Dale Bassett

What you need to know ahead of the Spending Review

What you need to know ahead of the Spending Review
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This is the second of our posts with Reform looking ahead to the Spending Review. The first, on health, can be found here.

What is the budget?

Education is the biggest area of government spending after welfare and health, totalling £89 billion in 2010-11.

This budget increased by 64 percent in real terms between 1999-00 and 2010-11. Total, per-pupil school spending doubled in real terms over the same period.

Where does the money go?

Expenditure on schools was £46 billion last year. The vast bulk of school spending goes on people: the average school spends 78 percent of its budget on staff.

The byzantine arrangements for school funding mean that there is a substantial, hidden cost in the system arising from extensive bureaucracy from both central and local government. The burden of regulation, prescription and inspection creates a large cost within schools, which must hire additional staff to deal with these requirements. It is impossible to quantify this cost but it is significant.

Further education and skills spending totalled £4.4 billion last year. Higher education spending was £9.2 billion last year, split roughly in half between university teaching grants and research funding.

The Government spends around £3.6 billion on early years and family support, up from around £2.3 billion in 2003-04. Almost half of this is spent on Sure Start, a network of children’s centres.

Is the money well used?

The extra spending on schools has gone mainly on visible outputs: staff and buildings. There are now 10 percent more teachers and two-and-a-half times as many teaching assistants as a decade ago. Yet a wealth of academic and empirical evidence shows that class sizes make almost no difference to educational outcomes. Similarly, the last Government’s Building Schools for the Future programme (now mostly scrapped) was a £55 billion project to rebuild or refurbish every school in England, irrespective of need. The focus of spending ignored the fact that only teacher quality – not class sizes or buildings – has a significant impact on pupils’ education.

Further education and skills spending has mostly been allocated through the Train to Gain and Skills for Life programmes. These programmes, worth over £1.5 billion a year, were poorly targeted and often duplicated funding that business would have provided itself.

Sure Start was originally intended to target those families most in need; many commentators have however observed that some centres have been monopolised by better-off families, taking advantage of subsidised childcare and children’s activities.

What about outcomes?

Despite spending 10 per cent more on schools than the OECD average, and more than high performers such as Sweden, Japan and Canada, England’s schools perform poorly in international league tables. Reform’s research has shown that England has a narrower and shallower curriculum, and less rigorous exams, than many of our international competitors.

The education system delivers outcomes significantly biased against poorer children. Pupils not on free school meals are three times as likely to get five good GCSEs including English and maths as those do receive free school meals. 42 percent of pupils eligible for free school meals did not achieve a single GCSE above a Grade D in 2008. More pupils from Eton go to Oxbridge each year than from the entire cohort of 80,000 students on free school meals.

Further education spending has funded many very low-value qualifications, which in some cases actually decrease the individual’s likely average earnings, according to research by Professor Alison Wolf of King’s College London.

The increase in graduates has generally been successful, and the larger numbers of graduates on the market does not appear to have dented the earnings premium conferred by a degree. However, current spending is unsustainable and universities do not have the freedom to expand if they are successful.

Are schools and universities already making savings?

The schools budget has been ringfenced for 2010-11, along with all spending on Sure Start and training for 14-19 year olds. As with health spending, this ringfence simply increases pressure elsewhere and acts as an obstacle to necessary reform, ensuring that the expensive bureaucracy pervading the school system remains entrenched.

The Department for Education has announced some modest cuts, reducing the budgets of some quangos, efficiency savings and scaling back low priority initiatives. The cancellation of most of the Building Schools for the Future programme has also been announced.

Some cuts to the further education budget were announced by the previous Government. The new Government has spared most of the skills budget for the time being, although it is changing the focus of spending away from Train to Gain and Skills for Life, towards apprenticeships.

Higher education has been subject to a small spending reduction of around £200 million, although related areas such as science and research have been hit harder.

What about the Government’s plans?

The new Academies Act – passed by Parliament just before the summer break – creates the mechanism for the Government to roll out its agenda of new academies and free schools. New academies – which are existing outstanding schools that choose to “convert” to academy status to gain more freedoms – will receive a grant of £25,000 to help them with legal costs. The Government has allocated £50 million to costs related to setting up new “free” schools. While these changes may help to improve the quality of education, they will probably increase costs, since they do not challenge the bureaucratic problem at the heart of the system. The Government is not allowing profit-making companies to invest in new schools at the moment.

Lord Browne is leading a review of student fees and finance, which will report in the autumn. The review was expected to raise the cap on tuition fees, but there suggestions – including from the Secretary of State Vince Cable – that a graduate “contributions” system might be adopted as well, or instead.

So what is real reform?

Real reform would lift the ringfencing of the schools budget, with the particular aim of reducing bureaucracy, redrawing provision in deprived areas and questioning the role of teaching assistants.

The academies programme, which gives extra freedoms to schools over things like curriculum and staff pay, is a welcome move to increase autonomy. Removing schools from local authority control will generate some savings (one head told Reform this would save his school hundreds of thousands of pounds a year). However, it will not in itself tackle the problems around staffing, particularly over-staffing of classrooms and teachers’ restrictive contracts.

The free schools programme is an admirable attempt to increase choice in the system, but without the ability for profit-making companies to set up schools it seems unlikely to create a revolution of sufficient scale to have a systemic impact on quality. Simply setting up some new schools, while of benefit to the children who go there, does not tackle the problem of the regulation and prescription that creates huge costs in the system. A world of genuine free choice would create the conditions for everything to change, putting a cost on bureaucracy and forcing schools to compete on value for money.

Further education and skills needs to be taken out of the hands of government and moved to a truly demand-driven system. Reform has proposed a system of individual learning accounts that would enable each individual to buy the training and education that he wants, from any provider and at whatever time.

A graduate tax is the worst of all worlds in higher education funding. It is unfair; it will remove market incentives for universities to compete and for students to seek value for money; and it will put all university funding back in the hands of state planners. The state needs, over time, to withdraw entirely from funding teaching in universities and to focus on “blue skies” research. The cap on tuition fees should be lifted to allow a real market to develop in higher education, with fees reflecting the costs and value of different degrees and different institutions. This would also allow successful universities to expand without government-imposed constraints.

Further reading

Audit Commission (2009), Valuable lessons: Improving economy and efficiency in schools.

Bassett, D. et al. (2009), Core business, Reform.

Bassett, D. et al. (2010), Budget 2010: Taking the tough choices, Reform.

Haldenby, A. et al. (2008), The mobile economy, Reform.

Hutchings, M. et al. (2009), Aspects of School Workforce Remodelling, Department for Children, Schools and Families.

OECD (2009), Education at a Glance 2009.

Wolf, A. (2009), An Adult Approach to Further Education, Institute of Economic Affairs.

Dale Bassett is Research Director of Reform