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Schools in an age of austerity

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How might the likely post-general election funding squeeze effect schools? Sam Freedman, Director of Research, Evaluation and Impact for Teach First and former Policy Advisor to Michael Gove, explores the consequences, concluding it could force schools to make some significant decisions regarding their futures.

smashed piggy bank

Over the course of the last Labour Government schools saw huge increases in funding. Income doubled in real terms over their thirteen years in power. Most of this extra cash went on additional staff – between 2000 and 2013 the school workforce increased by 62% from 567,000 to 922,000 (nearly all of the extra were teaching assistants and other support staff rather than teachers). In addition Labour spent a fortune on school buildings, particularly in their third term when Building Schools for the Future was ramped up.

This meant that when the fiscal breaks came on in 2010 schools were in a relatively strong position. No organisation can see its budget increase by 5% a year in real terms for over a decade and not have any fat to trim. In addition schools received a relatively good revenue settlement in the 2010 spending review with 5-16 institutions protected in real terms. That’s not to say there’s been no pain – the real terms protection didn’t cover the 200,000 extra pupils that have entered the system over the last five years and 16-19 budgets have been cut significantly – but schools have, on the whole, been able to manage. The Government’s decision to hold pay rises for public sector workers well below inflation over the course of the Parliament has also helped balance budgets.

The next Parliament will be much more challenging. All the main parties have now set out their spending plans and all are promising greater cuts than we’ve seen in this Parliament. The Conservatives have said they will protect 5-16 funding in “cash terms” per pupil – i.e. the amount of cash received for each pupil will stay the same over the Parliament and will not increase in-line with inflation. Labour and the Liberal Democrats have said they will protect the current education budget in “real terms” – so in line with inflation – but not taking into account increases in pupil numbers (there will be 566,000 more pupils in the system by 2020).

For 5-16 institutions these plans end up pretty much in the same place – a 7 to 8% reduction in per pupil funding. If inflation is lower than the Bank of England predict then the Conservative plans will be better for 5-16 institutions; if it’s higher then Labour/Liberal Democrat plans will be. At the same time, in 2016/17, schools will be hit with a £1bn bill for additional pension and national insurance contributions – an additional effective cut of 2.5%.

As Labour and the Liberal Democrats have promised to protect the whole education budget those with a nursery or a sixth form will probably be better off under their plans (the Conservatives haven’t said what they’ll do outside of the 5-16 budget). Otherwise there won’t be much difference.

What this means for schools in practice will depend on two things: how these cuts are distributed and their cost pressures. The distribution, in turn, will depend on whether the next Government maintains the pupil premium at the same level – which has shifted funds towards poorer parts of the country – and whether they introduce a “National Funding Formula” (NFF).

At the moment there are significant and historic differences between funding in different parts of the country. Inner London for instance is overfunded, and many schools have significant surpluses, whereas other parts of the country, often more rural, have much tighter margins. The current Government have taken steps to remedy this but plan to go further if they win the election by introducing a NFF. Doing this would help alleviate the worst effects of the cuts for schools that are currently underfunded.

As for cost pressures, 70-80% of school spending goes on staffing pay increases, both through inflationary rises and progression along the pay-scale, so this will be key. We can expect pay rises to be held at 1% across the whole Parliament (which will mean teacher salaries falling further behind those in the private sector – potentially adding to the crisis in recruitment to the profession).

Even so there will still be cost pressures of 6% or so per pupil to cover. For schools in poorer parts of the country the indirect effects of ongoing local government and welfare cuts may drive this up further. Where possible schools will look to manage these pressures by increasing numbers, as the marginal cost of adding a few more pupils is fairly low. Where that isn’t possible schools will have to look elsewhere. If big savings are needed there are two realistic options.

The first is simply to reduce staff numbers. Given the massive rises in support staff over the last decade one would imagine that they would be the most vulnerable.  Schools are less likely to want to cut teacher numbers, though if they do reducing subject choices is usually preferred to increased class sizes.

The second is to federate with other schools. If a group of schools merge into a single entity (most likely a Multi-Academy Trust but other types of non-academy federation are still possible) they can significantly reduce back office costs through cutting duplicate roles and economies of scale. If schools are close enough together they can also share facilities and even teachers, allowing them to keep less popular subject choices viable. Schools are often very wary of taking this option for fear of losing their identity and independence, but from a system perspective is doesn’t really make sense to have 20,000+ separate financial entities (this was true prior to academies – since 1988 all schools have high levels of financial autonomy).

Government policy over this Parliament has seen a huge rise in the number of federated schools – there are now well over a thousand in Multi-Academy Trusts – but this has often been through schools “forced” into academy chains as a result of underperformance. Whether the DfE can incentivise more schools to choose this route voluntarily will be key to the impact of another Parliament of austerity.

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2 Responses to Schools in an age of austerity

  1. William Stow Thursday, 2 April 2015 at 10:42 #

    Everyone should read this. It cuts right through the fog of manifesto pledge and sound-bite to get to the harsh realities facing schools, whichever parties are forming the next government. Thank you Sam!

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