Labour’s First Budget: what it means for education

The Labour Government’s first budget saw Chancellor Rachel Reeves announce a £2.3 billion increase in the core schools budget for next year. Of this total, £1 billion has been earmarked specifically for high-needs education. This budget boost brings school funding back to 2010 levels; however, some challenges remain.

David Wright, Westcotts’ Partner and Head of Education, examines what the potential impact on schools will be.

The Labour Government budget

Industry experts have noted that following the Autumn budget, inflation-adjusted per-pupil spending would reach approximately £8,100. This is slightly above the peak in 2010 of £8,000. The Tories had long pledged to restore school budgets to 2010 levels however inflation and rising costs repeatedly delayed progress.

Labour has confirmed that £1.3 billion of the budget would fully cover the recent 5.5% teacher pay rise. The money will also assist with pay awards in 2025-26. This aligns with plans set out in July when nearly £1.2 billion was allocated for the current year’s pay increase. This funding will form part of the national funding formula starting next year.

However, the government’s reference to covering “next year’s pay rises” hints 2025 pay awards may not receive full additional funding.

SEND funding: support for schools or a lifeline for council deficits?

The additional £1 billion in SEND funding from Labour’s Autumn Budget goes “directly to providing provision,” marking a 6% real-terms uplift.

However, Treasury documents offer a different perspective. They indicate that £865 million of the funding is likely to be used to reduce councils’ significant SEND deficits. While councils can decide how the money is spent, the Treasury expects much of it to address current-year deficits.

A recent National Audit Office report highlighted the scale of the issue. The findings projected a cumulative deficit of £4.6 billion in councils’ high-needs funding budgets by March 2026.

The Treasury described the funding as a critical step toward achieving financial sustainability in the SEND system, with further measures expected in the future.

Schools to be ‘nationally funded’ for national insurance increase

As part of the Government’s budget, employers’ National Insurance contributions will rise by 1.2 percentage points to 15% from April 2025. Expert bodies estimate this change could cost schools hundreds of millions of pounds.

The Treasury has confirmed that public sector organisations will receive additional funding to offset the increase, though exact amounts won’t be announced until spring.

When asked whether schools and colleges would be “fully compensated” for the hike, Labour stated they would be “compensated at a national level.” However, this phrasing is significant, as the distribution of funds often results in disparities, leaving some schools underfunded.

DfE faces £1.9 billion savings target

Despite the positivity, The Department for Education (DfE) will still need to save £1.9 billion as part of the government’s broader cost savings.

Chancellor Rachel Reeves announced that all departments would be required to achieve a 2% productivity, efficiency, and savings target starting next year.

The DfE stated that it continually reviews how to use its funding “as efficiently as possible to deliver best value” for children. The department has already made significant cuts to address a previous £1.5 billion shortfall, which funded teacher pay increases. Cuts have included scaling back development courses and “top-up” training for teachers.

Extra capital funding covers only existing rebuild projects

In their budget, Labour announced £6.7 billion in capital funding for the Department for Education (DfE) next year, marking a “19% real-terms increase”.

However, as capital funding recently dropped from £6.2 billion to £5.5 billion, this percentage increase is a catch-up to a degree. There is also high inflation in the construction sector to factor in.

The Labour budget and private school VAT

The government estimates that 35,000 private school pupils will eventually move to state schools due to the introduction of VAT on private school fees. VAT will be applied to fees starting in January 2025.

Officials anticipate that around 3,000 students will transition to state schools by the end of the 2024-25 academic year, with the total reaching 35,000 eventually.

Facing the challenges

If you work within the education sector or have children in private school and would like to know how the Labour budget is likely to affect you—we can help. Please get in touch with your usual Westcotts’ contact for assistance. Additionally, you can reach out to any one of your local Westcotts’ representatives. Find a complete list of our offices and how to contact us here.