The Department for Education budget: flat cash and a tale of two age groups

Public spending has been in the news in the first week of February 2015. What has been said and what does it mean for the Department for Education (DfE) budget, for school budgets and for the education of 16 to 18-year-olds? What was said this week David Cameron promised on Monday 2 February that a future Conservative government would protect schools spending from future public spending cuts by maintaing cash per pupil at current levels ("flat cash per pupil"). In questions and answers, he acknowledged that this might mean a rise in spending because of rising pupil numbers. He also said that this budget protection would not extend to colleges or post-16 education. Labour and Lib Dem education spokespeople criticised the pledge as being inadequate. The Institute of Fiscal Studies (IFS) published a Green Budget on Wednesday 4 February. IFS, a non-partisan think tank, calculate that current plans (set out in the 2014 Autumn Statement) imply larger cuts to departmental budgets in the four years after the Election than in the first four years of the Coalition (page 151). In a scenario where the budgets for the NHS, international development and schools are protected, they forecast 27% real-terms cuts in unprotected departmental spending for the four years from 2015-16 to 2019-20 (Page 172). IFS note that the Conservatives, Labour and Lib Dems have all made promises about public spending after 2015 which imply smaller cuts than are set out in the Autumn Statement (page 167) which implied a total 14.1% cut to departmental spending. The targets set by the three parties imply cuts of 8.3%, 1.9% and 1.7% respectively. The political and economic debate is carried out at a fairly abstract level. We won't know what these promises and predictions mean for budgets for individual departments and funding agencies until the 2015 Spending Review is completed by the new government sometime in autumn 2015. So what do we know about school funding? The outlook for schools from a flat cash settlement will be bracing. For the last 15 years schools in England have experienced consistent growth in the money they have for each pupil. Funding per pupil rose by 80% under the Labour Government (1997 to 2010). This trend has continued. For the last couple of years DfE has recorded actual funding levels for each stage of education in the performance tables. The data includes all DfE income sources in a figure for "total grants". The average for secondary schools rose from around £5,300 in 2010-11 to £5,720 in 2013-14 and has continued to rise. In 2015-16, DfE topped up the schools budget with £350 million which has been targetted at schools in areas with low average funding levels Over the life of the Coalition, funding per school pupils has risen by around 9 to 10%. This is barely enough to keep up with inflation this year and next but is better than what is to come."Flat cash" in the next five years means no increases in funding per pupil. The big issue in the DfE budget is the growing school age population. Between January 2015 and January 2020, DfE forecasts a 6% rise in primary and nursery age pupils and an 11% rise in secondary school age pupils. The core school population is due to rise by half a million to 7.8 million. Rising pupil numbers convert "flat cash per pupil" into larger budgets. Exactly how much is likely to be a topic of negotiation. DfE's budget is obscure compared to other government departments, like the Ministry of Defence, but we know that its Departmental Expenditure Limit (DEL) is £53.2 billion in 2015-16. The "protected schools budget" in the last few years has consisted of the Dedicated Schools Grant and Pupil Premium budgets (about £40 billion and £2.5 billion respectively). Rising pupil numbers funded at 2015 rates will require an additional £3 billion over the next five years. rising school pupil numbers.jpg In the short term this will feel like a cut. Schools face higher bills in 2015-16 for the Teacher's Pension Scheme and National Insurance. The cost of employing a teacher will rise by 5% and almost £1 billion will be taken out of the education budget to pre-fund pension. DfE has been hopeless at explaining these cost increases to schools so this AoC briefing does the job . Combined with pay rises and price inflation over the next five years, a fair assumption is that "flat cash" means a real-terms funding cut of 10%. Sam Freedman's blog supplies some sensible numbers on this. Faced with this situation, schools are likely to protect spending on teachers (including their pay) and direct the greatest share of any spending cuts on teaching assistant and support staff. Even with a protected budget, it is plausible that "flat cash" might result in the loss of as many as 45,000 FTE jobs in schools. 16-18 funding less certain but looking worse The outlook for the 16 to 18 budget is less certain but is very likely to be bleaker DfE spending on the education of 16 to 18-year-olds fell from £7.8 billion in the 2010-11 academic year to £7.2 billion in 2013-14. DfE has not published an up to date budget for 16 to 18 education but recent cuts (for example the 17.5% funding cut for educating18 year olds) suggest that spending continues to fall at a similar rate (about 2% cash a year) to just under £7 billion. In the absence of information from Sanctuary buildings, my assumption is that the 16-18 budget has been stripped a little to prop up pre-16 funding. DfE does not publish firm data on funding per sixth former but, with the national funding rate fixed at £4,000, average funding per 16 to 18 year old is around £4,500. This creates a 22% dip at 16 despite the fact that sixth form class sizes are invariably smaller than those at GCSE. Colleges have to stretch their money even further because they cannot recover VAT (the "learning tax") and because they need to set aside money to maintain and improve their buildings. Looking ahead five years, population trends are different. The population of 16, 17 and 18 year olds is forecast to fall by 8% between 2015 and 2020 so it would be possible for DfE to make savings of £500 million by holding the participation rate at current percentages. DfE provides funding for about 1.5 million young people (1.3 million via the Education Funding Agency and 200,000 apprentices funded via the Skills Funding Agency) so this would imply a cut of around 120,000 places. Reductions on this scale would require root and branch changes in institutions. There are more than 1,000 schools with sixth forms of 100 pupils or less. They are already on the knife-edge This could knock many over. More seriously, a cut in the number of sixth form and apprenticeship places for young people would involve the government reneging on the legislation to raise participation for those aged 16 and 17 and would also be poor economics. Research on the lifetime effects for young people not being in education, employment or training suggests a cost to each individual of between £105,000 and £370,000 and a cost to the taxpayer of between £56,000 and £156,000. The returns from keeping people in education and training outweigh the short-term costs. One thing to contend with here is a substantial shift in the attitude of young people to staying in full-time education in the last few years. Back in 2005, 75% of 16-year-olds stayed in full-time education but this has now risen to at least 83%. Adding in part-time education and apprenticeships brings the participation rate of 16 year olds to 94%. Recently published DfE research on Year 9 pupils reports a "significant increase in the proportion of young people who expected to stay in full-time education" - up from 79% to 86% (https://www.gov.uk/government/publications/longitudinal-study-of-young-people-in-england-cohort-2-wave-1). The numbers wanting to go to university or take apprenticeships if they left education has also risen. If a future government sticks to the spending plans set out in the Autumn Statement and applies a 14.1% cut to public spending, this will translate into cuts of 30% or more to unprotected budgets. DfE's 16-18 budget would need to fall much further, to less than £6 billion. Holding the participation rate to cut student numbers might save £500 million but another £1 billion would be needed. It would also be necessary to cut funding rates. This would turn the 22% funding dip into a widening gulf and set back the efforts to prepare young people for university or work. The current drive to equip every sixth former with adequate maths and English would falter. 81% of colleges are currently judged good or outstanding by Ofsted. Further cuts in funding per student would have a substantial impact on quality. In some public services, government departments have been able to increase fees and charges to counteract the effect of spending cuts. This has been the case with university fees, rail fares and charges for visas and passports. DfE rightly prohibits fees being charged for state sixth form education but it is easy to imagine fees coming back into discussion. Average funding levels of £4,400 are a stark contrast with the average £14,475 sixth form fee charged by private day schools (which, incidentally is 6% higher than the pre-16 fee not 22% lower). The first to break ranks would probably be the selective state sixth forms. Existing funding policy is cutting the academic curriculum from four AS Levels to three A Levels and narrowing technical programmes to fit in compulsory maths and English. Faced with the prospect of a diet of two A Levels only, some heads or principals might take the route of charging for a third. new dfe building.jpg Economically and socially, sixth form fees would be a disaster. Would the responsibility sit with the parent or student? Would it be legal to offer a loan to under 18-year-olds? How and who would assess fee waivers? These are all solvable questions but they would require a legal change led from the front, not haphazard introduction round the back. There are bigger questions here about the chain of investment that takes young people from school via college and sixth form to university and working life. By accident and design, the money available for teaching drops by 22% at 16 and then drops by 17.5% again at 18 or rises by 95% for those who move on to university. There might be a good educational case for varying funding levels at different ages but no-one is properly discussing it which is why AoC's 10th manifesto proposal is for an all-embracing review of funding levels by age. The NHS looks at this when assessing health spending. Why can't DfE and BIS? AoC's manifesto is here. The timetable The reckoning for education will not happen until the 12 months after the election. Assuming that it is possible to form a government, it is likely that there will be a budget in June 2015 and a Spending Review by November. Decisions here will shape funding allocations for 2016-17 and beyond. The cost increases associated with the Teacher's Pension Scheme and National Insurance are already fixed for September 2015 and April 2016 respectively. An added difficulty for 2016-17 may be the timing of spending cuts. Governments tend to get difficult decisions out of the way early in their term of office. Current HM Treasury plans front-load departmental spending cuts to 2016 and 2017. Even if the next government takes a higher spending route, the money may not come until 2017 or 2018. Treasury allocations tend to tie extra spending to reform plans. New governments tend to demonstrate fiscal toughness in their first year to reassure the markets and the media. Whatever the result of tnis May's election, it is possible that the die is already cast for the 2016-17 academic year budget. For the next academic year, it is largely business as usual. DfE's Education Funding Agency issued Dedicated Schools Grant information for 2015-16 to local authorities in December 2014 (an average 2.5% cash increase to fund a 1.1% increase in pupil numbers). Councils will confirm school budgets by March 2015. Meanwhile EFA will confirm the national funding rate for the education of 16 to 18-year-olds at some point in February as part of a process that has barely changed from last year. Julian Gravatt, Assistant Chief Executive, AoC