The best thing since...

It was 25 years ago that Local Management of Schools came into being, purportedly to offer greater financial liberty. Peter Downes looks at the battles that have been won and lost, and some of the unexpected consequences, of delegated funding.

In 1982, I became head of Hinchingbrooke School in Huntingdon, Cambridgeshire just as it was entering the four-year pilot scheme then known as Local Financial Management (LFM), the forerunner to Local Management of Schools (LMS).

For the first time, in six secondary schools and one primary, we were allocated as a lump sum the money that the LEA would have earmarked for us and were given the freedom to spend it as we wished.

It was an exciting and challenging time for heads and governors as we had to learn about aspects of our school we had never given much attention to before. We all worked very hard to make it a success.

The overall aims of LFM, as we saw it at that time, were to:

• enable the governors and head of each school to make the most effective use of the resources available to them

• give each head flexibility, within an agreed budget, to manage the school

Some secondary objectives were to:

• give schools a sense of autonomy and institutional pride

• increase job satisfaction for heads in making local decisions

• develop the power of virement - moving money across traditional headings to meet the school's needs better

• improve flexibility and speed of management decisions

• provide an incentive to behave in a cost-effective way and reduce waste

• encourage schools to be entrepreneurial in extending the use of their premises and thereby increasing income which they could retain

LFM was evaluated and deemed to be a success, although, looking back, I have to admit that we did not have sufficiently detailed performance data to be able to conclude that it had made a measurable difference to the academic or social outcomes for pupils.

The perceived success attracted the attention of the Conservative government of the day and they developed it into LMS, the national model implemented from 1988 to 1990, first in the secondary sector and then in the primary.

The free market philosophy, together with the Conservative government's distrust of LEAs, brought about the next stage of even greater autonomy, the grant-maintained (GM) school.

Marketisation of education

The promise of substantial extra funding, notionally removed from the central costs of LEAs, lured many secondary schools out of the LEA system and increased the disparity of funding between schools. GM schools had not only an enhanced budget but also even greater freedom to do their own thing, including attracting more able and better-motivated pupils.

It was the beginning of the marketisation of education which, nowadays, is accepted as a given by both major parties under the banner of 'diversity and choice'.

A parallel, and perhaps consequential, trend was the Government's unease about giving schools too much freedom: with all this new-found autonomy, how could they be held to account?

The creation of the National Curriculum, followed by a national inspection regime, standardised testing and increasing public pressure for raising standards, came to dominate the educational world during the 1990s and has intensified since.

To be able to demonstrate that central government was effective in taking a lead to raise standards, new systems of funding were developed to target funds to whatever the Government wanted to say it had achieved. The Standards Fund, for example, started as a relatively modest supplementary grant but gradually became a powerful tool to channel funding to meet government priorities.

By the mid-1990s, seeking extra funding from outside sources - the 'bidding mentality' - became commonplace. At one point I calculated that there were 70 different sources of funding available to secondary schools, if they had the time and inclination to bid for them.

The change of government in 1997 brought about further developments in the way schools were funded. Under the banner of 'Fair Funding', LMS underwent a makeover, emphasising the following key words:

• Standards - they matter more than structures and schools should focus on better results

• Accountability - funding aligned to responsibilities and LEAs held to account for the spending of public money

• Self-management was reaffirmed as the way forward (former political doubts having disappeared)

• Transparency demands that school financing should be clear and comprehensible

• Opportunity - offering schools greater freedom without threat

• Equity - fair and equal treatment of all schools

• Value for money - this became the new Holy Grail of inspection although, in practice, it was difficult to establish the criteria and measure performance outputs against funding inputs

A little obfuscation

A concern that surfaced fairly soon after LMS was that very few people could understand how the Government decided what grant it gave to LEAs for schools. As heads and governors became more self-confident in their handling of money, they began to ask fundamental questions about how the amount they were given was determined.

They discovered that very similar schools - that is, ones with the same number of pupils and similar socio-economic conditions but in different LEAs - would get very different allocations. In some cases the discrepancies amounted to hundreds of thousands of pounds.

Clearly, some of this would be due to the political decisions made by local councillors and the level of local rates. But as most of the grant came from central government, why were the differences so great?

My colleagues and I on the funding committee of the then-Secondary Heads Association worked up proposals for A Better Cake - a more explicit and comprehensible funding distribution mechanism based on identified needs and costed activities. This was launched in 1995 during my year as SHA President but it was roundly rejected by Department for Education and Science (DES) officials, partly on the grounds that it would have made everything far too clear. "A little obfuscation assists the political process," we were told in a memorable moment by a departmental official.

Nevertheless the principle was supported across much of the educational community. Pressure from our association, among others, led to the Government's educational funding strategy group (EFSG), bringing together the DES, the Treasury, local authority officers and the Local Government Association, teaching unions and associations and governor and parent representatives.

Today's framework

The EFSG probed deeply into educational funding, even provoking one very senior government official to admit that he was discovering things he had never previously understood. The group's work set the framework under which schools and LEAs currently operate.

There is much greater clarity than before; funding streams have been amalgamated; the money for schools is ring-fenced (in the Dedicated Schools Grant) from the money for other local authority services for children and young people and from wider council expenditure.

Some of the groups participating in that work continue to meet regularly with Government representatives to refine and improve the funding system and ASCL is fortunate in having Lindsey Wharmby, my successor as funding consultant, to keep bringing common sense into the discussions.

The EFSG failed to achieve one of the hopes that heads and governors had for it: establishment of a national funding formula based on the identified needs of pupils and the expected level of service to be provided.

Recently there have been signs that the tide is beginning to turn against schools' financial autonomy.

While the Government backed down on its 5 per cent across-the-board claw back of school balances, LAs retain the power to take back 'excessive' balances that are not earmarked.

A more subtle curtailing of autonomy is the use of the private finance initiative (PFI) in building new schools and renovating existing ones. Many PFI contracts specify that the cleaning, maintenance and management of the buildings will be carried out on a long-term contract by external companies "so that the head and governors can concentrate on their primary objective of raising standards for pupils". In practice, PFI has generally more work for school leaders, not less.

This takes a substantial slice of the school's budget out of its control and returns us partially to pre-LMS days - except that before it was the local authority that provided those services.

Freedom shackled

On balance, LMS has brought several advantages for schools over the last 25 years. It has required heads, senior staff and governors to make decisions more carefully; it has made everybody much more aware of how to function economically; it has increased the pressure on everybody in the funding chain to be more open about finance.

But some of its intended outcomes have been subverted by contradictory developments. The overriding desire of successive governments to keep a tight grip on education has shackled the freedom of schools to use funding to innovate. It all appears to have become heavily bureaucratic and I can't help feeling, though I don't know how we could prove it, that the amount spent on red tape has not diminished.

I now view all of this not from the perspective of a head, but as a school governor and local councillor. Even from this vantage point, the original sense of institutional freedom seems to have turned into a burdensome chore, not least because the Government seems incapable of allowing the funding system to settle down.

The incessant need to produce new initiatives is a distraction for those of us who have the best interests of children at heart.

Peter Downes was head of Hinchingbrooke School, Huntingdon from 1982 to 1996 and president of ASCL from 1994-95. He is now a Cambridgeshire county councillor and a school governor.