School spending and costs: the coming crunch

Following a period of real-terms cuts to school spending per pupil in England, the government has set out plans to increase school funding per pupil at both the 2019 and 2021 Spending Reviews. Indeed, the Chancellor stated that the 2021 Spending Review would ‘restore per pupil funding to 2010 levels in real terms’. This settlement would also allow the government to deliver on a manifesto commitment to increase teacher starting salaries to £30,000 by the end of the parliament.

At the end of July 2022, the government confirmed the school funding settlement for 2023–24, which is line with plans in the 2021 Spending Review. The Department for Education also accepted the recommendations of the School Teachers’ Review Body (STRB) for teacher pay in England in 2022, which included slightly higher increases than planned for most teachers. Local government employers also published their pay offer for local government workers, which are relevant for teaching assistants and other support staff in schools. This included proposed pay increases of over 10% for low-paid workers down to about 4% for more highly paid workers. Rising levels of inflation will also have an impact on school costs, particularly given that a large part of the increase has been driven by rising energy and food prices, which constitute a large element of schools’ non-staff costs.

Normally, real-terms changes in public spending are assessed based on economy-wide inflation as captured by the GDP deflator, and this usually provides an accurate picture over the long run. However, the pandemic and its aftermath have led to a high level of volatility in the GDP deflator. This includes an apparent sudden rise in inflation of nearly 6% in 2020–21 and negative inflation of −0.2% in 2021–22. The 4% expected growth in the GDP deflator in 2022–23 is also well below expected CPI inflation of 8%. These differences are driven by the often fiendishly complicated ways public sector output is captured in the national accounts. They are also significantly out of line with actual cost pressures likely to have been faced by schools in the short run.

In this briefing note, we set out the planned changes to teacher pay. We then assess how changes to teacher pay, support staff pay and non-staff costs are likely to affect the growth in school costs. We also provide updated projections for school spending per pupil through to the end of this parliament, based on this estimated measure of school costs.

Key findings

• Planned reversal of past school spending cuts. Between 2009–10 and 2019–20, spending per pupil in England fell by 9% in real terms. Additional funding in the 2019 and 2021 Spending Reviews was due to restore spending per pupil back to 2010 levels based on inflation measured by the GDP deflator.
• Actual costs faced by schools growing faster. We estimate that the actual costs faced by schools, such as teacher and support staff pay, will grow by 20% between 2019–20 and 2024–25. This is above the 14% expected growth in the GDP deflator, which is still subject to the persistent effects of the pandemic.
• School costs to increase by 6% in 2022–23, but look just about affordable. We estimate that teacher pay costs will rise by 4% in 2022–23, including the effects of last year’s pay freeze, the 5.4% average increase in September 2022 and the new Health and Social Care Levy. Local government employers have offered support staff pay rises of 4%–10.5% in 2022–23. This implies increases in the average cost of support staff of at least 9%. Rising energy and food prices are driving an increase in CPI inflation, now expected at 8% for 2022–23, which seems likely to further increase non-staff costs. However, growth in funding per pupil is relatively high this year (7.7%) and is still likely to be above growth in school costs (6%).
• Cost increases won’t be felt equally. A large amount of the extra funding this year has been allocated to meet rising demands on the high-needs budget. The expected growth in total mainstream funding per pupil (6.8%) is only just above expected growth in costs (6%). Schools that rely more on support staff, such as special schools, will also likely see faster growth in costs.
• Future real-terms cuts. We project that school costs will grow by 4% in 2023–24, which is above expected growth in school funding per pupil (3%). In 2024–25, growth in school funding per pupil is only just above projected cost growth.
• No return to 2010 real-terms levels. Faster growth in school costs will reduce the purchasing power of school budgets. After accounting for growth in the specific costs faced by schools, we estimate that school spending per pupil will remain 3% below 2010 level in real terms.