School funding & incentives

1. School funding & incentives Ali Muriel Institute for Fiscal Studies June 10, 2008

2. Funding & Incentives • Majority of a school’s funding is pupil-led • ‘Quasi-voucher system’ (Le Grand) • Positive incentives for school improvement? • Improving schools attract more pupils (hence more funding) • Failing schools either improve, or shrink & close • Critics argue that such systems may: • exacerbate inequality • create incentives for ‘cream skimming’

3. 2005 Schools White Paper • Explicitly embraced ‘school choice’ ideas • Sets out vision of an education system “...that is dynamic, with weak schools replaced quickly by new ones, coasting schools pushed to improve, and opportunities for the best schools to expand and spread their ethos and success throughout the system.” • To what extent has this dynamic, incentive-based school system come to pass? • Not analysing benefits/risks of ‘school choice’

4. Funding & Incentives Incentives depend on interaction of: • Pupil-led funding • Do significant funds really ‘follow the pupil’? • Supply flexibility • Are new schools free to enter the system and compete with existing providers? • Can successful schools expand, while failing schools contract & close? • Management freedom • Is school management free to innovate?

5. Pupil-led fundingSchool budget share by source of funding 2005/06 Primary Secondary Other Site & School Specific Funding SEN (pupil-led) Pupil-Led Funding (73%) Pupil-Led Funding (83%)

6. Pupil-led funding • Majority of school funding does appear to be ‘pupil led’ but – • Evidence of ‘inertia’ in FSM funding is worrying from an incentives point of view: • Suggests money follows deprived pupils slowly • Exacerbates incentive to ‘cream skim’ • Schools attracting less deprived intakes may enjoy temporarily increased resources per pupil

7. Supply flexibility? • ‘Threat of entry’ is what matters for incentives • How many pupils (and how much funding) will a school lose if results deteriorate? Problem: • Almost impossible to measure ‘threat’ of entry • Look at • actual entry and exit • whether poorly performing schools fill capacity • expansion and contraction

8. New entry & exit – primary schools

9. New entry & exit – secondary schools

10. School capacity usage by performance Secondary Primary

11. Expansion/contraction by performancePrimary schools, by value added KS1-2

12. Expansion/contraction by performanceSecondary schools, by contextual value added KS2-4

13. Supply flexibility - summary Entry & exit • Very little entry and exit from year to year • Sweden’s school system saw at least twice as much entry & exit in 2005/06 Capacity usage • Best-performing schools essentially ‘full’ • Even schools performing well below national average can expect to fill 90% of capacity

14. Supply flexibility – summary (cont’d) Expansion & contraction • Strikingly consistent relationship between performance and expansion/contraction • Must be interpreted with caution • Tells us nothing about causation • Could be better schools attracting pupils • Could be schools with shrinking rolls experiencing problems due to e.g. fixed stock of buildings

15. Why so little entry/exit? • Supply of school places controlled by Local Authorities (LAs) • White paper (2005): ‘if parents want to open a new school, it should be the job of the LA to help them’ • Legislation (2006): LAs have a duty to ‘consider parental representations’ for a new school • But do LAs have an incentive to encourage new entry? • LAs under pressure to minimise ‘surplus places’ • Audit Commission guidance • So far only one new school opened by parents

16. Building Schools for the Future – a missed opportunity? • Over £9bn provided in capital funding • Rebuilding & refurbishing English secondary schools • Distributed by Local Authorities on the basis of a ‘Strategy for Change’ (ten year plan) • Same central control model of place provision • Not led by parental demand • Does nothing to alter contestability/incentives

17. Management freedom? • School Teachers’ Pay & Conditions Document (STPCD) • Pay scales • Rules for advancement • Working time • Burgundy book • Sick pay • Notice periods • Performance pay • “more akin to a pay rise for all teachers”

18. Academies • Enjoy greater management freedom • Greater curriculum flexibility • Set their own pay and conditions... • ... but must usually rehire old staff with pay and conditions protected • Transfer of Undertakings (Protection of Employment) Regulations (TUPE) even for Academies

19. New entry – importance of Academies

20. Summary • A lot of funding ‘follows the pupil’ • But results also suggest inflexibility/delay • Implications for e.g. marginal FSM incentives • Inflexible supply side • Little threat of entry... • ... but some expansion/contraction • Limited management freedom • Pupil-led funding has probably not led to ‘school choice’ style incentives envisaged by Blair • New capital spending not used to encourage new entrants