Funding for local services such as education has for long been allocated on formulae claiming to reflect local variations in needs, although in practice these have often tended to reflect the patterns of past expenditure. The idea that such formulae might reflect explicit outcome criteria is not new, but only with the recent development of integrated multilevel databases has it become possible to develop this approach in a serious way. We identify the essential requirements of an outcome approach and discuss variant criteria in such a system. Data for the whole compulsory-age-range state school system in Wales are analysed to generate models predicting key attainment levels for individual pupils at 11 and 16. These are complemented by models for school costs and the incidence of special educational needs. Using these models it is possible to estimate the cost of achieving various target degrees of improvement or equalisation of outcomes, or compensation for relevant social disadvantages, balanced against constraints on the maximum degree of redistribution (via minimum school budgets). The results indicate that it is certainly possible to envisage such a system in operation, albeit subject to gradualist implementation, although the redistribution could have implications for particular localities which were controversial.