Storm warning issued over 'rainy day' savings

As highlighted in the ASCL Council report, on page 14, the DCSF has put forward a very crude plan for dealing with the relatively small number of schools which retain large reserves in their revenue budgets. The proposal is that local authorities will take back 5 per cent of any money still in the school revenue account on March 31 2007. This is irrespective of whether the money was committed (and has probably now been spent) or a sensible contingency reserve.

Money raised by the school is not included. The money taken back has to be put into the schools budget - but not necessarily into the individual schools budget - so local schools forums must ensure that this money is at least redistributed to schools and does not disappear into the central expenditure pool.

ASCL and NAHT are continuing to fight for a more intelligent formula with ministers and civil servants. This proposal will require a change to the Financial Regulations and the DCSF is currently consulting on the wording. Members are encouraged to respond to the consultation at www.teachernet.gov.uk/docbank/index.cfm?id=11905 either as individuals, schools forums or local branches.

Comments that schools are over funded, based on simple raw data about the level of rollovers, are founded on a lack of understanding of the system. However ASCL's argument is made more difficult by the small number of schools that hold balances that would, under all normal criteria, be deemed excessive.

ASCL believes that there are legitimate reasons for rolling over 2 to 5 per cent of the budget. Schools with excessive balances are recommended to bring down their balances to an acceptable level as quickly as possible whilst ensuring that the money is spent wisely for the benefit of students.

ASCL's guidance paper 16 School Reserves and Balances sets out guidance for members on rollovers. It recommends the following:

• The end of year balance should be clearly separated into the LA revenue budget and the Standards Funds balance (which operates to 31 August).

• Schools should hold between 0.5 and 1.0 per cent of the delegated budget as a contingency fund.

• Most schools should hold a further 1.5 to 2.5 per cent of the delegated budget as a reserve. The minimum reserve held should be £25,000 (small schools) and the maximum £75,000 (large schools).

• Schools with balances above the suggested levels are recommended to bring down their balances to this level as quickly as is possible whilst ensuring that the money is spent wisely for the benefit of students.

• Schools should produce a breakdown of their end of year rollover, giving reasons for the planned hold-over to the following year. This information should be readily available to the local authority.

More information can be found in guidance paper 16, available at www.ascl.org.uk in the members' area, under publications/guidance papers.