LACSEG – Does it add up?

There are many worthy reasons given why schools have opted to convert to Academy status but is it really just all about more money?

The Local Authority Central Spend Equivalent Grant or “LACSEG” is the only additional funding available to academies other than the £25,000 grant towards the cost of conversion. As the name implies this is a grant to give academies their share, based on pupil numbers, of the “top slice” of school funding which Local Authorities (LAs) retain to fund services, which are available “free” to all schools as and when they need to use them. These services are diverse and range from basic functions such as admissions and free school meals assessment, through to school advisers and the non-statutory elements of Education Welfare and behavioural support. Some are not really services at all but are central reserves for risk sharing purposes such as maternity leave or redundancies associated with LA re-structuring of schools.

The amount of LACSEG payable has declined steeply in the current financial year. Comparing the DfE academy “ready reckoners” for 2010/11 and 2011/12 shows a typical decrease of between 20% – 40%. This reduction has been caused mainly by LA cuts in central services and due to some changes to the LACSEG formula. The amount payable varies greatly between LAs but is currently an extra £230 to £380 per pupil on roll. Despite the decrease in value this is not an insignificant sum for most schools.

Our experience of early converters is that having access to “top slice” funding, and being free to spend it on the school’s priorities was one of the key motivators to achieving academy status. Schools looked at the list of services covered by LACSEG and saw little that they felt they benefited directly from or required. This was particularly true if they were well performing schools and had a catchment area with low levels of deprivation as most of the central services were not targeted at their needs. Many schools regarded gaining LACSEG as a way of protecting their budgets, albeit temporarily, in a time of real terms cuts in funding.

The large number of schools converting over the summer was further evidence of the lure of additional funding being a significant factor in the decision to convert. The DfE decided to protect LACSEG entitlement to 90% of the higher 2010/11 levels if schools became academies before 1 September 2011. This resulted in rush over the summer as schools “did the math” and decided to convert – 269 schools converted on 1st August alone.

Getting access to the LACSEG has clearly been an important factor for schools becoming academies but how important will it be to decisions to convert going forward?

As already stated the amounts of LACSEG payable have declined, although are generally still significant sums. LAs have cut central services and central reserves severely. They are now charging schools directly for more of the central services on a “pay as you go” basis. Amongst the hardest hit services are school improvement, behavioural support and Education Welfare which seem to have been cut back to their minimal statutory provisions (such as SEN assessment and prosecution of non-attendance) with everything else being charged for. At the same time, responding to the number of schools converting to academies, many LAs have taken steps to define the scope of the remaining central services they offer and package them for academies with a price attached. Faced with this situation, when considering conversion and the financial benefit of LACSEG, a school needs to ask itself the following questions:

• What central LA services covered by the LACSEG do we use?
• Which, if any, of these services do we need going forward as an academy?
• Where could we get these services?
• Are we happy with the LA service? What will they charge?
• What are the alternatives for acquiring them? – for example taking the services “in house”, using other LAs or private sector providers or obtaining services jointly with other schools or academies.

Having looked at the services required, and having budgeted for them, a school should not lose sight of the other costs of operating an academy as a free standing business. These will include budgeting for audit fees (typically £5,000 -£10,000), strengthening its finance function and operating new systems to meet academy financial reporting requirements and to improve financial governance.

A school will also need to understand the additional financial risks being taken on by becoming an academy. The most obvious risks are associated with taking on responsibility for the buildings being inherited. A school should consider commissioning a condition survey to understand the risks being taken on, and to provide evidence when negotiating with the LA regarding fixing obvious defects when agreeing the lease and Commercial Transfer Agreement as part of the conversion process.

Having looked at this financial equation many schools find they can still identify a net benefit and welcome the opportunity to have greater control of their own resources; and to use the additional LACSEG funding to respond to the school’s priorities rather than those of the LA.

Every indication is that LACSEG levels will continue to fall and there is no guarantee of future protection of current levels for existing academies. Additional money should not in any case be the sole driver for obtaining academy status. A school should have a rounded view of how to use academy freedoms to benefit both the school and the local community. Without this a school may struggle to convince stakeholders in the consultation process of the case for conversion and potentially create problems for the future.

Getting hold of the LACSEG may have been a key driver for the early converters, however, ironically it is the demise of LA services to schools that may be the catalyst for many more schools to take the plunge and leave LA control. Faced with real terms funding reductions, LAs are cutting services. Maintained schools are increasingly finding the LA services they appreciated and depended upon are no longer there. Those that remain are either substantially reduced or only available on a “pay as you go basis”. As more schools leave the LA to become academies, and in the process arguably taking a disproportionate share of funding with them, the LA central services will suffer from shortages of funding and diseconomies of scale.

The “comfort blanket” of the LA and its central services and risk sharing, which is holding many schools back from converting, will become less of a comfort. The lack of services to maintained schools may indeed be the tipping point for undecided schools to convert, taking with them any additional LACSEG available, regardless of how small, and seek to maximise the use of all resources available to the academy to secure the financial future of their school.

For more information please contact Colin Foster.