This blog is part of our 2025 budgeting season help series, where we’re helping MAT CFOs navigate the budgeting season and ensure Smarter MAT Finance. Download our interactive budgeting checklist here.
Another year, another grant announced to cover a cost increase that isn’t baked into the National Funding Formula (NFF). Over the past few years, schools have received several grants to offset rising costs, such as National Insurance (NI) changes and pay awards. While this additional funding is always welcome, managing it within budgets can be tricky, especially when these grants are later absorbed into General Annual Grant (GAG) funding.
From 2025/26, several key grants will be rolled into the NFF and subsequently included in GAG funding. These include:
– Teachers’ Pay Additional Grant (TPAG)
– Teachers’ Pension Employer Contribution Grant (TPECG)
– Core Schools Budget Grant (CSBG)
We also anticipate a new grant to cover the employer’s NI increase from April, which will likely follow the same pattern – initially separate, then incorporated into GAG in future years.
This creates a challenge for schools and trusts: how do you budget for grants before they transition into GAG? And how should you handle future assumptions?
Making Assumptions for Future Years
One of the biggest challenges when budgeting for future years is dealing with uncertainty. Schools must make reasonable assumptions about how additional grant funding will be treated in the long run while ensuring that budgets remain flexible enough to accommodate policy changes.
Key Assumptions to Consider:
1. How long will a grant remain separate before being absorbed into GAG?
– Looking at previous grants, the transition typically takes one to three years.
– It is reasonable to assume the new NI grant will follow a similar pattern.
2. Will new grants emerge for future cost pressures?
– For example, will additional funding be provided for energy costs or further staff cost increases?
– If so, these grants may also be rolled into GAG funding over time.
3. How will the funding be allocated when it is included in GAG?
– Will it be distributed evenly across NFF factors?
– Or will it be weighted towards specific factors like AWPU or FSM?
4. What inflation and pupil number growth assumptions should be applied?
– If you budget too conservatively, you risk underfunding key areas.
– If you assume too much, you could create unrealistic expectations.
Since no-one can predict future funding decisions with certainty, schools and trusts need an approach that balances practicality, flexibility, and realism.
Method 1: Adjusting NFF Funding Factors
One approach is to attempt to distribute additional grant funding across the existing funding factors within the NFF. This means baking the grant funding into elements such as:
– Age-Weighted Pupil Unit (AWPU) – the core per-pupil funding.
– Free School Meals (FSM) and FSM Ever6 – additional funding for disadvantaged pupils.
– Other Deprivation Factors – such as Income Deprivation Affecting Children Index (IDACI).
While this method aligns with how the DfE ultimately structures funding, it comes with significant challenges:
– It’s difficult to predict how the funding will actually be allocated.
– The impact varies by school and trust, depending on their pupil characteristics.
Since this is ultimately an estimate, there’s a risk of spending too much time fine-tuning individual funding factors when the final outcome is likely to differ from your predictions.
Method 2: Budgeting for GAG and Grants Separately
A simpler and often more practical method is to budget for GAG at a high level and include grants separately in the short term. This involves:
1. Maintaining separate budget lines for GAG funding and any additional grants.
2. Applying growth factors (such as pupil numbers and inflation) to both funding streams at a top level.
3. Updating budgets when grants are absorbed into GAG, removing the separate grant line and increasing GAG accordingly.
Benefits of This Approach:
– Clear tracking of grant income before it is merged into GAG.
– Easier forecasting, as each funding stream is handled separately.
– More flexible and adaptable budgeting, allowing for quick adjustments when funding changes.
By keeping grant funding separate until it officially transitions into GAG, this method ensures that assumptions are easier to manage and avoids unnecessary complexity.
Conclusion
The fact that grants are initially separate from GAG funding makes budgeting more challenging, especially when trying to apply long-term assumptions. However, schools and trusts would rather have the funding than not, even if it requires additional effort to track and forecast effectively.
Ultimately, the key takeaway is to adopt a sensible, high-level approach when forecasting GAG funding and grants:
– Avoid overcomplicating assumptions – forecasts are estimates, not exact figures.
– Keep a flexible structure in your budget so you can adjust as funding transitions into GAG.
– Be aware of the risks of both overestimating and underestimating future funding.
Whichever method you choose – whether adjusting NFF funding factors or keeping grants separate in your budget – what matters most is maintaining financial stability and clarity in your planning. Sometimes, taking a broad, realistic view is more effective than trying to be overly precise with forecasting.
Managing These Calculations Outside Your Budgeting System?
Most budgeting systems include a GAG funding predictor, but beyond that, budget calculations are often limited. One challenge is flexing separate budget rows for additional grants that will eventually roll into GAG. The reality is that many schools and trusts are handling this manually building assumptions in spreadsheets offline and then transferring static figures into their budgeting tool.
With IMP Planner, these calculations are embedded directly within the system. Budget assumptions can be linked to key drivers such as inflation, pupil numbers, and staff FTE, ensuring that as these factors change, budgets automatically update. This means your figures always reflect the latest assumptions and are applied consistently across all schools in your MAT.
Contact us today to see how IMP can help streamline your financial planning and deliver smarter MAT finance!
