Guidance

DSG: conditions of grant 2023 to 2024

Updated 18 March 2024

Applies to England

1. Summary

These conditions of grant have been prepared by the Education and Skills Funding Agency (ESFA) to assist local authorities in the operation of the dedicated schools grant (DSG) which is payable to local authorities under section 14 of the Education Act 2002. The conditions of grant have been updated for the 2023 to 2024 financial year.

1.1 Expiry or review date

This guidance will be reviewed in December 2023.

1.2 Guidance amendment: August 2023

We have made an addition at 1.5 below, in respect of the early years supplementary grant (EYSG) 2023 to 2024 funding that was announced in July 2023.

1.3 Who is this publication for?

This guidance is for local authorities.

1.4 Important points

These conditions of grant have been revised for the 2023 to 2024 financial year to update the dates and the relevant website references, to amend conditions of grant relating to DSG deficits, and to add further grant conditions relating to the addition to DSG for high needs announced in the Autumn Statement 2022.

1.5 Additional condition of grant

Funding designated as part of the early years block of the DSG may be used for the purposes of the EYSG if the local authority’s EYSG allocation is insufficient to meet those purposes.

2. Terms on which the grant is paid

The formal terms of grant given by the Secretary of State under section 16 of the Education Act 2002 state that:

1: We will pay the grant as a ring-fenced specific grant and it must be used in support of the schools budget as defined in the School and Early Years Finance (England) Regulations 2023. It can be used for no other purpose

2: At the end of the 2023 to 2024 financial year the Chief Finance Officer (CFO) of the local authority is required to append an additional note to the statement of accounts confirming the deployment of the DSG in support of the schools budget as required by the Accounts and Audit (England) Regulations 2015. The CFO is also required to confirm the final deployment of the DSG in support of the schools budget

3: The Secretary of State reserves the right to recover the grant where there is evidence that a local authority has used it for any purpose other than to support the schools budget or has failed to comply with any other condition of grant

3. Grant allocation and payment

3.1 Purpose of the grant

The grant is paid in support of the local authority’s schools budget. It is the main source of income for the schools budget.

Local authorities are responsible for determining the split of the grant between central expenditure and the individual schools budget (ISB) in conjunction with local schools forums. Local authorities are responsible for allocating the ISB to individual schools in accordance with the local schools’ funding formula.

Local authorities can add to the schools budget from local sources of income, subject to the provisions below.

3.2 Allocation of grant to local authorities

The methodology underlying the allocation of DSG to individual local authorities can be found in the DSG technical note.

3.3 Payment arrangements

We will pay the grant to local authorities in 13 instalments on the dates set out in annex A. Initial payments will be based on the total DSG allocation notified in December 2022 minus the total share of the ISB recouped for academies, as submitted by each local authority on their authority proforma tool (APT) in January 2023 and deductions for high needs places and business rates.

The basic method for calculating recoupment will be to take the ISB share calculated by the local authority from the APT in January 2023 excluding business rates. We plan to publish detailed recoupment guidance for 2023 to 2024 in early 2023.

We will make recoupment adjustments throughout 2023 to 2024 as further schools convert to academies. These will be based on the converted school’s share of ISB, excluding business rates, and will be proportional to the period of the financial year for which the school is an academy.

3.4 Allocation of grant to schools by local authorities

Local authorities retain responsibility for setting the overall level of their ISB and for determining schools’ budget shares, subject to the School and Early Years Finance (England) Regulations 2023.

Each local authority’s scheme for financing schools must contain a provision which sets out the frequency with which the budget share will be made available to governing bodies of maintained schools.

3.5 Transfer of funds between DSG funding blocks

The following conditions apply to the transfer of funds between the 4 DSG funding blocks:

1: Subject to the paragraphs below, local authorities must not allocate money designated in the DSG settlement tables as schools block to items of spend other than budget shares for mainstream primary and secondary schools (excluding funding for nursery classes and for places reserved for pupils with special educational needs), or money retained centrally for growth in schools, as defined in Schedule 2 to the School and Early Years Finance (England) Regulations 2021.

2: Local authorities may allocate up to 0.5% of money designated as schools block to other items with the consent of the schools forum.

3: Local authorities must consult with all local maintained schools and academies if they propose to allocate schools block money to other items. The schools forum must take into account the outcome of that consultation before deciding whether to give their consent.

4: The local authority can apply to the Secretary of State for permission to allocate schools block money to other items if they do not secure the consent of the schools forum as above, or if they wish to allocate more of the schools block money to other items than would be permitted under paragraph 3.5.2. (in which case they must still obtain and report the views of the schools forum). In the case of the Secretary of State giving such permission, this may be for all or part of the sum requested by the local authority and may be given subject to conditions.

3.6 Determination of the local schools funding formula and funding for high needs pupils

The following conditions apply in relation to setting the local funding formula, and the funding for high needs pupils:

1: The local authority must maintain a single formula for funding both maintained schools and academies in its area

2: In constructing the formula, the local authority must take account of the circumstances of all academies and maintained schools in its area

3: The formula must allocate at least 80% of the delegated schools block funding through pupil-led factors (basic entitlement, deprivation, prior attainment, looked after children, English as an additional language, pupil mobility, minimum level of per-pupil funding for primary and secondary schools, and differential salaries of teachers near London)

4: When spending DSG centrally on duties relating to all schools (as set out in Schedule 2 to the School and Early Years Finance (England) Regulations 2023), the local authority must treat maintained schools, including voluntary aided schools and foundation schools, and academies on an equivalent basis

Schools such as voluntary aided schools, foundation schools, and academies, cannot therefore be charged for services that are provided free of charge to community and voluntary controlled schools, and paid for out of the centrally held DSG.

This does not include funding that has been retained centrally from maintained school budgets only (as set out in Schedule 2 to the School and Early Years Finance (England) Regulations 2023), where some statutory duties relate to community and voluntary controlled schools only.

However, in these situations authorities should not charge voluntary aided and foundation schools if requested to provide services to these schools and where there is no charge to community and voluntary controlled schools for the same service.

5: The local authority must treat children and young people with high needs on a fair and equivalent basis when making arrangements for their funding, regardless of whether they are placed in maintained schools, academies and free schools, providers in the further education sector, or non-maintained and independent provision. (in referring to all these types of schools and providers in the subsequent paragraphs of this section, the term “school or college” is used).

6: The local authority, in deciding on top-up funding rates for the pupils to be placed in its maintained special schools, special academies it previously maintained and special free schools located in its area, must increase the budget of any special school such that it would be at least 3% higher in financial year 2023 to 2024 than in financial year 2021 to 2022, if all the pupils in the special school were placed by the local authority, and the number and type of places remained the same in the two financial years 2021 to 2022 and 2023 to 2024. The local authority can apply to the Secretary of State to set a lower percentage instead.

7: The local authority must pass on to maintained special schools, special academies and free schools, pupil referral units, alternative provision (AP) academies and free schools, and hospital schools and academies:

• the 12 month equivalent of teachers’ pay grant and teachers’ pension employer contribution grant allocated per place by the local authority for the period September 2020 to March 2021, using the place numbers funded by the local authority in the period April 2022 to March 2023, subject to a minimum of 40 places per school

• the 12 month equivalent of the teachers pensions supplementary fund allocated by the local authority to those settings for the period September 2020 to March 2021

This additional high needs funding is separate from both place and top-up funding, and must not result in a reduction to the number of places for which £10,000 per place is allocated to a school, or the amount per place allocated to a hospital school, or to the top-up funding in respect of individual pupils allocated to a special school or academy; and must be disregarded in applying the protection for special schools set out in the paragraph above. The local authority can apply to the Secretary of State to waive this requirement.

8: When a pupil who requires top-up funding has already been placed in a school or college and is in receipt of top-up funding from the local authority at 31 March 2023, the local authority must continue the agreement with the school or college to make top-up payments until the pupil has left the school or college, or the agreement is replaced by another. The local authority must likewise enter into such an agreement when a pupil is placed by the local authority in a school or college at a later date.

9: The local authority must make high needs top-up payments in a timely fashion on a basis agreed with the school or college. These must be monthly unless otherwise agreed.

10: The Secretary of State reserves the right to impose more specific conditions of grant on individual local authorities in relation to the use of DSG for top-up funding for pupils and students with high needs, where he believes that the actions of the local authority are unreasonable. This is most likely to occur as a result of a failure to agree and pay top-up in a timely manner, where a pupil or student has already been placed by the local authority in a school or college.

3.7 Allocations to academies

In some circumstances local authorities need to make direct payments to academies. In the 2023 to 2024 financial year these will include:

• top-up funding for pupils with high needs

• funding calculated under the early years single funding formula

• payments for pupils admitted who have been excluded from other schools

• any allocations from the local authority’s growth fund or falling rolls fund

4. Use of grant monies

Local authorities have continuing responsibility for financial regularity in maintained schools. Section 151 of the Local Government Act 1972 requires the local authority to appoint an officer responsible for making the necessary arrangements for local financial and management controls; this person is usually known as the Chief Finance Officer (CFO). Under these arrangements the CFO will need to ensure that the grant monies are spent on the purpose for which they are intended.

In particular, the CFO will need to ensure that expenditure charged to the schools budget falls within the definitions set out in regulations [6 and 7] of the School and Early Years Finance (England) Regulations 2023. In August 2024, ESFA will provide local authorities with an outturn assurance statement for the CFO to sign to certify the actual deployment of the DSG.

Under the Accounts and Audit (England) Regulations 2015 a local authority is required to undertake an annual review of its system of internal control. It is also required to report, with its annual accounts, on its arrangements in an annual governance statement (AGS) which must be prepared in accordance with proper practices as published by CIPFA. In undertaking such reviews and preparing their AGS, local authorities should consider the arrangements for allocating DSG/budget shares to schools including procedures for ensuring the robustness of pupil data. Local authorities should be able to provide evidence that demonstrates that they have effective procedures for forecasting pupil numbers at school level, if required to do so by their own internal auditors or external auditors.

5. Accounting

5.1 Year end procedures

Local authorities are responsible for ensuring that the DSG is deployed in support of the schools budget. This includes both DSG funding allocated to central expenditure within the schools budget and funding for the ISB.

In principle, all DSG funding must be allocated to the schools budget in the year in which it is paid to the local authority by the department. Where the final adjusted DSG payment for the year exceeds the local authority’s original budget provision, the local authority, after consulting the schools forum, may carry the additional grant forward to the following financial year.

Grant allocated through the ISB will automatically count as expenditure in support of the schools budget and will have to be allocated to budget shares in the year in question. Where actual schools’ expenditure exceeds the ISB this will normally be financed by a net reduction in schools’ reserves. Conversely, where actual schools’ expenditure falls short of the ISB, this will be explained by a net increase in schools’ reserves.

At the end of the financial year the central expenditure element of the schools budget may be under or overspent. If there is an underspend in respect of central expenditure at local authority level this should be separately identified within the associated notes to the accounts. The underspend must be carried forward to support the schools budget in future years, including any of the budget that is moved into earmarked reserves.

The way in which local authorities account for DSG deficits has been altered by the Local Authorities (Capital Finance and Accounting) (England) (Amendment) Regulations 2020 (SI 2020 No 1212), made by what is now the Department for Levelling Up, Housing and Communities (DLUHC),which require DSG deficits to be held in a separate reserve in local authorities’ accounts. This is now the accounting treatment that local authorities must follow while those regulations are in force. DLUHC have announced that they are extending these regulations up to and including the accounts for 2025 to 2026.

However, the way in which local authorities should plan their management of DSG and report to DfE remains governed by the School and Early Years Finance (England) Regulations 2023.

Under Schedule 2 to the School and Early Years Finance (England) Regulations 2022, local authorities are required to carry forward overspends to their schools budget either in the immediately following year or the year after. They can apply to the Secretary of State to disregard this requirement. In the case of the Secretary of State giving such permission, this may be for all or part of the sum requested by a local authority, and permission may be given subject to conditions.

The impact of these provisions means that a local authority with a DSG deficit from the previous year must either:

• carry the whole of the deficit forward to be dealt with in the schools budget for the new financial year

• carry part of it forward into the new financial year and the rest of it into the following financial year

• carry all of it into the following financial year

• apply to the Secretary of State under the regulations for authorisation to disregard the requirements in Schedule 2 relating to deficits if it wishes to fund any part of the deficit from a source other than the DSG.

The Accounts and Audit (England) Regulations 2015 incorporate a requirement for a note to the statement of accounts confirming actual deployment of the DSG. The guidance on this and illustrative table have been amended so that the note will show both the formal accounting position (under the DLUHC regulations) and the total surplus or deficit for the purpose of the DfE regulations.

5.2 Further conditions relating to DSG overspends and deficits

Any local authority that has an overall deficit on its DSG account at the end of the 2022 to 2023 financial year, or whose DSG surplus has substantially reduced during the year, must co-operate with the Department for Education in handling that situation. In particular, the authority must:

• provide information as and when requested by the department about its plans for managing its DSG account in the 2023 to 2024 financial year and subsequently

• provide information as and when requested by the department about pressures and potential savings on its high needs budget

• meet with officials of the department as and when they request to discuss the authority’s plans and financial situation

• keep the schools forum regularly updated about the authority’s DSG account and plans for handling it, including high needs pressures and potential savings

The Secretary of State reserves the right to impose more specific conditions of grant on individual local authorities that have an overall deficit on their DSG account, where he believes that they are not taking sufficient action to address the situation.

5.3 Further conditions relating to additional allocations of DSG

If the Secretary of State provides an additional allocation of DSG to a local authority, he may attach further conditions to that allocation beyond those set out in this document. See the appendix to this document setting out further conditions in relation to the addition to the DSG for high needs arising from the Autumn Statement 2022.

5.4 Repayment of DSG

The Secretary of State reserves the right to recover the grant where there is evidence that a local authority has used it for any purpose other than to support the schools budget.

The Secretary of State may require the local authority to repay as much of the DSG as considered reasonable in the following circumstances:

• the local authority fails to comply with any of the conditions of the grant

• the local authority fails to use the DSG for the purposes for which it is given

• the external auditor indicates that they are not satisfied with the treatment of DSG in the local authority’s accounts

5.5 Local authority reporting requirements

Local authorities are not required to produce separate final accounts for schools’ expenditure or for the use of the grant.

The grant received from DfE and its deployment between central expenditure and the ISB should be clearly identifiable within the additional note to the local authority’s statement of accounts to demonstrate compliance with the limit on central items. Local authorities should refer to CIPFA’s statement of recommended practice (SORP) guidance note for practitioners.

At outturn stage the CFO is required via a signed statement to confirm final deployment of the DSG in support of the schools budget and in accordance with grant conditions.

5.6 External audit arrangements

Appointed auditors are responsible for auditing the financial statements of each local authority and for reaching a conclusion on the local authority’s overall arrangements for securing economy, efficiency and effectiveness in the use of resources. The deployment of, and accounting for, DSG in support of the schools budget, and the arrangements for securing economy, efficiency and effectiveness in DSG and schools’ expenditure fall within the scope of the work that appointed auditors may plan to carry out, having regard to the risk of material error in the local authority’s accounts and significance to overall arrangements for securing value for money.

Local authorities should maintain proper arrangements to ensure value for money. They should also provide assurance to DfE that the grant is being deployed in accordance with grant conditions, so that DfE can provide appropriate assurance to Parliament.

DfE is subject to external audit by the National Audit Office (NAO) to support Parliament’s need for assurance about DfE’s grant funding to schools. From time to time the NAO may need to undertake audit work, for example on local authorities’ disbursement and monitoring of the grant, and its deployment in maintained schools.

6. Annex A: DSG payment dates for financial year 2023 to 2024

Instalments	Payment Date
1	05 April 2023
2	04 May 2023
3	05 June 2023
4	05 July 2023
5	03 August 2023
6	05 September 2023
7	04 October 2023
8	03 November 2023
9	05 December 2023
10	04 January 2024
11	05 February 2024
12	05 March 2024
13	22 March 2024

7. Annex B: Further conditions of grant for extra high needs funding in 2023 to 2024

Under condition 5.3 of the DSG conditions of grant for 2023 to 2024, further conditions of grant are attached to the allocations made to local authorities for high needs from the additional funding for the schools budget announced at the Autumn Statement 2022. These conditions of grant are as follows.

1. Local authorities must use part of this funding to make allocations to all those special schools and pupil referral units (PRUs) that they maintain, all special and alternative provision (AP) academies that they previously maintained, and all special and AP academies and free schools that were not previously maintained but are located in their area. These are referred to in these conditions of grant as “the schools”. This definition includes maintained hospital schools and medical PRUs, and their academy equivalents.

2. Local authorities must separately identify these allocations for the schools and pay them directly to the school, or in the case of academies and free schools to the academy trust. The payments must be made in full during the financial year 2023 to 2024.

3. Money paid through these allocations does not count towards the requirements at conditions 3.6.6 (minimum funding guarantee for special schools) and 3.6.7 (high needs equivalent of the teachers’ pay grant and teachers’ pension employer contribution grant) but is to be paid in addition to those requirements.

4. Local authorities must base the allocations on the number of places that they funded at the school in the academic year 2022 to 2023, unless a revised number of places has been agreed with the school for the academic year 2023 to 2024, in which case they may use that number to calculate seven twelfths of the allocation.

5. Local authorities must make an allocation that is equivalent to 3.4% of the estimated total grant funding of the school, calculated as in the paragraphs below.

6. For maintained special schools, special academies and special free schools, local authorities must make this calculation through estimating the total funding of each school by multiplying the number of places set out in condition 4 above by £10,000 (or, in the case of hospital schools, the funding per place that the local authority gave in the financial year 2022 to 2023) plus the average top-up funding per pupil that the local authority gave the school in the financial year 2022 to 2023.

7. For PRUs, AP academies and AP free schools, local authorities must take the total grant funding for the school from the latest Academy Accounts Return (AAR) or Consistent Financial Reporting (CFR) return published on the Schools Financial Benchmarking (SFB) website. ESFA will publish a table covering all AP institutions on the SFB site for this purpose. For new schools that have no AAR or CFR return, Local authorities must estimate the expected total grant funding.

8. Local authorities may increase the number of places used for calculating the allocation, or their estimate of the total funding of the school, where they believe it will be significantly higher in 2023 to 2024, such as for new and growing schools or where Covid affected grant income on the AAR or CFR.

9. Local authorities may reduce the number of places used for calculating the allocation, or their estimate of the total funding of the school, where they believe it does not accurately represent the school’s real position, with consent of the Secretary of State.

10. Local authorities must consult each school before finalising its allocation.