacancy for a head teacher or a deputy head teacher, the governing body is required to set up a selection panel. The post must be advertised nationally. The Chief Education Officer (or his representative) has a duty to offer such advice as he considers appropriate on the appointment and is entitled to attend relevant meetings of the governing body and the selection panel for this purpose. The governing body and the selection panel are under a duty to consider that advice. In the case of a vacancy for a deputy head teacher, the head teacher is entitled to attend relevant meetings. The person chosen by the selection panel must be endorsed by the governing body as a whole;

c. for the appointment of other teachers, the decision on whom to select similarly rests with the governing body. In relation to such appointments, the governing body may in turn delegate its functions to one or more governors, the head teacher or one or more governors and the head teacher acting together, with the governing body remaining responsible for the decisions taken in their name. In practice the task of selecting junior staff will usually be undertaken by the head teacher. Before proceeding to fill any vacant post, the governing body must draw up a specification for the post in consultation with the head teacher and send it to the LEA. The LEA may nominate for consideration by the governing body for

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appointment to the post someone who is an employee of theirs, is employed at an aided school maintained by them, or has been selected to take up employment with them at a later date and appears to them to be qualified to fill the post. The CEO or his representative and the head teacher have a right to give advice, whether or not that advice is requested by the governing body, and the governing body has a duty to consider that advice;

d. decisions about the selection for appointment of non-teaching staff rest with the governing body, subject to the requirement to consult the head teacher where he or she would not otherwise be involved in the decision and, where the post involves work for 16 hours or more a week at the school, the CEO. In practice the task of selection will usually be delegated to the head teacher, as in the case of junior teaching staff appointments.

171 The LEA must appoint the individual selected by the governing body unless the person concerned fails to fulfil one of the requirements applicable under regulations made under section 218 of the Education Reform Act 1988 relating to qualifications, health and physical capacity or conduct. The LEA will also need to conduct criminal background checks on teachers and certain categories of non-teaching staff, but it is for the governing body to decide whether the appointment should go ahead of someone who has a criminal record but is not barred from employment. In making their selections governing bodies are bound by the statutory provisions on race and sex discrimination. They are answerable before Industrial Tribunals for any failure to observe these provisions. But they are not bound by non-statutory LEA policies relating to selection.

Pay and conditions

172 The pay and conditions of teachers are subject to the School Teachers' Pay and Conditions Act 1991. Orders under this Act may confer discretions on LEAs and provide for those discretions to be exercised by the governing bodies of schools with delegated budgets. Successive School Teachers' Pay and Conditions Documents have included a range of such discretions. The body which exercises the discretion in relation to a particular teacher, whether a governing body or the LEA, is referred to as the 'relevant body'. The role and powers of relevant bodies are discussed in the Department's annual Circulars on school teachers' pay and conditions.

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173 Pay and conditions of non-teaching staff remain on a non-statutory basis. For new non-teaching staff, the governing body will be able to specify the duties to be performed and, the appropriate grade within the scale of grades currently applicable to employment with the LEA. In most cases these grades will be those resulting from the national agreements for administrative, professional, technical and clerical (APTC) staff or for manual staff. It is for the governing body to select the grade that it considers appropriate for the post. The governing body will also be able to exercise any discretion over remuneration which the LEA has in making the appointment. An example would be the point of entry to a scale for APTC staff. Other conditions of service are for the LEA and will usually be those which are defined in the relevant national or local collective agreement.

174 When a governing body has selected a member of staff for appointment to a post it will be for the LEA to make the appointment taking account of statutory provisions and also of national and local collective agreements, except where these conflict with the powers allotted to the governing body under the ERA. For example, the ERA gives governors responsibility for disciplinary procedures for staff, and a collective agreement which gave this function to the LEA could not therefore apply.

Discipline, grievance and suspension

175 Responsibility for disciplinary and grievance procedures rests with the governing body. It is required to establish disciplinary rules and procedures, and procedures for giving members of staff opportunities for seeking redress of any grievances relating to their employment, and to make these known to staff at the school. These procedures must be under the control of the governing body. The Education (School Government) Regulations) 1989 (as amended) allow the governing body to delegate the handling of such matters to the head teacher, an individual governor or a committee of the governing body established in accordance with regulation 26 of the Regulations, but not to an outside body such as the LEA. They may, however, call upon the services of an independent body or individual to mediate in a dispute as long as they retain control of the hearing of the grievance. Governing bodies should, of course, ensure that the procedures they adopt are fair.

176 The LEA has to comply with requests of the governing body for action arising out of disciplinary procedures where such action lies within the LEA's powers. Either the governing body or the head teacher may suspend on full pay anyone who works at the school where his or her exclusion is necessary, in which case they must inform the other party and the LEA. Only the governing body may end a suspension.

Dismissals

177 The arrangements for dismissal put the responsibility on the governing body to decide that someone employed to work at the school (excluding school meals staff who receive less than 50% of their remuneration from the delegated budget) should cease to work there. For a person working solely at the school, the LEA is then under a duty to issue, not more than 14 days after the governing body notifies it, a notice of dismissal. For a person not employed solely to work at the school, the LEA must withdraw that person from work at the school.

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178 In all cases, the procedures must include an opportunity for an individual to make representations, including oral representations, prior to a decision being taken, and an opportunity to appeal prior to that decision being transmitted to the LEA. Under the Education (School Government) Regulations, a committee set up to hear such appeals must normally include at least three governors, and in any case at least as many as took part in the decision which is the subject of the appeal, and may not include any person who took part in the original decision. An external element in appeals is not excluded by the legislation, but this is a matter for the governing body to consider. The arrangements provide for the CEO or his representative and the head teacher (except where he or she is the person concerned) to be present at all stages when a dismissal is being considered, and the governing body must consider any advice which these people may offer.

179 The governing body decides whether a teacher who is qualified for early retirement should be released because of redundancy or 'the efficient discharge of the employer's functions' and, within the limits set out in the Teachers (Compensation for Redundancy and Premature Retirement) Regulations 1989, by how much the pension should be enhanced. Where a teacher who is not qualified for early retirement is being made redundant, or resigns from his post, the governing body is confined to offering only those payments permitted by statute.

180 The LEA makes whatever redundancy payments or enhancement of pension the governors have determined unless there is good reason for the LEA to deduct the whole or part of those costs from the school's budget share. Under section 46(6) of the ERA, the fact that an LEA has a no-redundancy policy is not good reason to require the school to meet any part of those costs. With this exception, it is for the LEA to determine what is a good reason. Examples might be where the LEA considered that a dismissal was likely to be found unfair by an Industrial Tribunal, or that payments which the governing body decided should be made were excessive in relation to the LEA's own practice. The Secretary of State would expect cases in which schools were charged to be exceptional.

181 The Secretary of State expects schemes to provide that, if a governing body lets a contract with a private contractor under terms which reserve a right to require the removal from work at the school of individual workers employed by the contractor, that right should be exercised at the discretion of the governing body rather than the LEA.

Voluntary aided schools

182 At aided schools the governors are normally the employers of the staff. When an aided school has a delegated budget, there is no power for the LEA to set a complement for the school, to give directions about the conditions of service of non-teaching staff, to veto the appointment of teachers or to require or forbid the dismissal of teachers. The governing body may agree to accord advisory rights to the CEO with respect to the appointment or dismissal of heads and deputies or of all teachers. Arrangements for funding costs of severance are the same as for other schools. Where any member of staff at an aided school is employed by the LEA, paragraphs 8-10 of Schedule 3 to the Act have effect in relation to his dismissal or withdrawal from the school in the same way as for LEA employees at county, controlled and special agreement schools with delegated budgets.

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New schools

183 Schedule 4 to the ERA provides that for a new school which will have a delegated budget when it opens, sections 44 and 45 and Schedule 3 to the Act will apply for the purposes of appointments to the school. No appointments may be made by the LEA before a temporary governing body is set up. This will mean that the temporary governing body has control of the selection of all teaching and non-teaching staff for the school. It will usually be appropriate to select a head teacher for the school well in advance of opening, and then involve him or her in the selection of other staff.

Community schools

184 Section 47 of the ERA allows LEAs to delegate the management of non-school staff in community schools to the governing body of each school. It does so by providing that a scheme may apply the staffing provisions of sections 44 and 46 (and of the part of section 45 relating to staff employed by the LEA at aided schools) to staff employed at the institution partly or wholly for the purpose of non-school activities. Section 47(2) defines a community school as one where non-school activities are carried out on the premises under the management or control of the governing body of the school. LEAs remain free to delegate provision for community activities to schools as at present, but this is outside the school's delegated budget under the scheme.

Application of employment law

185 The Education (Modification of Enactments Relating to Employment) Order 1989 modified certain employment statutes to ensure that governing bodies with delegated budgets are accountable under employment law for the way in which they exercise their staffing powers under local management. Guidance on the order was set out in DES Circular 13/89. This outlined the general principles that underlie the Order; identified and described the employment statutes which it amended; and drew attention to other statutes which were not modified but remained relevant to LEAs and governing bodies in the exercise of their functions.

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Part 9: Competitive Tendering

General

186 Local Government legislation, principally the Local Government Act 1988, requires LEAs to submit certain 'defined activities' to competitive tendering before they carry out work themselves, either in a functional or an agency capacity. The Government believes that compulsory competitive tendering (CCT) is an important initiative in providing public services; in its view, CCT promotes cost-effectiveness and better value for money whether the work is contracted out to a private contractor or retained in-house by an authority's own Direct Services Organisation.

187 Where resources for support services such as cleaning or grounds maintenance have been delegated under an LMS scheme, schools have three options;

a. to obtain the services from their LEA;

b. to obtain them by direct contract with private sector suppliers;

c. to obtain them by employing staff to work in a school-based direct service organisation (DSO).

189 Where a school chooses to make its own arrangements and not to participate in the LEA's arrangement, it will not subsequently be able to ask the LEA to carry out the activity on its behalf until any relevant LEA contract comes up for renewal.

190 Where an LEA contract or in-house DSO arrangement is due for renewal, schools with delegated budgets will have the choice of whether they wish to continue within the LEA's arrangements or to make their own arrangements.

Contracting out of service provision by local authorities

191 LEAs are increasingly using external contractors to provide support services. This may be the outcome of their compulsory competitive tendering (CCT) of services; or it may follow from authorities' voluntary tendering of additional services, beyond those subject to CCT.

192 Where a school obtains a service from its LEA, the service may therefore be provided by way of a private sector supplier working under contract to the authority, rather than by directly-employed LEA staff.

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193 Also, where a school wishes to operate a school-based DSO, and where the service in question is one which is subject to CCT (see paragraph 194 below), the school is required to tender the service competitively (except in the case of building cleaning and grounds maintenance, where CCT does not apply if the school-based workforce looking after the two services amounts to three full-time--equivalent posts or less - see paragraphs 198-200). The position of voluntary aided schools is different, and described in paragraph 222 below.

Compulsory competitive tendering

194 The services subject to CCT which are most likely to be relevant to schools are:

a. building and maintenance work;

b. building cleaning;

c. grounds maintenance;

d. school catering;

e. repair and maintenance of vehicles; and

f. sports and leisure management.

195 The Government proposes to extend CCT to the following white collar services: architectural, engineering and property-management, legal, finance, Information Technology, personnel, and corporate administrative services. On this, see Annex H.

196 CCT requires that, if an LEA (or a school) wishes to carry out a 'defined' service using in-house staff, it must submit the work to a competitive tendering process, the format of which is set in legislation, and in statutory regulations and guidance: principally the Local Government, Planning and Land, Act 1980; the Local Government Act 1988; the Local Government (Direct Service Organisations) (Competition) Regulations 1993 (SI No 848); Department of the Environment Circular 10/93 "Competition in the Provision of Local Authority Services".

197 The key points are that:

a. a detailed specification of the service to be provided must be drawn up;

b. the tender must be advertised;

c. minimum and maximum lengths of contract period are specified, as follows:

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d. there are rules and guidance about the minimum and maximum numbers of contractors who should be invited to tender; and about the time periods to be allowed at different stages in the tendering process;

e. tendering must be carried out in a manner which does not restrict, distort or prevent competition;

f. the DSO, if successful, must perform the service in line with the tender specification;

g. the DSO must work to the agreed tender price, and must meet a specified financial requirement (break even or, for services involving capital assets, a 5% rate of return on capital employed at present); and

h. a DSO account must be prepared and submitted annually to the Department of the Environment.

198 The Secretary of State for the Environment and the Secretary of State for Wales have made an Order under the Local Government Act 1988 exempting from CCT building cleaning and ground maintenance work carried out at some small schools with delegated budgets. The Order came into force on 1 August 1992.

199 The exemption is intended to help small county or controlled schools who might wish to arrange for their own staff to carry out building cleaning and/or ground maintenance on the premises but for whom the CCT requirements might represent an unwarranted administrative burden. The exemption is intended also to help these schools preserve a measure of flexibility over the way in which staff are deployed on some activities. To qualify as small, schools must employ less than 3 full time equivalents on cleaning and grounds maintenance. Guidance on the exemption was issued to all LEAs and governing bodies. Further copies can be obtained from the LMS Unit at the Department for Education.

200 The exemption allows local authority staff based in qualifying schools to carry out building cleaning and ground maintenance without the need for the formal competition required by the CCT provisions of the 1988 Local Government Act. Nor wW the local authority be required to meet the statutory financial objectives for the service in question.

Where a school wishes to participate in an LEA arrangement

201 Particularly where an activity is subject to CCT, but in other circumstances also, the initial specification of services and standards is very important, and LEAs must ensure that schools are fully consulted and involved in defining the level and type of services which the school wishes to have (and is prepared to pay for). Where they are asked to do so, and wherever reasonable, LEAs may publish specifications which apply to either groups or individual schools.

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202 A school should be allowed to specify the standard of service it requires, and the LEA should be prepared to incorporate the standard in its specification unless, exceptionally, it judges that the service sought by a particular school is such that it would be unreasonable to include it in its overall contract. In such a case, the school concerned would have the choice of making its own arrangements, or of adjusting its requirement to make it compatible with the LEA's overall contract. Refusal to incorporate a school's specification should be regarded as an exceptional matter.

203 It is beneficial to involve schools in the monitoring of services - as the front-line clients, they are immediately aware of any problems or shortcomings. And it is essential for school staff to have a simple and quick procedure for getting problems dealt with. Arrangements covering these points should be discussed and agreed with schools; built into the service specification as appropriate; and then carried through into clear written guidance to all concerned with the service and the contract, setting out their respective responsibilities and powers, and the procedures and contact points.

204 LEAs should consider involving representatives of participating schools in the appraisal of tender bids and selection of the contractor. But responsibility for the final decision and for proper observance of tendering procedures (CCT or otherwise) rests with the LEA.

205 Once the LEA has published the specification for a service, and a school has decided to participate in the arrangement, the school will be bound by whatever arrangements the LEA sets up after going through the competitive process, until the period laid down in the specification expires or the contract is terminated. This applies whether the LEA's DSO or a private contractor is appointed.

206 Subject to the statutory provisions relating to LMS, and to the provisions of the relevant LMS scheme, a school is bound by an external contract or the terms of the LEA's arrangement with its DSO. An LMS scheme may specify the circumstances in which the costs of any departure from a private sector contract or DSO arrangement arising from a school's actions are chargeable to the school's delegated budget. For example, the LMS scheme may provide that costs would be chargeable if a school sought to replace the contractor with another, or sought to vary either the agreed price for an external contractor, or the terms of an arrangement with the DSO. In the latter case, however, this would not preclude the school from exercising its power to determine the grades of new staff as described in paragraph 208 below, provided this has no net costs to the DSO.

207 Under paragraph 8 of Schedule 3 to the Education Reform Act 1988, the governing body of a school with a delegated budget may seek the removal of any person employed by the LEA to work at the school, either full or part time, (but excluding staff who are entirely peripatetic and do not work at particular schools at specified times; and also staff employed solely for the provision of school meals who receive less than 50% of their remuneration from the school's delegated budget).

208 Paragraph 4 of Schedule 3 provides for the governing body to appoint staff to any vacant non-teaching post and to determine their grade. Many staff of ILEA-based DSOs will fall into this category - for example, a full-time caretaker. However, any decision in relation to the replacement of such a member of staff of an LEA-based DSO holding a post at the school must

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be cost-neutral, ie. the governing body must select a replacement at the same rate and hours, or compensate the DSO if it selects a replacement at a higher rate. Should a school select a replacement at a lower rate, the amount charged by the LEA to the school should be adjusted to reflect this.

209 Where a school wishes to obtain services additional to those covered in a specification already in operation, the school will be free to publish an additional specification and make its own arrangements as outlined below. In such a case, however, it cannot require the LEA to make such arrangements for it.

Where a school wishes to make its own arrangements

210 Schools may make their own arrangements either individually, or by joining together with other schools.

(a) Where a school proposes to contract with a private sector supplier

211 Where a school does not wish to set up a school-based DSO, but simply to contract out the service to a private-sector supplier, the CCT legislation and rules do not apply. The school is however required to conduct the exercise in accordance with the LEA's standing orders on tendering and contracting, together with any relevant provisions in the LMS scheme. The transaction will also be subject to the audit arrangements provided for in the LMS scheme.

EC procurement directives: consideration of 'non commercial matters'

212 Schools must also have regard to the requirements of the EC Procurement Directives governing public contracts above certain thresholds. The Directives cover the procurement of supplies, works and services. For local authorities, the 1994-95 thresholds are: £149,728 for supplies and services, and £3,743,203 for works. Where a contract is for a period of years the total value of the contract for that period should be compared with the thresholds. The Directives reinforce the provisions within the Treaty of Rome on the free movement of goods and services within the European Community and, in seeking to ensure non-discrimination and fair competition, they impose procedural rules which public and local authorities must follow if they wish to award a contract (or a series of contracts) above the threshold values.

213 For the purposes of the, Directive, schools are viewed as discrete operational units. Thus, for the purposes of assessing whether a proposed contract comes above the EC threshold, a school's contract need not be aggregated with any similar contracts being let by the LEA. Each school's requirement is deemed to be independent. However, a series of similar contracts let by an individual school should be aggregated.

214 Under the EC Directives, calls for competition above the threshold must be advertised in the Official Journal of the European Communities. Specifications must be non-discriminatory and not favour one member state over the others; decisions must be based on objective criteria as set down in the Directives and made known in advance. The results

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also have to be advertised and, under most circumstances, there are requirements for reasons to be given to unsuccessful participants.

215 Schools should also bear in mind Part II of the Local Government Act 1988, which prohibits local authorities from taking into consideration certain non-commercial matters when selecting tenderers or letting contracts. Authorities are allowed, however, to ask certain specified questions, the form of which has been approved by the Secretary of State for the Environment, on race relations matters in order to discharge their duties under Section 71 of the Race Relations Act 1976.

216 The EC Procurement provisions and provisions as to non-commercial matters also apply to contracts being dealt with under the CCT procedure.

Transfer of undertakings

217 The Transfer of Undertakings (Protection of Employment) Regulations 1961 ('the TUPE Regulations') provide that, where a 'relevant transfer of an undertaking' has taken place, the new employer takes over the responsibility for the employment contracts of the persons employed in that undertaking, who transfer to the new employer on their existing terms and conditions of service. Whether or not there is a transfer of an undertaking depends on the nature of the work and the contractor's proposals for carrying it out.

218 The Government's view on the application of the Regulations in relation to CCT is set out in the Secretary of State for the Environment's statement to Parliament of 11 March 1993. In particular, he noted that it was an essential part of competition that authorities should not preclude the consideration of options of service delivery proposed by tenderers by placing any prior restrictions on the arrangements which external contractors or the DSO must adopt, except in cases where such restrictions can be justified by the authority on operational or economic grounds. Department of Environment (DOE) Circular 10/93 issued on 14 June 1993 also deals with TUPE matters in paragraphs 40-45. A letter from DOE to local authority Chief Executives dated 21 January 1994 gives further guidance on the handling of TUPE matters in the tender process.

(b) Where the setting-up of a school-based DSO is contemplated

219 Where the service in question is one which is subject to CCT (and not excluded by virtue of the exemption relating to three or fewer FTE staff dealing with cleaning and grounds maintenance), the school must follow the normal CCT procedure. Governing bodies are advised to seek guidance on this procedure from the LEA or other expert advisers; and to discuss and agree arrangements for carrying out the tendering.

220 As noted in paragraph 197 above, a DSO account must be prepared and submitted to the Department of the Environment annually by the LEA. A school which has, or is contemplating, setting up a school based DSO should discuss and agree arrangements for the preparation of DSO accounts with its LEA.

221 Where there is an existing school-based DSO, and where that DSO does not win a subsequent competition when a defined activity comes up for retendering, the staff concerned would not be able to continue to work on that activity. It will be for the school's governing body to determine whether

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any such staff may be redeployed within the school. Section 46(5) of the ERA provides for the Costs of severance, including any redundancies, to be met by the LEA outside the school's delegated budget unless the LEA has good reason to charge to that budget (see paragraph 180).

Voluntary aided schools

222 Employees of the governing bodies of voluntary aided schools are not covered by the provisions of the Local Government Act 1988, since the governors are not a defined authority under section 1 of the Act. However, where the articles of government of an aided school provide for non-teaching staff (eg school meals staff) to be employees of the LEA, the requirements of the Act will apply. Work carried out by such staff will constitute functional work by the LEA and be subject to the provisions of section 6 to 8 of the Act. Where the governing body of an aided school takes out a contract with an LEA to Carry out specific work, rather than including the work as part of the functional responsibilities of LEA employees in the articles of government, this will be treated as a works contract and be subject to the separate provisions of section 4 of the Act.

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Part 10: Other Duties of LEAs and Governing Bodies

General

223 LEAs and governing bodies have a range of duties relating to the provision of good quality education, both under schemes and through other statutory requirements. Consistent with the principle of local management, those responsible for managing delegated budgets and taking associated managerial decisions have to be given the freedom to make, and answer for, their own mistakes. But governing bodies and head teachers are expected to manage their schools with due propriety and efficiency. If they do not, they must expect the LEA to act: ie to give advice, issue warnings and take direct remedial action as appropriate.

224 In certain cases, LEAs will be able to charge a school's delegated budget for costs arising from breach of the provisions of a scheme. As noted in paragraph 180 above, the LEA has the right to deduct costs of dismissals and premature retirements from the delegated budget where it has good reason. There may also be more specific cases, for example where the LEA has to carry out essential structural or health and safety work because of action or omission on the part of the governing body. The Secretary of State expects such specific provisions for charging school budgets to be strictly limited and clearly spelled out in schemes. The governing body also has a range of statutory duties in respect of the curriculum. As a last resort, the sanction of withdrawal of delegation will be available to the LEA where schools are mismanaging their budgets or failing to meet the requirements of the scheme (see Part 11 below). Taken together, these provisions create a clear framework within which LEAs and governing bodies will be required to exercise their responsibilities.

Curricular duties

225 LEAs, governing bodies and head teachers need to have regard to the relationship between schemes of local management and their respective curricular duties under the Education Acts.

226 Within this statutory framework, governing bodies are free to allocate resources to their own curricular priorities from delegated budgets. Schemes should not include conditions or requirements which cut across the discretion and duties that governing bodies are given in that framework. LEAs should, however, provide in their schemes that governing bodies should spend their delegated budgets in a manner which is consistent with the implementation of the National Curriculum; with the statutory requirements relating to the curriculum as a whole, including religious education and worship; and, for county and controlled schools, and special schools, with the LEA's curriculum policy as modified by the governing body. Substantial or persistent non-compliance by a governing body is a potential ground for withdrawal of delegation. It will be for the LEA to determine in each case whether withdrawal would be an appropriate sanction.

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Community provision

227 Section 42 of the Education (No. 2) Act 1986 as amended by Schedule 13 to the Education Act 1993 provides for the governing body of a county or maintained special school to have control over the use of the school's premises outside school hours, subject to directions by the LEA and having regard to the desirability of use by the local community. Nothing in schemes of local management should restrict LEAs' freedom to issue such directions within the framework of the 1986 Act. In issuing directions, LEAs should have regard to the need for such directions not to amount to control of the premises by the LEA.

228 LEAs are not generally the owners of the premises of voluntary schools. Section 22 of the Education Act 1944 provides that for controlled schools, the LEA may give directions as to the use of school premises at the weekend, where that is required for the education or welfare of young people. For aided schools, the LEA may direct the governors as to the use of the premises when not required for the school for up to three days a week, where that is necessary for the education and welfare of young people and there is no suitable alternative accommodation in the LEA's area. These provisions are not affected by delegation.

229 In some LEAs, the provision to the community of various services, such as adult education, the youth service, sports facilities and services provided by voluntary organisations, takes place alongside school activity under the same overall management. If LEAs choose to do so, they may delegate the management of all staff in such schools to the governing body of the school under section 47 of the ERA (paragraph 184 above). In other schools, community services will be provided on the same premises as schools but under separate management. In both cases, the school may incur additional costs (such as for staffing, heating and light) relating to activities not covered by the LEA's GSB. In such cases the LEA needs to make arrangements to ensure that the school budget is compensated from LEA funds outside the GSB. In making such funds available, whether directly or through agreements with other users of the premises, LEAs may wish to specify conditions or give guidance to the governing body of the school, using the powers of direction described above, for instance on charging and letting policies.

230 The Government is concerned to encourage the appropriate use of school premises by voluntary organisations, and the Secretary of State trusts that LEAs will keep the needs of such organisations firmly in mind in framing their respective policies.

Personal liability of governors and staff

231 If the governing body of a school with a delegated budget enters into a contract to spend part of that budget, it does so on behalf of the LEA. This applies equally to the governors of aided schools using their delegated budgets within the terms of an LEA's scheme. Individual governors will not therefore incur any personal liability in respect of any contract entered into in exercise of the powers in section 36(5) of the ERA.

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232 Any contractual liability, for example resulting from the cancellation of a contract for supplies, falls ultimately to be met by the LEA. Authorities should include provision in their schemes for charging some or all of such expenses to the school's delegated budget where that would be an appropriate and practical sanction.

233 Furthermore, in making decisions on the use of the school's budget, governors are protected against any personal financial liability both by section 36(6) of the ERA and by sections 238 and 239 of the Education Act 1993, which give corporate status to governing bodies. This means that because the incorporated governing body is legally distinct from its members, individual governors will not incur liability for its actions. They will not, therefore, incur personal non-contractual liability for the incorporated governing body's actions or omissions, for example for negligence.

234 The common law duties of head teachers and school employees are in substance unchanged by local management. They are individually liable for any negligent acts; but if they have acted in the course of their employment, their employer will also be liable (ie the LEA or, in aided schools, the governing body). The number of decisions taken at school level increases with local management, and heads and other staff need to make sure that they follow the procedures set out in or under the LEA's scheme for securing adequate maintenance and meeting other relevant requirements, such as on health and safety.

Insurance for governing bodies

235 As the employers of staff and managers of school premises, the governing bodies of most voluntary aided schools have insurance cover for potential liability towards employees and third parties. In order to avoid committing a significant proportion of the delegated budgets of other schools covered by schemes to external insurance premiums, the Secretary of State expects LEAs to provide in their schemes that they will either act as insurers or arrange external insurance to cover the potential liability of governing bodies towards staff or third parties for any negligence in the exercise of their responsibilities as governing bodies. Governing bodies are likely to wish to ensure that such arrangements are made by the LEA. As noted in paragraph 68 above the costs of such insurance will, from 1 April 1995 (1996 in inner London) fall into the category of discretionary exceptions outside the PSB. The position on buildings insurance is set out separately in paragraph 87 above.

Travel and subsistence allowances for governors

236 Section 58 of the Education (No 2) Act 1986 prohibited the payment of travel and subsistence allowances to governors, other than in connection with a 'scheme' made by the LEA for the purposes of that section. Paragraph 106 of Schedule 19 to the Education Act 1993 removes this prohibition in relation to the governing bodies of schools with delegated budgets, so as to enable them - from 1 April 1994 - to pay travel and subsistence allowances (but no other allowances) to their members from their delegated budgets, if they 'think fit for the purposes of the school' (ERA, section 36(5)). LEAs for their part will need to ensure that their LMS schemes reflect this change in the law, by deleting or appropriately

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amending any provisions which appear to prohibit the use of delegated budgets for this purpose; the Secretary of State accordingly requests all LEAs to examine their schemes with this in mind, and make any necessary revisions (which are 'minor revisions' for the purposes of ERA section 35).

Health and safety

237 As the employer, the LEA (or in aided schools, the governing body) retains the primary responsibility for the health and safety and welfare of employees and the health and safety of those affected by their duties such as pupils and visitors to the school premises (see Sections 2 and 3 of the Health and Safety at Work Act 1974). To a significant extent, however, the LEA will need to carry out this responsibility by giving appropriate guidance and directions to governing bodies and others; the precise role of the governing body will vary from LEA to LEA. In aided schools the governors are fully responsible for the employer's duties. Sections 4(2) and 36(1) of the Health and Safety at Work Act 1974 also place a duty upon individual staff to ensure that they work in ways which are without risk to themselves, other staff, pupils and visitors to the premises.

238 As a result of the European Commission's programme of action on health and safety, a number of new sets of regulations came into force on 1 January 1993. Although there are several new requirements, the regulations mainly clarify and make more explicit current health and safety law: for schools, the most significant are the Management of Health and Safety at Work Regulations 1992, requiring employers to assess the risks to which their employees and others affected by their duties might be exposed. To achieve effective health and safety management LEAs, governors and staff must work together to ensure that the health and safety policy takes account of risk assessments and reflects the schools individual arrangements. In aided schools the production of written risk assessments and the health and safety policy is the responsibility of governing bodies as employers. Further detailed guidance is contained in the Health and Safety Commission's booklets 'The Responsibilities of School Governors for Health and Safety' (ISBN 0 11 886337 1 price £3.50) and 'The Management of Health and Safety in Schools' which will be published early in 1994. HSC booklets are available from Dillons bookshops or HSE Books, PO Box 1999, Sudbury Suffolk, C010 6FS. The free leaflet 'New Health and Safety at Work Regulations' is available from the HSE Information Centre, Broad Lane, Sheffield, S3 7HQ. The DFE's Building Bulletin No 7 'Fire and the Design of Educational Buildings' (ISBN 0 11 2705855) should also prove helpful.

239 It is important that all parties ensure that they are clearly aware of their legal obligations and responsibilities. Though LEAs generally retain liability for capital and grant related expenditure in county and controlled schools, many day to day responsibilities associated with health and safety may lie with school governing bodies. It is therefore essential that these responsibilities are clearly set out in the LMS scheme or the health and safety policy which might form an accompanying annex. The main health and safety functions falling to the governing bodies of county and controlled schools are likely to be

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a. purchase and maintenance of equipment (including firefighting equipment);

b. non-structural repairs (eg to doors and windows); and

c. cleaning (both indoors and outdoors, eg of swimming pools).

240 Where a governing body fails to comply with the LEA's policy concerning building work or maintenance, the LEA should be able to arrange for the work to be carried out itself and charge the school accordingly. The power to charge the school should not apply, however, where any failure to comply is attributable to inherited conditions rather than to demonstrable action or omission by the governing body.

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Part 11: Withdrawal of Delegation

241 Section 37(1) of the ERA empowers an LEA, as an ultimate sanction, to suspend a governing body's right to a delegated budget where it appears to them that the governing body:

a. has been guilty of a substantial or persistent failure to comply with any requirements applicable under the scheme; or

b. is not managing the appropriation or expenditure of the sum put at their disposal for the purposes of the school in a satisfactory manner.

242 In such cases the LEA must give a month's notice of the suspension to both the governing body and the head teacher. In the case of emergencies, the LEA may withdraw delegation before the expiry of the period of notice, but will need to provide the Secretary of State with written notification of its action and its reasons for it.

243 The governing body has a right of appeal to the Secretary of State against withdrawal of delegation. In deciding whether to allow or reject an appeal, the Secretary of State will have regard to the gravity of the default on the part of the governing body and the likelihood of its continuance or recurrence. He will also take into account the overall guidance given in this circular.

244 In a case where delegation has been withdrawn, the school will continue to be funded at the level of its budget share as determined by the LEA's formula. However, the governing body will not control how its budget share is spent and the additional powers over staffing conferred by sections 44 to 46 of the ERA will be suspended. The responsibilities of the governors of aided schools for external maintenance of school buildings will not be affected by any withdrawal of delegation.

245 The LEA will be required under section 37(5) to review any suspension of delegation annually, taking account of representations by the governing body and the head teacher, and will be expected to take corrective action to enable delegation to be restored as early as possible. As with the initial suspension, the governing body will have the right to appeal to the Secretary of State against refusal by the LEA to end a suspension after the annual review.

246 Where a county, controlled or maintained special school has been the subject of an inspection which identified the school as being in need of special measures, section 215 of the Education Act 1993 empowers the LEA to suspend the governing body's right to a delegated budget. The LEA may exercise this power on condition that:

a. the Secretary of State has not made a decision to transfer the school to an education association:

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b. ten days have elapsed since the date of the Secretary of State's acknowledgment of the LEA's statement of the action they propose to take in regard to the school.

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Part 12: Publication of Information

247 Section 42(1) of the ERA provides for approved LMS schemes to be published by LEAs in such manner as the Secretary of State may prescribe in regulations, both on the scheme's coming into force and on such subsequent occasions as may be specified. The regulations in question are the Education (Publication of Schemes for Financing Schools) Regulations 1993, reproduced at Annex I.

248 Publication, as defined in the Regulations, entails making a copy of the scheme available to the governing body and head teacher of each of the LEA's schools covered by the scheme: and to the governing body and head teacher of every GM school in the LEA's area, and of every GM special school in the LEA's area or formerly maintained by the LEA (a requirement complementary to the new duty to consult GM schools about proposed significant variations, see paragraphs 12 and 20 above). The LEA must also make copies available for reference at its schools and education offices, and at public libraries within its area.

249 Publication is required by the Regulations whenever a scheme is revised (whether by the LEA itself or by direction of the Secretary of State). Whether it should involve production of a consolidated reprint of the whole scheme, or merely the circulation of the revisions themselves, is in the Secretary of State's view a matter for the reasonable discretion of the LEA, having regard to the nature and extent of the changes involved, the extent to which the scheme has been previously revised since its last consolidation, and the underlying purpose of the statutory publication requirement: viz., to enable persons wishing to consult the scheme - including members of the general public - to ascertain, quickly and reliably, what its current provisions actually are.

250 Section 42(3) and (6) of the ERA requires all LEAs with approved LMS schemes to prepare and publish, before the beginning of the financial year, a budget statement for that year; and after the end of the year, a statement showing outturn expenditure. These statements must cover all schools covered by the LEA's approved scheme.

251 The purpose of requiring LEAs to publish annual financial statements is to enable schools to form a clear picture of the LEA's spending under its LMS scheme: how much is being spent in total; how much retained by the LEA and for what purposes; and how much delegated to schools and by what mechanism. The publication of outturn statements at the end of the financial year will allow schools to see what happened in practice - how actual expenditure compared with budgets, both at school and LEA level. The aim is to give schools information which they will find helpful but not to overload them with unnecessary detail.

252 The budget and outturn statements also help the Department to monitor the national implementation of LMS. In addition, they give the Department the detail necessary, to calculate the budgets of GM schools. It should be noted that, where there is approval for a school to cease to be maintained by the LEA during the financial year to which the statements relate, both statements should relate only to that part of the year during which the LEA maintained the school.

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253 Budget statements must be published before the beginning of the financial year to which they relate, and outturn statements within seven months of the end of the financial year (ie, before 1 November). Both statements must be made available for reference at public libraries and the LEA's education offices. Copies must be sent to all the LEA's schools: in relation to statements relating to 1994-95 and subsequent financial years, this requirement will be extended to cover local GM and GM special schools.

254 Section 42 defines some of the information to be contained in statements. It also gives the Secretary of State the power to make regulations prescribing additional content, the form of the statements and the timing and manner of their publication. New regulations will shortly be made in respect of budget and outturn statements for 1994-95: these will be sent to LEAs with accompanying guidance.

255 Under section 275(2) of the Education Act 1993, which amends section 42 of the ERA, the Secretary of State may direct LEAs (individually or collectively) to require the Audit Commission to make arrangements, in accordance with section 29(1)(d) of the Local Government Finance Act 1982, for the certification of their budget and/or outturn statements. Any use of this power by the Secretary of State will be preceded by appropriate consultation.

SIR GEOFFREY HOLLAND KCB

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Annex A

Approved Elements of Schemes for the Local Management of Schools

Set out below is the schedule referred to in paragraph 14 of the present Circular. Apart from the deletion of references to Circular 7/88, it is reproduced in its original form. On certain points (eg the minimum percentage for pupil-led funding, and the arrangements for delegation of budgets to primary schools), it thus reflects the requirements obtaining at the inception of LMS. Where the terms of an originally approved element have been amended whether in the light of changing requirements or otherwise, further changes in the substance of the amended provisions will themselves constitute formal revisions.

The General Schools Budget (GSB) and excepted items

1a. The items included within the GSB;

b. each mandatory excepted item, together with the description of its treatment and scope;

c. each discretionary excepted item, together with an explanation and description of its treatment and scope. This includes where applicable:

i. structural repairs and maintenance: details of any split of responsibility for structural maintenance, including treatment of voluntary aided schools where different; and treatment of minor emergency repairs to items of LEA responsibility;

ii. dismissals and premature retirements: any statement of the LEA's policy on charging the costs of PRC/dismissals to schools;

iii. special staff costs: details of coverage, extent and duration of any exception for safeguarding;

iv. special staff costs: details of the arrangements for treatment of supply cover including definition of long-term cover where these costs are to be retained as a discretionary excepted item;

v. insurance for governors/premises and equipment insurance: details of the scope of governors' insurance and of insurance relating to school premises/equipment;

vi. contingencies: trigger point(s) for calls on contingency provision arising from changes in pupil numbers, with basis for allocation when triggered;

vii. transitional excepted items: details of duration of transitional excepted items; and

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Formula Funding

Pupil numbers: 75% (Minimum) Element of Formula

2a. the minimum percentage of the ASB allocated by age-weighted pupil numbers;

b. the set of pupil age-weightings expressed as ratios, with a reference point of unity relating to a specified age-group, together with part-time weightings for pupils of a particular age, where applicable;

c. where applicable, the weightings for individual subjects or groups of subjects, or course weightings (eg for A level pupils), expressed as ratios with a single reference point for each combination of age/subject/course together with the courses/subjects to which each weighting applies;

d. the basis of, and date(s) for, the pupil count for the purposes of formula funding eg if forecast numbers, the date to which the forecast relates; or if latest actual numbers, the date of the count and any adjustment proposed for pupils entering reception classes in a subsequent term; and

e. where applicable, the basis for adjustments to be made in the subsequent year because of errors in the forecast pupil numbers.

Other factors: 25% (Maximum) Element of Formula

3 The description of each formula factor covering its method of operation: ie the basis for resource allocation and the criteria for identifying relevant categories of schools or pupils. This includes where applicable:

a. Small school curriculum protection

i. for any lump sums or minimum sums, details of types of schools to which different sums will be provided; and

ii. for any sliding scale addition of funding to schools below a certain size, the threshold(s) below which such additional funding will be generated. Where the sliding scale is not linear (eg where it contains "steps"), the threshold(s) at which changes in the function occur.

i. the basis for determining which schools may have their budgets adjusted to reflect this factor; and

ii. the degree of protection or limitation of gain to be provided for schools of different sizes.

i. pupils with statements of special educational needs (SEN): the basis for allocating any resources included within the Aggregated Schools Budget for pupils with statements of special educational needs;

ii. SEN pupils without statements: criteria for identifying pupils who quality for additional funds, and the basis upon which resources will be allocated; and

iii. other additional educational needs: criteria for identifying other additional educational needs eg social deprivation, and the basis upon which resources will be allocated.

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d. Premises costs

i. the factor(s) included (eg floor area, type of premises, split sites);

ii. where a factor is itself to contain differential weightings (eg according to different types of premises), the number of and the criteria for such weightings;

iii. any budget headings to be allocated according to actual costs, and the basis for ascertaining such costs (eg actual costs for a specified year(s), rolling average of costs in a specified number of years or estimated cost for relevant year);

iv. arrangements for removal of any condition of buildings factor by the end of the initial four year transitional period.

4 The price base used in constructing the GSB.

5 The basis on which budgets are to be given to schools and costs (including salary costs) are to be charged to schools.

6 The method, if any, of moderating the speed of adjustment required by individual schools to pure formula funding; the duration of such transitional arrangements; and details of any extended transitional arrangements for individual schools.

7 The proposed limit (if any) on (a) increases and (b) decreases in the budget share of an individual school between years.

Schools' delegated responsibilities

Arrangements for delegation

8a. the schedule of all schools covered by the scheme, and the number on roll at each school at specified dates, and the date of delegation for those schools which are to receive delegated budgets;

b. any provision indicating the LEA's intention with regard to extension of delegation to primary schools with fewer than 200 pupils, including the relevant dates for the extension of delegation to any such school where these have been determined; and

c. any provision indicating the LEA's intention with regard to extension of delegation to special schools.

LEA conditions and requirements

9 The financial conditions applicable to schools with delegated budgets, in particular any rules governing the following:

a. virement by a school within its budget share as allocated at the start of the year (eg criteria for notification to LEA);

b. carry over of funds, planned anticipation of budgets, and any payment of interest;

c. retention of income accruing to schools;

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d. deduction of unplanned overspend from a school's budget share the following year;

e. arrangements for payment of expenditure (ie whether centrally or from school bank accounts);

f. freedom of governing bodies to determine suppliers; and

g. receipt and acceptance of contract tenders.

10 Other conditions applicable to schools with delegated budgets eg in relation to pupils with special educational needs, with or without statements.

11 Where relevant, the period of time after which delegation will cease for primary schools which have fallen below 200 pupils.

Implementation of the Scheme

12 The provisions relating to the interaction with delegation of LEAs' policies in the areas set out in a. to c. below: eg circumstances under which costs will be charged to schools or constraints placed on the spending of schools' delegated budgets:

a. charging: interaction with formula funding;

b. health and safety: charging of costs to schools; and

c. competitive tendering: publication of specifications and statement of the LEA's policy on the interaction of LMS and competitive tendering, together with dates of contract periods for initial contracts subject to the Local Government Act 1988.

13 The description of the LEA's proposed arrangements for:

a. support and training; and

b. monitoring and evaluation, including the LEA's approach to the development of performance indicators for school management.

Department of Education and Science
December 1989

[page 70]

Annex B

In exercise of the powers conferred by sections 35(6) (1) and 232(5) of the Education Reform Act 1988 (2), the Secretary of State for Education, as respects England, and the Secretary of State for Wales, as respects Wales, hereby make the following Order:

1 Citation, commencement and interpretation

(1) This Order may be cited as the Education (Significant Variations of Schemes for Financing Schools) Order 1993 and shall come into force on I December 1993.

(2) In this Order -

"the Act" means the Education Reform Act 1988;

"authority" means a local education authority;

"factor" in relation to the allocation formula under an authority's scheme means any circumstance, fact or matter affecting the needs of individual schools and subject to variation from school to school which is to be taken into account in accordance with the allocation formula under the authority's scheme;

"financial delegation" means delegation by an authority to the governing body of a school of the management of the school's budget share;

"head or item" means a head or item of expenditure which falls in accordance with an authority's scheme to be deducted from its general schools budget in determining its aggregated budget for any financial year;

"limited head or item" means a head or item the amount of which (together with the amount of any other head or item) is subject to a limit in accordance with an authority's scheme or any condition imposed by the Secretary of State-in approving a scheme;

"potential schools budget" means the amount remaining after deducting from an authority's general schools budget the amount of any planned expenditure -

(2) 1988 c. 40.

[page 71]

(a) amounts falling in accordance with section 38(4) of the Act to be left out of account in determining the authority's aggregated budget for the year; and .

(b) amounts falling in accordance with the authority's scheme to be so left out of account

(i) for the provision of transport for pupils between home and school; and

(ii) for the provision of school meals and milk;

"relevant inner London authority" means the London Borough of Camden, the London Borough of Greenwich, the London Borough of Hackney, the London Borough of Hammersmith and Fulham, the London Borough of Islington, the Royal Borough of Kensington and Chelsea, the London Borough of Lambeth, the London Borough of Lewisham, the London Borough ofSouthwark, the London Borough of Tower Hamlets and the London Borough of Wandsworth;

"school" (except in article 3(xvi) below) means a school covered by a scheme;

"school's budget share" has the same meaning as in section 33(2)(a) of the Act and includes that share as from time to time revised in accordance with the scheme under which it is determined;

"small schools salary protection factor" means a factor in the allocation formula of an authority's scheme which applies only to those schools which are, in accordance with the scheme, to be regarded as small schools for the purposes of the factor and in accordance with which account is to be taken in determining a school's budget share of the actual teaching salary costs incurred at that school; and

"the special schools of the authority concerned" means the special schools maintained by that authority and the new schools proposed to be established by that authority which will be special schools and which have temporary governing bodies (and "new school" and "temporary governing body" have the same meanings as in section 48 of the Act).

3 Section 40(2) is amended by section 274(3) of the Education Act 1993: section 274(3) is not in force at the date of this Order.

4 Section SI(2)(a)(i) is amended by section 274(4) of the Education Act 1993: section 274(4) is not in force at the date of this Order.

[page 72]

2 Revocation

The Education (Significant Variations of Schemes for Financing Schools) Order 1990, the Education (Significant Variations of Schemes for Financing Schools) Order 1992 and the Education (Significant Variations of Schemes for Financing Schools) (Amendment) Order 1993 are revoked.

3 Specified descriptions of variation

For the purposes of section 35(3) of the Act the following descriptions of variation of schemes are to be regarded as significant -

(i) the addition of a head or item;

(ii) the amendment of a head or item where the effect of the amendment is to extend the scope of that head or item;

(iii)

(a) in the case of a relevant inner London authority, the increase of the maximum proportion of the authority's general schools budget which limited heads or items may represent where the proportion resulting from the increase exceeds 10%;

(b) in the case of any other authority, the reduction of the minimum proportion of the authority's potential schools budget which the authority's aggregated budget represents, where the proportion resulting from the reduction is less than 85%;

(a) in the case of a relevant inner London authority, the reduction of the minimum proportion of that part of the authority's aggregated budget which is to be appropriated for county and voluntary schools which is to be appropriated by reference to the number (weighted in accordance with the scheme) of registered pupils where the proportion resulting from the reduction is less than 75%;

(b) in the case of any other authority, the reduction of the minimum proportion of that part of the authority's aggregated budget to be appropriated for county and voluntary schools which is to be appropriated by reference to the relevant weighted number of registered pupils where the proportion resulting from the reduction is less than 80%;

(c) for the purposes of sub-paragraph (b) above, the "relevant weighted number" means the number of registered pupils weighted (where the scheme so provides) by reference to those matters which, in accordance with the scheme, are relevant for the purpose of determining the minimum proportion referred to in that sub-paragraph;

(d) the addition of provision for taking into account -

(i) the number of registered pupils of any category, or

[page 73]

(ii) any matter by reference to which the number of registered pupils is to be weighted,

for the purpose of determining the minimum proportion referred to in sub-paragraph (b) above;

(e) in the case of an authority other than a relevant inner London authority, the increase of the maximum proportion of that part of the authority's aggregated budget to be appropriated for county and voluntary schools which is to be appropriated by reference to the number of pupils required to be used, in accordance with the scheme, for appropriating sums in respect of pupils with special educational needs for whom no statement is maintained under section 7 of the Education Act 1981 (5), where the proportion resulting from the increase exceeds 5% and the amount reflecting the increase is to be taken into account for the purpose of determining the minimum proportion referred to in sub-paragraph (b) above;

(vi) the amendment of provision for taking into account a factor included in the allocation formula under a scheme where the effect of the amendment is -

(a) to change the basis on which the authority determine numbers of registered pupils, or

(b) to introduce provision for taking into account past expenditure, estimated expenditure or amounts whose determination requires subjective assessment to a substantial degree;

(a) to remove a scale in accordance with which resources are to be allocated in respect of the factor; or

(b) to increase any figure to be used as a criterion for determining those schools to which the factor applies;

(ix) the extension of the period for which a temporary or transitional provision applies;

(x) the amendment of provision for making transitional adjustments to a school's budget share where the effect of the amendment is to apply such provision to a school to which it does not otherwise apply;

(5) 1981 c. 60.

[page 74]

(xi) the reduction of a limit on the variation between financial years in a school's budget share;

(xii) the deferment of the application within a scheme's initial period of the delegation requirement in relation to any school;

(xiii) the amendment of any provision whereby the amount of a school's budget share for any financial year is to reflect the actual expenditure which the authority considers is likely to be incurred for the purposes of that school in that year;

(xiv) the amendment of a provision where the effect of the amendment is -

(a) to prescribe the occasions or additional occasions on which the governing body of a school which has a delegated budget are required to notify the authority of changes in their planned expenditure of their school's budget share;

(b) to impose a limit on the amount of a school's budget share which may be carried forward to the following financial year;

(c) to permit a deficit (or part of a deficit) in a school's budget share to be written off at the end of the financial year in which it was incurred;

(d) to require the governing body of a school which has a delegated budget to obtain quotations or supplies from suppliers specified by the authority; or

(e) to impose on the governing body of a school which has a delegated budget any other restriction on, or condition or requirement with respect to the exercise of, their power to manage their school's budget share;

(xvi) the addition of provision whereby the scheme covers the special schools of the authority concerned;

(xvii) the addition of provision whereby a sum (or sums) in respect of a school's budget share for any financial year is (or are) to be, or may be, credited to a bank or building society account over which the governing body of the school have drawing rights;

(xviii) the removal, deferment or suspension of operation of any such provision as is mentioned in paragraph (xvii) above;

(xix) the amendment of any such provision as is mentioned in paragraph (xvii) above where the effect of the amendment is -

(a) to specify, or restrict or further restrict the choice of, the bank or building society with which the account referred to in that paragraph may be held;

[page 75]

(b) to restrict, or further restrict, the occasions on which the governing body of the school may elect that the provision is to apply in relation to that school's budget share;

(c) that sums may be credited to the account referred to in that paragraph on more than 13 occasions in any financial year; or

(d) to specify, or restrict or further restrict, the expenses which may be defrayed from the account so referred to;

(xxi) the addition, amendment or removal, or the deferment or suspension of operation of, provision for -

(a) reducing a school's budget share for any financial year where a pupil is permanently excluded from the school in that year; or

(b) allocating an amount for the purposes of a school in any financial year where a pupil who has been permanently excluded from any school maintained by an authority or any grant-maintained, or grant-maintained special, school is admitted to the school in that year.

M J Richardson
A Secretary to the Department of
the Secretary of State for Education

26 October 1993

Signed by authority of the Secretary of State for Wales
SH Martin
Under Secretary Welsh Office

26 October 1993

[page 76]

Annex C

In exercise of the powers conferred on the Secretary of State by section 43 of the Education Reform Act 1988 (1) (as extended by paragraph 3 of Schedule 4) and by section 232(5) and (6) of that Act, the Secretary of State for Education, as respects England, and the Secretary of State for Wales, as respects Wales, hereby make the following Regulations:

1 Citation, commencement, interpretation and revocation

(1) These Regulations may be cited as the Education (Application of Financing Schemes to Special Schools) Regulations 1993.

(2) These Regulations shall come into force on 1st January 1994.

(3) In these Regulations -

"the 1988 Act" means the Education Reform Act 1988;

"new school" and "temporary governing body" have the same meanings as in section 48 of the 1988 Act;

"scheme" means a scheme made by a local education authority under section 33 of the 1988 Act; and

"the 1992 Regulations" means the Education (Application of Financing Schemes to Special Schools) Regulations 1992 (2).

2 Application to special schools of Chapter III of Part I of 1988 Act

(1) The schools required to be covered in the financial year beginning in 1994 and in subsequent financial years by a scheme made by a local education authority shall include the authority's special schools.

(1) 1988 c. 40. A new section 43 is substituted by section 276 of the Education Act 1993 (c. 35).

(2) S.I. 1992/164.

[page 77]

(2) Where, by virtue of -

(a) a determination under regulation 2(1) of the 1992 Regulations; or

(b) paragraph (1) above,

(3) Where a new school is included in the special schools of a local education authority which are required (by virtue of a determination under regulation 2(1) of the 1992 Regulations or by virtue of paragraph (1) above) to be covered by a scheme -

(a) paragraphs 2(2) to (5), (9) and (10) of Schedule 4 to that Act (a). (which make provision as to the application of schemes in relation to new schools) shall apply in relation to that school as it applies in relation to a school to which paragraph 1 of that Schedule applies;

(b) paragraph 2(6) of that Schedule shall so apply, and paragraph 4( 1) of that Schedule shall have effect in relation to that authority's schools, as if the reference in each paragraph to the delegation requirement under a scheme were a reference to any requirement under a scheme made by virtue of regulation 3 below; and

(c) the following provisions of that Schedule, that is to say-

(i) paragraph 4(6)(a) (articles of government of new school to indicate that certain provisions are superseded); and

(ii) paragraph 7(2) (articles of government of new school to contain statement of any inconsistency between articles and Chapter III of Part I of the 1988 Act),

(4) In this regulation references, in relation to a financial year, to the special schools of a local education authority are references to -

(a) any special school maintained by that authority at the beginning of that year;

(b) any new school that is established, at any time during that year, as a special school maintained by that authority; and

(c) any school proposed to be established by that authority which will be a special school and which has a temporary governing body during the whole or any part of that year.

[page 78]

3 Delegation of budget share to governing body of special schools

Provision for requiring the delegation by the local education authority concerned of the management of the budget share of any special school to the governing body of that school, or of the budget share of any new school which will be a special school to the temporary governing body of that school, -

(a) may be included in a scheme, in the case of a local education authority in England, in relation to either or both of the financial years beginning in 1994 and 1995, and, in the case of a local education authority in Wales, in relation to any financial year;

(b) shall be included in a scheme in respect of such schools as the Secretary of State directs; and

(c) in the case of a local education authority in England, shall be included in a scheme in relation to the financial year beginning in 1996 and subsequent financial years.

John Patten
Secretary of State for Education

3rd December 1993

John Redwood
Secretary of State for Wales

8th December 1933

These Regulations, which are made under the new section 43 of the Education Reform Act 1988 substituted by section 276 of the Education Act 1993, replace the Education (Application of Financing Schemes to Special Schools) Regulations 1992, which are revoked.

They repeat the requirement in those Regulations for all schemes for financing schools maintained by local education authorities to cover the special schools (and proposed such schools with temporary governing bodies) maintained by them from the financial year beginning on 1st April 1994 (regulation 2). The main change introduced by the Regulations is to require schemes to provide for financial delegation to the governing bodies (or temporary governing bodies) of such schools as the Secretary of State directs and, from the financial year beginning on 1st April 1996, of all schools maintained by local education authorities in England (regulation 3).

[page 79]

Annex D

New Schools and LMS

1. New county and voluntary schools, together with any new special schools to which regulations under section 43 apply, are required to be covered by schemes of local management from the time when their temporary governing body is constituted. A new school is defined by section 48(2) of the ERA in the same way as in schedule 2 to the Education (No. 2) Act 1986, ie a school in respect of which a proposal under section 12 or 13 of the Education Act 1980 or section 183(2) of the Education Act 1993 has been made which will on the implementation of the proposal be a county, voluntary or maintained special school. This definition includes existing schools which the LEA proposes to maintain where it did not before, as well as new schools established as a result of reorganisation or increased demand in a particular area.

2. The general provisions of schemes apply to new schools in the same way as established schools by virtue of paragraph 2(1) of schedule 4 to the ERA, except where the Schedule makes specific modifications to them. In particular, the LEA's resource allocation formula will apply for determining the budget share of new schools before they open, and delegation is required for all new county and voluntary schools, and special schools from 1 April 1996, when they open. The applications of schemes to new schools is subject to the following main modifications:

a. the resource allocation formula will need to be applied to certain categories of expenditure only. In particular, significant costs of teachers' salaries are unlikely to arise in advance of opening. However, the Secretary of State expects LEAs to delegate provision for any premises costs which will be incurred before the school opens, together with provision for the purchase of books and equipment. The Secretary of State expects the number of pupils which the school is forecast to have when it opens to be taken into account when determining the budget share of a new school;

b. delegation may be phased in for new schools on a date specified by the LEA in the scheme. This need not be at the beginning of a financial year, and may be later than the date on which the temporary governing body is constituted (sub-paragraphs 2(6) and 2(8) of Schedule 4). The Secretary of State expects delegation to take place as soon as significant expenditure is intended to be incurred in respect of the school;

c. section 49 of the ERA, which requires the delegation of capitation funds to schools without full delegated budgets does not apply to new schools (paragraph 5);

d. information on unit costs per pupil is not required for the period before schools open (paragraph 2(3)); and

e. the temporary governing body of a new school which is due to receive a delegated budget, either prior to or on opening, will receive delegated powers over staffing from the date it is constituted, whether or not it has a delegated budget at that date (paragraph 4(1)).

[page 80]

Annex E

School Meals and Delegation: The Legal Framework

Provision made under section 22 of the Education Act 1980

1. Under section 22 of the Education Act 1980, LEAs have a power to provide milk, meals and other refreshment at any school maintained by them. They are required to exercise that power in respect of pupils whose parents are in receipt of income support, and the provision must be made free of charge to those pupils. It is also for the LEA to determine how the provision is organised (for example, it need not be on the premises of the school attended by the pupil) and what it should comprise.

2. For pupils not entitled to a free meal, the power is discretionary. It is up to individual LEAs to decide whether to offer anything at all. Where they do so, they must make a charge for what is provided. The balance between subsidy and a paid service is a matter for them: But they are required to operate an equal pricing policy under which different pupils in the LEA's schools are not charged different prices for the same item.

3. LEAs may not lawfully delegate their functions under section 22; all they can delegate is the management of the funds used to discharge those functions. Thus, in the case of free school meals pupils, it is for the LEA - and the LEA alone - to decide what provision is 'requisite'. It could not delegate funds to governing bodies for the performance of this duty with a condition that something is to be provided for free school meal pupils, but leave it to the governing bodies to decide what that should be. The LEA has to define the 'something'.

4. Similarly, LEAs may not delegate their discretionary powers to provide paid meals. If, for example, the LEA's policy is that all pupils should be offered a range of provision from cold snacks and sandwiches to three course cooked lunches, and a choice of hot or cold drinks, it could only delegate to schools the funds to give effect to that policy if the LMS scheme, or conditions attached to it, required governing bodies to spend funds from their budget share on making that range of provision. The LEA would also have to fix the prices and require governors to charge them.

5. In sum.where provision for school meals made under the 1980 Act was delegated, the governing body would have to be required by or under the scheme to provide the level and type of service stipulated by the LEA, at prices fixed by the LEA in the case of paid meals. For practical purposes, all that would be delegated is a discretion to seek alternative sources of supply.

Provision made under section 36(5) of the ERA

6. The foregoing paragraphs are concerned with meals (etc) provided pursuant to the powers and duties which the 1980 Act confers on LEAs. Where a school has a delegated budget, it is in principle open to the governors - by virtue of section 36(5) of the ERA, and subject to the terms of the LEA's LMS scheme - to use funds from their budget share

[page 81]

to make provision on their own account. The range of any such provision, and the extent to which it is subsidised, are matters for the governing body to determine, taking due account of the many other competing demands on the delegated budget and subject to the provisions of paragraph 79 of Schedule 19 to the Education Act 1993, which precludes governing bodies from making provision free of charge and requires them (a) to charge every pupil the same price for the same quantity of the same item and (b) to charge every person other than a pupil the same price for the same quantity of the same item.

7. CCT rules apply to provision made under section 36(5), on the same basis as they apply to provision made pursuant to section 22 of the 1980 Act.

[page 82]

Annex F

LMS and Inner London

1. With one exception (Westminster), the initial statutory LMS schemes for the Inner London LEAs came into force in April 1992, (by comparison with April 1990 in the case of nearly all other LEAs). The initial 'transitional period' for these inner London LEAs must therefore end by April 1996; and they are meanwhile subject to different requirements from those applicable to other LEAs (although they are of course free to apply the national requirements to themselves if they so wish).

2. The distinctive requirements applicable to the Inner London LEAs (except Westminster) are:

a. Limitations on excepted expenditure Until April 1995. the rule for Inner London is that certain discretionary excepted items must be limited in aggregate to a maximum of 10% of the GSB. The items not subject to this limit are: central administration costs; expenditure on home to school transport, school meals, governors' insurance, inspectors and advisers; PRC and dismissal costs, and expenditure on cleaning and grounds maintenance contracts and other services contracted out before schools received delegated budgets. For the 1995-96 financial year, Inner London LEAs will be subject to the rule applicable to other LEAs for 1993/94 and 1994/95, viz. that discretionary exceptions within the potential schools budget are limited to 15% of the PSB as currently defined. From 1996-97 onwards the requirement for inner London will be the same as for the rest of the country.

b. Transitional exceptions LEAs were originally allowed to hold as transitional discretionary exceptions resources in respect of cleaning and grounds maintenance for primary and secondary schools. The Secretary of State then required the inclusion of these resources in schools' budget shares from April 1993. This requirement does not apply to Inner London LEAs until April 1995; meanwhile costs may be treated as an excepted item on the same basis as applied to other LEAs before April 1993, ie for the duration of initial contracts. and where specifications had been published before schools received delegated budgets.

c. Pupil-led funding The requirement for Inner London until April 1995 is that funding on the basis of pupil numbers, weighted for age and for sixth form subjects (if appropriate) should comprise a minimum of 75% of the aggregated schools budget. From the 1995-96 financial year onwards the requirement will be the same as for the rest of the country (paragraphs 101-102 of this Circular).

[page 83]

Annex G

Division of Responsibility for Building and Grounds maintenance between LEAs and Schools

The table below, with its suggested division of responsibilities for building and grounds maintenance in county and controlled schools, is reproduced from Annex A to Circular 7/88. LEA responsibilities are described by overall headings for each item, with school responsibilities described in more detail.

[page 84]

[page 85]

[page 86]

[page 87]

[page 88]

Annex H

CCT and White Collar Services

1. The Government proposes to extend CCT to the following white collar services: architectural, engineering and property-management, legal, finance, Information Technology, personnel, and corporate administrative services. Statutory instruments giving effect to these proposals will be submitted to Parliament for approval in due course. Local authorities will be required to seek competition for a proportion of the total value of work in each service and it will be up to individual local authorities to decide which elements of work to contract out, subject to CCT, or retain in house.

2. The Government has indicated that white collar CCT will be implemented on a phased basis starting in October 1995. There will be separate implementation timetables for local authorities undergoing restructuring allowing specified exemptions from the competition requirement during the reorganisation period.

3. Services for which a school has a delegated budget under an LMS scheme, and which the school procures direct from a private sector supplier, or obtains from its local authority, or carries out itself with school- employed staff, will be regarded as having been subject to competitive pressures and will therefore count towards achievement of the local authority's competition requirement for the service in question. Schools procuring services in this way will not be subject to CCT procedures.

4. White collar activity carried out by or on behalf of LMS schools will be included in the total of an authority's defined activity for CCT purposes, subject to certain exclusions. This is likely to require schools to submit financial details to LEAs and is still under consideration.

[page 89]

Annex I

In exercise of the powers conferred by section 42(1) of the Education Reform Act 1988 (a) the Secretary of State for Education, as respects England, and the Secretary of State for Wales, as respects Wales, hereby make the following Regulations:

1 Citation, commencement, interpretation and revocation

(1) These Regulations may be cited as the Education (Publication of Schemes for Financing Schools) Regulations 1993 and shall come into force on 1st January 1994.

(2) In these Regulations -

"the Act" means the Education Reform Act 1988; and

"scheme" means a scheme made by a local education authority under section 33 of the Act (schemes for financing schools maintained by local education authorities).

2 Manner of publication of schemes

For the purposes of section 42(1) of the Act (prescribed manner of publication of schemes) a scheme shall be published by -

(a) furnishing a copy to the governing body and a copy to the head teacher of -

(i) each school to which the scheme relates;

(ii) each grant-maintained school in the area of the local education authority concerned; and

(iii) each grant-maintained special school which is established under section 183 of the Education Act 1993 (c) in the authority's area or which, before becoming a grant-maintained special school, was a special school maintained by the authority (d); and

(d) Provision for a maintained special school to become a grant maintained special school is made by section 186 of the Education Act 1993. Sections 183 and 186 of that Act are not in force at the date of these Regulations.

[page 90]

(b) making a copy available for reference by parents and other persons at all reasonable times and without charge at -

(i) each school to which the scheme relates;

(ii) each education office of the authority; and

(iii) each public library in the area of the authority.

For the purposes of section 42(1)(b) of the Act (prescribed occasions on which publication of schemes is required) a scheme shall be published on the coming into force of any revision of it.

John Patten
Secretary of State for Education

26 November 1993

John Redwood
Secretary of State for Wales

1 December 1993

These Regulations replace with modifications the Education (Publication of Schemes for Financing Schools) Regulations 1989 which are revoked.

The Regulations extend the requirements for publication by local education authorities of their schemes for financing schools maintained by them by requiring copies to be furnished to the governing body and head teacher of each grant-maintained school in their area and (when the relevant provisions of the Education Act 1993 come into force) each grant-maintained special school established in the authority's area or which, before becoming such a school, was a special school maintained by the authority (regulation 2).

In consequence of the substitution of a new section 35 of the Education Reform Act 1988 by section 274{2) of the Education Act 1993 the Regulations extend the requirement to publish a scheme on the entry into force of a variation made by direction of the Secretary of State to require publication on the entry into force of any revision of a scheme (regulation 3).