Can local authorities charge schools and academies for exclusions?

Looking at the increasing trend for local authorities to charge for exclusions and the legality of this under the relevant funding regulations.

In our work with schools and academies, we have seen an increasing number of local authorities seeking to charge schools and academies where a pupil is permanently excluded and moves to another school/academy or a pupil referral unit. These charges are often presented as part and parcel of the allocation of funding which is required to follow the pupil when they are excluded; equally, they are presented as an additional charge (or even as a fine). The rationale often given by local authorities for these charges is that the money is needed to fund local authority-run pupil referral units. Given the climate of austerity and financial constraint, this approach is understandable. However, it is not one which local authorities are permitted to take under the legal framework which governs school funding and exclusions.

The Relevant Legal Frameworks for Exclusions:

The Legal Framework for Maintained Schools

The legal framework for maintained schools is set by Section 47 of the School Standards and Framework Act 1998 (the "SSFA") and Regulation 27 of the School and Early Years Finance (England) (No 2) Regulations 2018 (the "Funding Regulations"), where Regulation 27 requires a local authority to make an adjustment to the delegated budget for a maintained mainstream school where a pupil is permanently excluded from that school and moves to another maintained school.

The Funding Regulations provide the relevant statutory formula which determines the amount by which the delegated budget is adjusted.  

However, the Funding Regulations do not permit a local authority to levy any additional charge on a maintained school where a pupil is excluded from that school. The principle is that that the pupil's relevant funding, or more precisely a balance of the funding for the remaining academic year, follows the pupil.

The Legal Framework for Academies

The legal framework for academies is set by their funding agreement which provides that mainstream academies and special academies which admit pupils without statements of special educational needs must, if asked by a local authority, enter into an agreement (the "Exclusion Agreement") which has the effect that, where:

• the academy admits a pupil permanently excluded from a maintained school or from an academy with whom the local authority has a similar agreement; or
• the academy permanently excludes a pupil;

the arrangements for payment will be the same as if the academy were a maintained school under the Funding Regulations. In other words, the budget for that academy will be adjusted so the balance of funding follows the permanently excluded pupil.

The amount by which the budget is adjusted should accordingly follow the statutory formula provided under the Funding Regulations.

Neither the funding agreement nor the Funding Regulations permit a local authority to levy any additional charge on an academy where a pupil is excluded from that academy. In fact, the funding agreement makes clear that the general annual grant is paid to the academy trust 'towards the normal running costs or capital expenditure' of an academy. An academy trust is therefore not permitted to pay its general annual grant towards the operating costs of a local authority-run pupil referral unit and/or for any other provision for a pupil who is not on their roll.

A breach of the funding agreement may lead to a Financial Notice to Improve being issued by the Education and Skills Funding Agency ("ESFA") which, if not complied with, would entitle the ESFA to terminate the funding agreement.

A further point on the Exclusion Agreement

As noted above, an academy trust is required (by its funding agreement) to enter into an Exclusion Agreement if invited to do so by the local authority.  We have seen situations where local authorities have insisted on a particular form of agreement, which either replaces the Funding Regulations formula or includes an obligation to make additional payments, i.e. over and above the payments required by the Funding Regulations. 

A local authority cannot insist that the academy agrees such provisions.  An academy is not required to agree whatever the local authority presents (even if the agreement is in the same form that has been signed by other academies); only one which complies with the Funding Regulations.  However, should the academy sign up then, regardless of the position under their funding agreement and the Funding Regulations, the academy becomes contractually obliged to pay the additional charges, i.e. the academy has agreed to the levy.

In some of those agreements, we have seen the local authority give itself the power to determine what the level of payment from the academy will be in the future, bypassing the Funding Regulations completely.

There is a separate point whether the individual who signed the Exclusion Agreement on behalf of the academy may have acted in breach of authority, breached the academy's scheme of financial delegation or be subject to some other charge of misconduct.

What about the schools forum?

When challenged on the levying of charges to schools and academies for permanent exclusions, local authorities may suggest that the charges are required to fund local authority-run pupil referral units, have been approved by the schools forum and are being implemented on this basis.

Section 47A of the SSFA states that the purpose of a schools forum is to advise the local authority. Regulation 10(1)(b) of the Schools Forums (England) Regulations 2012 (the "Schools Forums Regulations") also provides that a local authority must consult the schools forum annually in respect of the local authority's functions relating to the schools budget including arrangements for paying top-up funding to pupil referral units and other providers of alternative provision.

Neither the SSFA nor the Schools Forums Regulations provide that decisions of a schools forum are binding on a local authority. The fact that a schools forum confirms it is content with charges proposed by a local authority during consultation does not therefore mean that the charges are approved and are to be applied or that they are a legitimate activity by the local authority. Certainly, an agreement with the Schools Forum about what charges can be made relating to an excluded pupil can't override the Funding Regulations.

What happens on a review of a permanent exclusion?

Whilst local authorities are not permitted to change the statutory calculation required by the Funding Regulations, the School Discipline (Pupil Exclusions and Reviews) (England) Regulations 2012 do permit a review panel to order

• an academy trust to pay to the local authority or
• a local authority to adjust a maintained school's budget by

the sum of £4,000 if, following a decision by the panel to quash the original decision to exclude, the academy trust or the governing body (in the case of a maintained school) reconsiders the exclusion and decides not to reinstate the pupil or fails to reconsider the exclusion. These are the only circumstances where a charge may be levied in relation to exclusion.

In summary

The increasing trend for local authorities to levy charges on schools and academies for permanent exclusions, whether to fund local authority-run pupil referral units or otherwise, is not permitted by the Funding Regulations or by an academy trust's funding agreement, even where the Schools Forum is content with the charges proposed by the local authority.  

Local authorities need to come clean about how and why these charges are made and not mislead schools and academies about the power of the local authority to raise such charges, if not under the Funding Regulations.

While schools and academies may understandably feel morally obliged to pay the charge to ensure there is suitable alternative provision for excluded pupils, there are therefore clear grounds why the charges need not be paid, particularly in the current climate of austerity and financial constraint which affects schools and academies, as well as local authorities.

However, schools and academies, and the Schools Forum, must also recognise that they do have the right to challenge any perceived inefficiencies in the delivery of alternative local authority provision which may be one cause of the increase in levies the schools and academies are called upon to pay.