School funding & incentives
Ali Muriel
Institute for Fiscal Studies
June 10, 2008
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’
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, incentivebased school system come to pass?
• Not analysing benefits/risks of ‘school
choice’
Funding & Incentives
Incentives depend on interaction of:
1. Pupil-led funding
• Do significant funds really ‘follow the
pupil’?
2. Supply flexibility
• Are new schools free to enter the system
and compete with existing providers?
• Can successful schools expand, while
failing schools contract & close?
3. Management freedom
• Is school management free to innovate?
Pupil-led funding
School budget share by source of funding 2005/06
Primary
Secondary
Other
Site & School
Specific
Funding
Pupil-Led
Funding
(73%)
SEN
(pupil-led)
Pupil-Led
Funding
(83%)
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
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
New entry & exit – primary schools
20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
Existing Schools
2003/2004
New Entry/Exit
2004/2005
2005/2006
New entry & exit – secondary schools
4000
Existing Schools
New Entry/Exit
3500
3000
2500
2000
1500
1000
500
0
2003/2004
2004/2005
2005/2006
School capacity usage by performance
Top 10%
Bottom 10%
Primary
Secondary
Contextual Value
Added KS1-2
Contextual Value
Added KS2-4
100%
80%
60%
40%
20%
0%
Expansion/contraction by performance
Primary schools, by value added KS1-2
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
Bottom 2
3
4
5
6
7
8
9
Top
Expansion/contraction by performance
Secondary schools, by contextual value added KS2-4
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
Bottom 2
3
4
5
6
7
8
9
Top
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
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
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
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
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”
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
New entry – importance of Academies
New Academies
New Not Academies
25
20
15
10
5
0
2003/2004
2004/2005
2005/2006
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