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IFS and the big trends in education spending (19 September 2019)

19 September 2019

The Institute of Fiscal Studies (IFS) has published its second annual report on education spending in England. I was on an IFS advisory group for the report and know how carefully they have put together the figures. The report analyses trends over several decades and cover the spending from childcare to higher education. The report runs to 114 pages and contains a vast number of figures. For those who won't get around to reading it straight away and who are interested in post-16 education, here are some highlights and comments: Trends over the 2010s: Further education and sixth forms have faced the largest cuts in recent years. IFS calculate a 12% real-terms reduction in spending per 16-to-18 year old student in further education in the last 8 years and a 23% reduction in spending in school sixth forms (see Figure 4.3 for the trend). Combined with falling numbers of 16-to-18 year olds since 2015, these reductions result in a total budget that has been falling in real-terms since 2011 (see Figure 4.1). There has been an even bigger reduction in adult education (even including apprenticeships) in the decade (see Figure 4.2). By contrast, budgets and unit funding (spending per pupil) have risen over the decade in early years/ childcare (Figure 2.6), in schools (no table provided on the total budget) and higher education. Adjusting for inflation: IFS presents most of its figures in "real-terms", showing spending per persion on inflation-adjusted measure. This is a right and proper way to present public spending information but it is different to the approach taken by Treasury, DfE and Ministers who report changes in cash. To take a recent example, government described the Spending round increase as adding £7.1 billion to the school budget and £400 million to 16-to-18 education. IFS describe these increases as being equivalent to £4.3 billion and £300 million in real-terms. IFS use the GDP deflator in working out inflation. In a recent board report, the Office for Students say that the GDP deflator can "diverge from measures solely of price inflation when the economy is weak" and then produce some calculations for higher education using the Retail Prices Index. RPI is a discredited measure but it has increased by 32% in the last 10 years - twice the rate of the GDP deflator. If OFS's approach was applied to the rest of education spending, then the real-terms cuts and spending restraint described by IFS over the last decade would be even worse. Spending changes aren't always what they seem - take early years and childcare: IFS report reports the run down of Sure Start spending since 2010 which is a widely known story (here's an example). Sure Start involved directly managed provision targeted on people on low incomes but it has never been the only area of childcare and early years spending. Although Sure Start has been run down and benefits restricted, tax free childare and nursery entitlements (for 3 and 4 year olds) have grown. In an interesting chapter, IFS put these together and show that spending on these universal entitlements has increased at a faster rate than the cuts to targeted and managed provision. The net effect over the decade has been at least £1 billion extra in this area on an inflation-adjusted basis to a total of £6 billion now. A much larger school budgets: Likewise IFS discuss the post-2015 squeeze on school funding per pupil but given rising pupil numbers, this means that the total school budget rose from not much more than £35 billion at the start of the decade to £43 billion this year and £50 billion by 2022-3 under recently announced government plans. Smaller further education budgets: By contrast, the 16-to-18 and adult further education budgets are both £2 billion less in real-terms than they were at the start of the decade, down to £5.5 billion and £3 billion respectively. Ministers chose to spend the 16-to-18 year old demographic dividend elsewhere in the education system. The much talked about increase in apprenticeship spending has not offset cuts earlier in the Coalition government years on other adult skills programmes. Funding gaps in 16-to-18 education: AoC campaigned for many years to close the funding gap between schools and colleges at sixth form level so it is worth commenting on IFS's calculation that spending per 16-to-18 year old in further education (at £5,900) is considerably higher than spending for 16-to-18 year olds in school sixth forms (£4,800) with those in sixth form colleges only just above that (£4,900). IFS do not look at these differences in much detail but, correctly, comment that "the national 16-19 formula provides extra funding for pupils from deprived backgrounds and for pupils taking more complicated vocational qualifications". This shifts 16-to-18 funding towards FE colleges who offer the majority of technical courses and who recruit a much larger share of students with lower GCSE grades or who were on free school meals. The 16-19 formula treats students on a like-for-like basis whether they are in school or college. The funding differences reflect the separation and sorting of young people that happens at 16. Funding outside the 16-18 formula: There are, in addition, funding lines outside the mainstream 16-19 formula that the IFS team didn't have time to look at. Post-16 high needs funding is still a bit of a mystery, even to us at AoC, and arguably an under-reported scandal. Colleges spend 2% of their income on irrecoverable VAT and 4.8% on debt charges (FE colleges 5%, sixth form colleges 0%). School sixths get their VAT back, their capital covered in mainstream allocations and, since 2018 an extra Teacher Pay Grant. The Lib Dems picked up on these issues at their conference this weekend. Hopefully the other parties will follow their lead. Taking all four elements into account (high needs, VAT, capital, teacher pay grant), 16-to-18 college funding is barely more than that in schools. Apprenticeships and adult education: Last year's IFS report covered further education as its special subject whereas this year's report gives the issue just two pages. The report tells a familiar story of declining adult education spending, a shift towards apprenticeships and falling participation in both areas. The IFS team wrote a brilliant short report on apprenticeships in January 2017 just before the reforms started. Someone should do an update because it's a critical area deserving more attention. A few months ago, the National Audit Office confirmed that DfE might overspend their budget in 2019-20 (see Page 7) and explained that the unit cost per apprentice has doubled to £9,000 because of the shift to higher level standards but NAO work under a restricted remit so did not get us to the next point. Everyone on the inside knows that the apprenticeship programme is heading towards a financial brick wall but no-one knows where to apply the brakes. Ann Milton MP floated the idea of a higher levy in an FT interview in April. Two months later she suggested either an age cap or a pay cap in a conference held just before she resigned as skills minister. It's hard to think of bigger hints that there's a budget issue but we don't yet know if anyone is listening. Perhaps the apprenticeship budget could be a good focus for study by some of the 75 degree apprentice economists recruited by the Treasury to start work this autumn. How much is enough in education? The IFS report analyses the long-term trends, current spending and future plans. Adjusting for inflation, they explain that the recent spending increases for schools and 16-to-18 education are significant but do not restore past spending cuts. The package for schools will restore spending per pupil in 2022-23 to the level it was in 2009-10 while the one year boost for 16-to-18 education will leave funding per student 7-10% down on ten years before. This slightly counter-intuitive conclusion arises because the extra billions allocated for schools (£7 billion extra by 2022-3, not £14 billion) only partly cover inflation and growing pupil numbers. Demand for education rises when the economy grows, parents become more ambitious for their children and many jobs require more sophisticated skills. The IFS report does not include an assessment of how much the education budget should be but, right at the start (in Figure 1.1), explain that total public spending on education has oscillated between 4% and 5.5% of national income over the last 40 years at a time when health spending as a proportion of GDP has doubled from 3.5% to more than 7%. The reclassification of student loans will affect the figures but will still leave education spending at around 4.8% of GDP this year. There are people who say that spending on education makes little difference because all that matters are standards, quality and rigour. If this is the case, it is striking that private school fees per pupil rose by 50% in cash terms over the last decade (calculations from page 20 of ISC census) and now range from £13,500 at primary age to £15,500 in sixth forms. Spending in state-funded education will never seem enough when it falls so far short of levels in the private system. Julian Gravatt, Deputy Chief Executive, AoC