The School Funding, Budget Statements and Outturn Statements (Wales) Regulations 2026: integrated impact assessment

Background

For many years, concerns have been raised about the level of school spending per pupil, differences across local authorities and between schools and whether funding levels are sufficient to meet the needs of pupils. 

This led to a number of reports and recommendations on how to improve the system, such as the Children, Young People and Education Committee’s School Funding in Wales report, the Review of School Spending in Wales and The Review of School Funding Formula.

Decisions on the level of funding available to schools and to other services are made by each local authority, as part of their overall budget and council tax setting. The School Funding (Wales) Regulations 2010 (“the 2010 Regulations”) place duties on local authorities to allocate, determine and notify schools and Welsh Ministers of their school budgets. They detail classes or description of expenditure for the purposes of the budgets set out in the 2010 Regulations. They also require that 70% of a local authority’s Individual Schools Budget is pupil-led and outline what is required in a local authority’s financial scheme, publishing arrangements and approval of revisions.

The Education (Budget Statements) (Wales) Regulations 2002 (“the 2002 Regulations”) prescribe the form, information and manner of publication of budget statements provided by the local authority. These statements are for budgeted spending for the upcoming financial year. 

The Education (Outturn Statements) (Wales) Regulations 2003 (“the 2003 Regulations”) specify the form, information and manner of publication of budget outturn statements provided by the local authority. These statements are for actual spending and reserves.

Proposed Action

Changes are proposed to provide greater transparency, comparability and consistency in the school funding system, to allow informed budget discussions at all levels. They will also ensure they reflect current policy and legislation and update terminology accordingly.

We propose to revoke the 2010 Regulations, the 2002 Regulations and the 2003 Regulations and make new provision in a new single set of regulations being the School Funding, Budget Statements and Outturn Statements (Wales) Regulations 2026 (“the 2026 Regulations”). The changes in the 2026 Regulations include:

• The ability for federated schools to have a single federated budget.
• Local authorities’ funding formulae required to take into account an amount for each pupil in respect of a pupil’s eligibility for free school meals or a pupil’s residency in relation to the Welsh Index of Multiple Deprivation (WIMD). 
• Surplus school budget threshold values to be replaced with a percentage of 5% of the school balance.
• Local authority financial schemes must include a statement setting out how the local authority will monitor the use by a governing body of the surplus included in any surplus statement.
• Local authority financial schemes must contain a provision requiring a governing body to submit a deficit recovery plan to their local authority for approval and include the process in relation to a draft deficit recovery plan.
• Local authorities will be required to publish their financial schemes and their funding formulae on their website. 
• Local authority financial schemes must detail the areas of their school budget which are not delegated to schools, but are centrally retained by the local authority to spend on schools. 
• Amend date for return of budget outturn statements to 31 July. 
• Amend the budget statement to include Core Delegation, Discretionary Delegation and Additional Learning Needs (ALN) Delegations (which is further split into ALN Core Delegation and ALN Discretionary Delegation) columns and columns to record the estimated school’s budget share for the following two funding periods. 
• Combine Parts 2 and 3 of the budget statement as required by Schedules 2 and 3 of the 2002 Regulations and require that this is completed for each of the different delegated budget types for each school and type of school. 
• Move non-domestic rates (NDR) from the schools budget to the non-schools education budget. 
• The limit of 0.2% applied to licence fees or subscriptions in Schedule 2 to the 2010 Regulations, which lists what may be included in the schools budget (expenditure which may be delegated to schools or centrally retained by local authorities to spend on schools) will be removed. 
• Schedule 3 to the 2010 Regulations, which sets out additional factors or criteria which may be taken into account in a local authority funding formula, will be removed. Therefore, local authorities will be able to take into account in their formula any factor or criteria they feel appropriately relates to expenditure under the definition of the schools budget. Examples of appropriate factors and criteria will be contained in guidance.

Application of the Well-being of Future Generations (Wales) Act 2015 Five Ways of Working to the Proposed Actions

Long term

The 2026 Regulations will increase transparency, consistency and comparability, which will allow for informed budget discussions in the longer term. Also, to improve transparency and to improve the ability of local authorities to support schools to manage their budgets in the future, local authorities will be required to outline in their financial schemes the process the local authority and schools will follow around surplus and deficit budgets.

Prevention

The 2026 Regulations include provisions aiming to increase transparency and comparability, stakeholders will be better able to understand their budgets and factors which drive them. This will allow for informed budget discussions at all levels and should allow for conversations around appropriate school budget levels for the benefit of all learners. 

The surplus threshold is changed to a percentage, rather than a value. This means that the surplus threshold is relative to a school’s budget. This will prevent future issues if inflation impacts on the values in the future.

Integration

The 2026 Regulations include provisions which involve a joined-up approach with local authorities remaining responsible for decisions around school funding, as part of their overall budget and council tax setting.

The aim of amendments is to ensure a more equitable approach to school funding across schools whilst maintaining the principles of local decision making and democratic accountability. They also aim to increase transparency, consistency and comparability, which will allow for informed budget discussions at all levels, meaning local authorities are able to make informed decisions.

Collaboration and involvement

A Working Group with representatives from local authorities has been established by Welsh Government to discuss and input into potential changes. We have engaged with the group to seek their view based on their experience working in school funding. Proposals have been broadly welcomed by this group. 

Welsh Government officials also meet regularly with the Association of Directors of Education (ADEW) Finance sub-group which has representation from all local authorities in Wales. We have engaged with the group to seek their views on the issues they face around school funding. 

Engagement has taken place on recommendations on school funding as a result of the Review of School Funding Formula with groups such as the Association of Directors of Education in Wales, Society of Welsh Treasurers and Schools Social Partnership Forum. The Review of School Funding Formula also relied on engagement with local authorities to inform the review findings and recommendations, which informed the changes given legal effect in the 2026 Regulations. 

A 10 week consultation took place to gain stakeholder views on the proposals between 24 June and 2 September 2025. The consultation was highlighted in Dysg and officials met with unions, local government Directors of Education, Treasurers, and representatives of the Distribution Sub-Group, to brief and update them on the proposed changes in the 2026 Regulations being presented in the consultation. We considered all comments in response to the consultation and took them into account when considering whether to proceed with proposed legislative amendments.

Once the 2026 Regulations are made, local authorities will need to ensure they comply with those and so, there will be a period of time for local authorities to amend their processes before the 2026 Regulations come into force. For example, it will allow local authorities time to consult with schools and Schools Forum on any changes to funding formulae. We propose that if 2026 Regulations are laid in early March 2026, all local authorities should then be required to be compliant with the 2026 Regulations for the 2027 to 2028 financial year.

We anticipate that although there will be increased administration initially for local authorities to amend processes, some aspects of the changes will create less administrative burden for local authorities. For example, merging parts 2 and 3 of the budget statement form of the 2002 Regulations, so that only 1 return is necessary under the 2026 Regulations.

Alongside the 2026 Regulations, Welsh Government will provide guidance to aid understanding and improve consistency. This has been requested by stakeholders.

Mechanism

The 2026 Regulations will need to be laid in accordance with the Senedd annulment procedure. A Explalanatory Memorandum, including Regulatory Impact Assessment will accompany the 2026 Regulations.

How have people most likely to be affected by the proposal been involved in developing it

A Working Group with representatives from local authorities has been established by Welsh Government to discuss and input into potential changes. We have engaged with the group to seek their view based on their experience working in school funding.

Welsh Government officials also meet regularly with the Association of Directors of Education (ADEW) Finance sub-group which has representation from all local authorities in Wales. We have engaged with the group to seek their views on the issues they face around school funding.

All local authorities were involved in the recent Review of School Funding Formula, which involved detailed discussions with most local authorities to understand their processes and methodologies. Engagement has taken place on recommendations on school funding as a result of the Review of School Funding Formula with groups such as ADEW, Society of Welsh Treasurers and Schools Social Partnership Forum.

In 2022 we also undertook an informal questionnaire with local authorities and trade unions to gain initial views on potential changes to help inform early thinking on proposed amendments.

A 10 week consultation took place to gain stakeholder views on the proposals between 24 June and 2 September 2025. The consultation was highlighted in Dysg and officials met with unions, local government Directors of Education, Treasurers, and representatives of the Distribution Sub-Group, to brief and update them on the proposed changes being presented in the consultation.

What are the most significant impacts, positive and negative

The most significant impacts from the 2026 Regulations will be the increased transparency, consistency and comparability allowing stakeholders to have informed budget discussions at all levels. Amendments to increase transparency in the system will increase understanding for stakeholders across the system. The increased transparency in the system will allow for discussion around different budget choices and impacts. 

If as a result of the 2026 Regulations, a local authority decides it needs to make amendments to its local authority school funding formula, this may lead to changes in individual school budgets. This could result in increased funding for individual schools or equally result in less funding for individual schools, which could lead to reduced resources. However, the aim of amendments is to ensure a more equitable approach to school funding across schools to ensure funding and resources are allocated fairly and transparently.

The proposals do not have effect on the overall levels of funding available, only on the formula used to distribute the available funding to schools. Decisions on the level of funding available to schools will continue to be made by each authority and they will continue to be responsible for ensuring the availability of suitable education provision in their area, for the benefit of all learners. Schools will continue to have the opportunity to influence their local authority’s decisions on school budgets by engaging in dialogue with authorities including through their budget forum. Once local authorities set budgets for their schools, management of those budgets is the responsibility of the school’s governing body. It is also possible that fluctuations to individual school budgets may be due to increased compliance with the 2010 Regulations where perhaps previously there had been misinterpretations.

There will be an impact on local authorities as they will need to review and amend their processes to meet the requirements as set out in the 2026 Regulations, including required consultation with schools and schools funding forum on any changes to funding formulae. There may be some work for schools to engage with consultations and changes, but this isn’t a new requirement and will allow schools to input into proposals.

Although there will be work to amend processes initially for local authorities, some aspects of the changes will create less administrative burden for local authorities in the longer term. For example, merging parts 2 and 3 of the budget statement form in Schedules 2 and 3 in the 2002 Regulations, so that only 1 return is necessary under the 2026 Regulations. It is also possible that some workload for some local authorities may be due to increasing compliance with existing requirements, rather than new or amended requirements in the 2026 Regulations.

The 2026 Regulations include provisions which amends the surplus thresholds to 5% of a school’s budget, rather than a value, may mean that smaller schools, if they receive a smaller school’s budget, compared with a larger school, may have a lower monetary threshold than a larger school. Smaller schools tend to be more common in rural areas, and rural areas can sometimes include Welsh medium schools. 

Although a smaller school may have a smaller surplus threshold, this will be relative to the school’s budget. The aim of the 2026 Regulations is to ensure a more equitable approach to school funding.

The 2026 Regulations include provisions which includes the ability for federated schools to have a single federated budget could impact on federated schools. This could help federations, if they opt to have a single federated budget, use their budgets more effectively, reduce their administration and reporting, and support a more strategic approach under their single governing body. 

Moving non-domestic rates (NDR) from the schools budget to the non-schools education budget will also create less administration for schools and local authorities as they will not be delegating funding for NDR to schools, which they have to pay straight back to the local authority.

Amendments requiring local authority financial schemes to contain a provision requiring a governing body to submit a deficit recovery plan may impact on schools and local authorities. If schools need to complete a deficit recovery plan this may have a workload impact on schools completing a plan and local authorities when approving a plan. However, this is already in practice across most, if not all, local authorities and the aim of this amendment is to enable better, more transparent monitoring and help local authorities support schools to manage their budgets and avoid schools falling further into deficit.

Although there is a current requirement for local authorities to have a deprivation factor in their funding formula, amendments propose that formulae must take into account an amount for each pupil in respect of a pupil’s eligibility for free school meals or a pupil’s residency in relation to the Welsh Index of Multiple Deprivation (WIMD). Local authorities will also be required to show the deprivation factors they have used in their formula to aid transparency. Whilst it will still be a matter for local authorities how much funding they choose to allocate, by making the allocation clearer this will enable more informed discussions about appropriate levels of funding required.

In light of the impacts identified, how will the proposal maximise contribution to our well-being objectives and the seven well-being goals, and (or), avoid, reduce or mitigate any negative impacts

The 2026 Regulations aim to provide greater flexibility to allow local authorities to better support schools to manage their school budgets and to provide greater transparency, comparability and consistency in the system, to allow informed budget discussions at all levels, for the benefit of all learners. 

Decisions around school budgets will remain up to local authorities and local authorities should continue to work with their maintained schools to evaluate the effectiveness of their school funding arrangements in supporting and raising the achievement of all learners. The 2026 Regulations will not directly impact overall school budgets, but the formula used to allocate the budget to individual schools. The 2026 Regulations aim to improve equity in the system. Schools will continue to have the opportunity to influence their local authority’s decisions on school budgets, including through their budget forum, which is required in law.

To mitigate against impacts of any changes to school funding formulae, any amendments to school funding formulae will continue to be subject to consultation.

Also, the 2026 Regulations require local authorities, when determining a school’s budget, to take into account whether that budget would be reduced by more than 5% than the previous year’s budget. Where the local authority determines the school’s budget has reduced by more than 5% and decides to increase the funding to address the reduction, this must be done in accordance with a scale published by the local authority in its financial scheme, to maintain the transparency and equity.

The Welsh Government will work closely with local authorities to keep them updated on the 2026 Regulations so that they have adequate time ahead of implementation. The Welsh Government will also support local authorities through workshops ahead of implementation and will publish guidance on the amended regulations to increase understanding and improve consistency.

There will be a period of time for local authorities to amend their process following between the 2026 Regulations being made and its provisions coming into force. The 2026 Regulations are to be laid in early March 2026, however local authorities will not be required to be compliant with those Regulations until 1 February 2027. The 2026 Regulations will apply in relation to financial years beginning on or after 1 April 2027.

We have considered all the likely impacts on different groups and on social, economic and cultural well-being while considering proposed amendments. We welcomed stakeholders to respond to our formal consultation with potential impacts, costs, benefits and risks of the proposed changes. We will continue to work with stakeholders around potential impacts.

How will the impact of the proposal be monitored and evaluated as it progresses and when it concludes

If changes are implemented, local authorities will be required to be compliant with the 2026 Regulations for the 2027 to 2028 financial year. 

We will monitor implementation of the 2026 Regulations to ensure that it is having the intended effect of increasing transparency, comparability and consistency in the school funding system. As part of this we will continue to liaise with ADEW and have regard to any feedback. 

The Welsh Government will continue to collect and monitor school budget data to monitor impacts. The Welsh Government will support local authorities in their correct interpretation and application, including workshops and published guidance.