Local authority support for schools to manage their budgets: government response

This review was commissioned as part of the Estyn annual remit for 2025 to 2026, by the Cabinet Secretary for Education.

The purpose of the review was to evaluate the nature and effectiveness of the financial advice, information and training that local authorities provide to support maintained schools in strategic financial planning and managing their budget.

Estyn has not previously published a thematic review on the same theme.

Local authorities across Wales continue to demonstrate a strong commitment to supporting schools in managing increasingly complex financial environments. Schools consistently value the professionalism, responsiveness and practical guidance of finance officers, and these trusted relationships provide a strong foundation for effective day‑to‑day budget management.

The report finds that local authorities provide strong operational financial support, with schools expressing confidence in the practical advice they receive. However, the strategic depth and consistency of support vary widely. Only a minority of authorities offer well‑developed multi‑year financial planning or coherent alignment between curriculum, staffing and resource decisions. In many areas, limited capacity and fragmented cross‑service working restrict deeper strategic engagement.

Budget‑setting processes are broadly transparent, but the clarity of financial information remains inconsistent. Many schools and governing bodies struggle to understand funding formulae, particularly where these have not been reviewed for several years or where documentation is overly technical. This reduces schools’ ability to plan staffing and curriculum provision confidently.

Local authorities generally maintain constructive relationships with schools when monitoring financial risk, but the quality of early identification and intervention differs. Support often focuses on short‑term savings rather than long‑term sustainability. Compliance with targeted grants such as the PDG is strong, but evaluation of impact is limited.

Variation also exists in how authorities address equity and sustainability, including the use of deprivation indicators and approaches to longer‑term planning. Overall, stronger strategic capacity, clearer communication and more consistent system‑wide practices would better support sustained financial health in schools.

Recommendations for Welsh Government (and where relevant, Medr)

The Welsh Government should:

• Where possible, improve the timeliness and predictability of national funding, recognising wider UK fiscal and electoral constraints, including earlier publication of delegated budgets, post-16 allocations and grant notifications, supported by indicative multi-year assumption.
• Simplify and modernise the national funding system, further reducing grant fragmentation, improving flexibility for local authorities and updating deprivation and ALN indicators to ensure consistency and to better reflect current needs.
• Establish a coherent national framework for financial learning, setting clear expectations for the knowledge and skills expected of relevant local authority education, finance and school-improvement officers, headteachers, school business managers and governors.
• Invest in national data and analytical capacity to enable consistent risk profiling, benchmarking and multi-year modelling across Wales.

Welsh Government response

Welsh Government welcomes Estyn’s thematic review and its clear assessment of the strengths and challenges in the financial support provided to schools across Wales. We recognise the significant commitment shown by local authorities, finance officers and school leaders in maintaining stability during a period of substantial financial pressure. While operational financial support for schools is strong, Estyn identifies important areas where greater consistency, clarity and strategic focus are needed across Wales. The findings of this report align with our ongoing reforms to strengthen the school funding system, improve transparency and support long‑term sustainability.

We acknowledge the importance of improving the predictability of funding for schools and local authorities. The Welsh Government has committed to publish multi-year budget plans where possible, recognising the need to support our delivery partners in strengthening strategic financial planning and ensuring sustainable decision-making. Our ability to provide multi-year planning assumptions has, in the past, been constrained by the UK fiscal cycle and the timing of UK Government spending decisions as well as the electoral cycle here in Wales.

The UK Government’s spending review 2025 set out our resource budgets for three years to 2028 to 2029 and capital budget for four years to 2029 to 2030, and also committed to holding rolling, multi-year spending reviews every two years. This means that the Welsh Government can consider spending plans for the longer term.

We agree with the importance of ensuring greater transparency within the school funding system, supported by data that is comparable and consistent across all levels. We also recognise the complexity of the current funding landscape. The ongoing school funding review work has examined how the funding system can be adapted to better support policy goals and ambitions for improving the school system in Wales, reflecting the need for clearer processes and more consistent financial information as highlighted in Estyn’s findings.

Following a comprehensive review of local authority school funding formula, Welsh Government have taken forward work to improve the transparency, clarity and consistency in the system. Having recently consulted on reforms to the legislative framework for school funding, the Welsh Government laid the School Funding, Budget Statements and Outturn Statements (Wales) Regulations 2026 on 06 March, which establish the financial framework for maintained schools in Wales from 2027. The new legislation aims to improve the transparency, comparability and consistency across the system. This forms part of a wider set of reforms aimed at simplifying the funding landscape, reducing grant fragmentation and improving the fairness of allocations to schools. We will continue to work closely with local government and partners to embed these changes and to ensure that the funding system is equitable, accessible and responsive to the needs of schools and learners across Wales.

Alongside this, the Welsh Government has taken clear steps to simplify education grant funding mechanisms, streamlining processes, reducing administrative burden and ensuring stronger alignment with existing accountability and governance arrangements. As part of this work, all four pre‑16 education funding elements are being delivered to local authorities through the Local Authority Education Grant (LAEG), representing a consolidation of previously separate grant streams into a single, coherent mechanism that supports greater transparency and consistency across Wales.

We recognise the challenges highlighted in the report in relation to the strategic approach to the use of targeted grants, including the importance of aligning PDG expenditure with wider school improvement priorities. These findings reinforce the value of the ongoing PDG policy review, announced in December 2025, which is examining how future arrangements can strengthen consistency, support long‑term planning and improve the ability of schools and local authorities to understand and evidence the impact of PDG on learners.

Work is also underway through the local government settlement formula review to strengthen the transparency and robustness of the funding system. This includes updating analytical work to reflect the 2021 Census and more recent administrative data, alongside updates to deprivation‑related indicators and consideration of how formula‑based funding can be made more stable and predictable over time. This work is being developed in close consultation with local government.

The Welsh Government is also progressing work to review deprivation indicators through the ‘eligibility for free school meals (eFSM) and Beyond Research Project’, phase one commissioned research to explore the fitness of purpose of eFSM as a means of capturing socio-economic disadvantage in Wales and to determine what additional measures could be adopted or developed in order to supplement its use. Phase 2 of the project is expected to report by the end of the year. Welsh Government will use this evidence as part of its ongoing work to review and modernise approaches to identifying and responding to disadvantage, ensuring that future decisions are informed by the best available data.

We acknowledge Estyn’s finding that strategic financial support and training vary significantly across Wales. We will undertake work to deepen our understanding of the need for a coherent national framework for financial learning. In partnership with local government and key stakeholders, we will scope the knowledge and skills required across finance, education and governance roles and identify potential approaches to support the sector. However, given the forthcoming elections, any decisions on taking forward this work will be a matter for the next government.

Local authorities are responsible for funding all maintained schools and provide financial guidance to governing bodies, supporting planning aligned to curriculum and workforce requirements. Welsh Government also provides guidance to help support local authority advisory functions and governor training. Mandatory and optional governor training is delivered by local authorities, and this includes modules on financial management, scrutiny, use of evidence, and data literacy.

In October 2025, the Cabinet Secretary for Education announced a review of school governing bodies in Wales. As part of the review, there will be scope to consider what is needed and how best to strengthen and improve consistency of training, guidance, and support to governing bodies in relation to sustainable financial decision making and management amongst governing bodies in Wales.

We will also explore the need for strengthened analytical capability to support consistent risk profiling, benchmarking and multi‑year modelling. This will build on work currently underway as part of the Welsh Governments school business professionals pilot which is working with school business leaders across Wales. This includes examining options to enhance national tools and data infrastructure to support effective evidence led decision making and benchmarking.

We thank Estyn for this comprehensive review and will continue to work closely with local authorities, schools, and partners to support financial resilience and maintain high‑quality education for learners across Wales.

Decisions on any further policy changes or further action arising from these recommendations will rest with any incoming administration.

Recommendations for local authorities

• Strengthen the quality of strategic financial support by embedding structured multi-year planning, scenario modelling and clear alignment between finance, curriculum and workforce decisions.
• Strengthen strategic support for schools in deficit by aligning financial recovery planning with HR and school-improvement advice, informed by integrated analysis of financial and educational data.
• Improve co-ordination across finance, HR, ALN and school-improvement services so that schools receive coherent, timely and consistent advice and intervention.
• Provide clear, accessible and timely financial information, including plain language guidance, sequenced updates and earlier indicative budget information.
• Enhance analytical capacity, the use of data and system resilience, using tools such as dashboards, benchmarking and trend analysis to identify pressures early and inform intervention.
• Improve the impact of financial learning, offering role-specific, strategic training and evaluating how it strengthens decision-making.

Welsh Government response

We support Estyn’s recommendations for local authorities to strengthen strategic financial planning, develop more integrated working across finance, HR, ALN and school‑improvement services, and provide clearer, more accessible financial information to schools and governing bodies. We agree that enhanced analytical capacity, consistent use of data and improved financial learning will further support schools to make well‑informed decisions.

We also welcome the emphasis on equity and long‑term sustainability. The Welsh Government will continue working closely with local authorities as they imbed regulation amendments into their formulae, improve support for schools in financial difficulty and approaches that align financial planning with curriculum and workforce needs.

We thank local authorities for their continued dedication and will continue working closely with the sector to support improvements to ensure all schools receive coherent, strategic and effective support.

Recommendations for schools and governing bodies

• Embed medium-term, curriculum-led financial planning, ensuring that three-year plans align with curriculum intentions and workforce requirements within budgets.
• Strengthen financial literacy and strategic challenge, with leaders and governors engaging in appropriate training and scrutinising assumptions effectively.
• Use financial data and evaluation to inform decisions, drawing on benchmarking, modelling and evidence of impact when planning and reviewing expenditure.
• Engage proactively with local authority support and consultation, including early escalation of risks and active participation in budget-forum discussions.

The full report can be accessed on Estyn’s website, and was published on 26 March 2026.