School Funding in Europe

The paper below has been published by the United Kingdom's National Foundation for Educational Research.

School funding: a review of existing models in European and OECD countries

Mary Atkinson, Emily Lamont, Caroline Gulliver, Richard White, Kay Kinder

Introduction

The methods of funding schools have been an issue of debate in England since the introduction of local management of schools in the early 1990s. Since then, delegation of funding to schools has increased. More recently, changes to the system of school funding have fuelled the debate in England about how schools should be financed. Information from other countries may be valuable in informing the future direction and development of the school funding system in England. It is therefore timely to interrogate the literature for alternative models of educational funding from other countries, as well as examining the literature for these models’ strengths and weaknesses. The purpose of this research was to provide a review of existing models of school funding in European and OECD countries and the advantages and disadvantages of each model. The aims of the project were:

  • to identify the main funding models in order to understand how the money flows from the taxpayer to the Government and out to schools
  • to ascertain the role of local government in these models
  • to evaluate the pros and cons of each funding model
  • to examine the governance/management issues around school funding.

Key findings

Financial source and flow
Three models based on the main initial financial source were identified, public funding for education may originate mainly from central, regional or local sources. However, various sub-models within these models exist, depending on the transfer of resources to other government levels, which may then have some influence over the allocations schools receive. Overall, for those countries for which OECD data was available, about half were mainly centrally funded, whilst the other half were regionally or locally funded. In some OECD countries, public education funding comes solely from central government sources and, in these countries, schools receive their resources directly. Whilst this model may appear to be consistent with greater school autonomy, experience from New Zealand suggests that this may lead to an increasingly centralised funding system. Also noteworthy was that in only one country examined (Belgium), which is mainly regionally funded, there was no funding at all from central government.

In countries associated with extensive decentralisation, such as the Nordic countries, the majority of school funding comes from local authorities. In other larger countries, such as the USA, the majority of funding comes from regional government sources. Local authorities generally make use of a global allocation from the central authority and their own resources, such as taxes and other forms of income. This sometimes corresponds to only a very minor proportion of the total funds. Centrally allocated funding is most typically either earmarked for specific items of expenditures or takes the form of a block grant with which the local authority has considerable discretion.

Regardless of the actual source of finance, central and/or local authorities may be responsible for distributing funding and making decisions about the amount of resources schools receive. This gives rise to three models: central, local or shared responsibility. In the majority of European countries, responsibility for the financing of schools is shared between central and local government.

Division of responsibility
In the great majority of European countries, local authorities have an important part to play in the financing and distribution to schools of their operational, capital and sometimes staff resources. Three local authority autonomy models were identified:

  • financial autonomy (the most autonomous)
  • shared responsibility
  • autonomy in the use of allocations (the least autonomous).

The most financially autonomous countries are the UK and the Nordic countries, as they are empowered to establish the education budget for some or all of the expenditure linked to school service provision and thus exercise considerable responsibility and decision-making power as regards most expenditure on education. However, comparing the two, power is more limited in the UK than the Nordic countries, since the award of resources to schools has to comply with formal requirements established by central government, and the Government regulates the way in which decision making is shared between schools and local authorities. In contrast, the Nordic municipalities themselves decide what they will delegate to schools.

In some countries, local authorities have no role in determining school funding allocations or in the delegation of responsibilities to schools, although they may be responsible for distributing allocations amongst schools. Schools tend to have a degree of freedom in the use of allocations. Three models were identified:

  • autonomy in establishing budgets (the most autonomous)
  • autonomy in the use of allocation
  • limited autonomy (the least autonomous).

Autonomy relating to the management of operational resources and, to a lesser extent, staffing, is most widespread. The management of capital resources is less frequently a school responsibility. Where autonomy is most limited, schools receive resources from central government, which acquires goods and services whose quantity and nature it determines itself. Increasing autonomy within schools and local authorities raises a number of issues concerning accountability, monitoring, and the time, skills, knowledge and information needed to engage in effective strategic financial planning.

The allocation of funding to schools
Three models, based on the method of allocation, were identified:

  • countries may adopt a common rule (e.g. a mathematical formula) for one or more resource categories (mainly teaching staff)
  • they may have no systematic rule for this purpose
  • the rule used may be local-authority dependent.

Some countries adopt several models depending on the level of education concerned or the kind of resources being allocated. Where there is a systematic rule, this would suggest a firm basis on which to allocate resources. However, where there is no systematic rule and decisions are taken on an ad hoc basis, this may have the advantage of providing a more appropriate response to individual school circumstances. Where extensive decentralisation has occurred, municipalities act with relative autonomy when deciding the amounts allocated. They may apply a systematic rule, but there is no general rule across the whole country.

Countries may also use a limited range of basic indicators (e.g. pupil numbers) to allocate resources to schools or they may use a broad range of indicators, taking into account other factors (e.g. the geographical area). The range of indicators taken into account may be local-authority dependent. More commonly, a broad range of indicators rather than a limited number of basic indicators is used on which to base school allocations, allowing greater sensitivity and fairness, but this may also compromise simplicity and transparency.

Countries may target resources for pupils with special needs by weighting the general school allocation, through centrally defined activities or through locally proposed projects or schemes. The most commonly used model for targeting resources for special needs is through centrally defined activities, giving central government control and ensuring that resources are directed towards national policies. The main difficulty with targeting pupils with special needs through the general allocation is that these resources may not be used for the purposes intended, since schools have discretion as to how they use this funding.

Conclusions/recommendations

The literature review highlighted the dearth of available information on funding models per se and their strengths and weaknesses. Since this review focused on a broad exploration of the funding models used in many different countries, only broad recommendations can be made. However, areas for potential future research have been highlighted as follows.

  • Since moves towards the direct funding of schools through a national funding formula have been mooted in the UK, there may be value in further exploration of such systems. What can be learnt, for example, from the experience of New Zealand, where a system designed to increase autonomy for schools appears to have reverted to a more centralised system?
  • Equally, there may be value in further exploration of the funding systems in countries that are further down the local autonomy route than the UK at present. Are there, for example, lessons to be learned from a more detailed examination of the way in which Nordic countries operate their highly localised system of education funding?
  • Further work on the relationship between funding models and educational performance, taking into account value-added measures, may provide useful information. It may be that this is an area that could be examined in more depth at local authority level.
  • In addition, and in line with the recommendations made by the Audit Commission (2004), further research into the management and governance issues associated with school autonomy may prove valuable. For example, an in-depth examination of the issues of accountability and financial decision making at local authority and school level, and the management of inter-school issues, which were raised by the literature, may be valuable.

About the study

The research was carried out between April and October 2004. It considered published and unpublished research during the period 2000/04, as well as some retrospective research where appropriate, incorporating literature from Europe (the countries of the European Union) and OECD countries (11 countries). Items for inclusion in the review were identified using search criteria and keywords (e.g. school funding, financial management of schools). Numerous database and internet searches were carried out to identify relevant literature, guidance and policy documents, and sources most pertinent to the review were summarised using an agreed template to describe the research.

Illustrations are provided for nine countries, which were selected to illustrate a range of models. Five countries have been included from Europe (the UK, Ireland, the Netherlands, France and Sweden) to exemplify the wide variety of practice across countries. Similarly, given the size of the countries and the range of practices across states in the USA and Canada, two states have been included for each. New Zealand and Australia have also been depicted.

Reference

AUDIT COMMISSION (2004). Education Funding. The Implications and Effectiveness of Measures to Stabilise School Funding. London: Audit Commission.

Related Research

ATKINSON, M., LAMONT, E., WHITE, R., GULLIVER, C. and KINDER, K. (2005). School Funding: What Next? Local Authority and School Views: Final Report (LGA Research Report 4/05). Slough: NFER.

Citation of full report

ATKINSON, M., LAMONT, E., GULLIVER, C., WHITE, R. and KINDER, K. (2005). School Funding: a Review of Existing Models in European and OECD Countries (LGA Research Report 3/05). Slough: NFER.