Government response
The Select Committee's conclusions and recommendations
are in bold text. The Government's response is in plain text.
Some of the conclusions and recommendations have
been grouped for the purposes of the response
The effectiveness of increased expenditure on
education and skills
1. The
Government needs to take great care in making claims about the
effectiveness of increased investment in education in increasing
levels of achievement which the evidence cannot be proved to support.
The Government takes seriously the link between investment
in education and higher achievement. Since 1997 there has been
a much increased investment across the whole education sector.
Expenditure in areas such as Sure Start and on new school buildings
will not immediately impact on today's secondary school examination
results, but will feed through into higher achievement in future
years.
The difficulty in linking investment in education
with examination results in a particular time period does not,
however, undermine the case for that investment. The benefits
to individuals and society of obtaining qualifications are substantial
and are amongst the highest of those surveyed in the member countries
of the Organisation for Economic Co-operation and Development
(OECD).
For example the Department has calculated the financial
return of obtaining A levels and degrees, balancing the costs
of investment against the resulting flow of benefits over the
working lifetime. The "social" rate of return for males,
for example, which captures the costs and benefits of investment
in education for the economy as a whole, is estimated at 6-8 per
cent for a first degree and 15-21 per cent for 2+ A levels, well
above HM Treasury's discount rate of 3.5 per cent, the threshold
value for public sector investment.
The Government's Five Year Strategy
for Children and Learners, published in July 2004 as Cm
6272, sets out a number of key reforms which will improve the
performance of schools. In addition the Government's 14-19
Education and Skills White Paper, published on 23 February
2005 as Cm 6476, sets out the future of curriculum and assessment
for secondary education. The proposed reforms will complement
the Department's commitment to sustained investment in education
and skills and help all individuals to improve and achieve higher
levels of attainment.
2. Links between expenditure and outcome remain
difficult to establish.
The Government accepts that the links between education
expenditure and outcomes are difficult to establish. Providing
evidence is made more complicated by:
· diminishing
returns, meaning that it becomes progressively harder (and hence
more expensive) to drive up attainment as the base level of attainment
rises and
· time-lags associated
with investment, which mean that benefits of today's investment
in schools may take a number of years to be reflected in the attainment
of 16 year olds.
The Final report of the Atkinson Review The Measurement
of Government Output and Productivity, published on 31 January
makes this clear. Talking about measuring government output it
says in paragraph 2.15:
"It is important to recognise that there
are lags between inputs and outputs, and that a marked increase
in public spending, such as that which has taken place in recent
years, may only show up in improved output indicators at a later
date. This applies particularly to government output such as education
and health."
The Atkinson Review should be seen as the first step
of a long-term process to improve the measures of government output
and productivity. The Department has worked closely with the
Atkinson Review team and is committed to furthering their aim
of ensuring measures of the output of public services are as informative
and robust as possible. But no single measure of output or productivity
will ever fully capture the performance of complex public services
such as education which produces multiple outputs and influences
multiple outcomes. As paragraph 4.62 of the Atkinson Review says:
"The national accounts necessarily reduce
productivity measurement to a single number, and this aggregate
statistic may need to be supplemented by richer information."
Schools' funding
3. The DfES reacted to perceptions of crisis rather
than an actual widespread funding crisis, and in the solution
that it has provided it has changed the nature of the funding
allocation, the role of LEAs in education at the local level,
and the role of the DfES.
4. Given the far reaching consequences of the
changes introduced for 2004-05 and beyond, it concerns us that
they were taken without the DfES having a full and accurate picture
of the financial situation in schools across the country.
The Department does collect school level financial
information twice a year: budget data at school level before
the start of each financial year, and outturn data after the end
of each financial year. Experience suggests that forecasts of
expenditure between those two points are unlikely to be accurate:
in 2003-04 we asked local authorities for forecasts of expenditure
which suggested that schools collectively were likely to use around
two thirds of their balances during the course of the financial
year, whereas outturn data show that in fact balances rose slightly.
Requests for further in-year data would also be counter to the
government's policy of reducing bureaucratic burdens on schools.
The Department agrees that the perceptions of schools
and local authorities played an important role in the difficulties
which arose in 2003-04. In light of that, as well as the genuine
financial difficulties experienced by some schools, we believe
it was right to take steps to restore confidence in the school
funding system and give schools increased certainty and stability.
The arrangements put in place for 2004-05 and 2005-06 have not
involved radical reform but are designed to ensure that, within
the existing architecture of the funding system, schools can have
greater confidence that increases in funding intended for schools
will reach them, and that every individual school will benefit
from a minimum increase in their per pupil budget each year.
The new school funding arrangements which the government
intends to introduce for 2006 and beyond are a key element in
the Department's longer term strategy. The introduction of a
ring-fenced grant to local authorities (the Dedicated Schools
Grant) will enable three year budgets to be allocated to schools,
based on the academic year, and will create a climate of stability
and predictability. This in turn will open up greater opportunities
for school leaders—heads and governors, supported by the
local authority—to use funding more effectively and efficiently
to achieve the best possible outcomes for all their pupils. Many
headteachers have long argued the case for such a regime, and
our proposals are strongly supported by both of the main headteacher
associations. The introduction of the Dedicated Schools Grant
is also a logical consequence of the government's policy that
priority should be given to schools' funding, and in particular
the "passporting" regime—under which authorities
have been expected to pass the full increase in their Schools
Formula Spending Share through to schools—which has been
in place since 1999-2000. Consultation on these proposals began
on 17 February and will run until 13 May.
The only change proposed in the roles of the Department
and local authorities is that from 2006-07, the Department will
be responsible for funding schools' core budgets through the Dedicated
Schools Grant, paid to local authorities. Authorities will not
be expected to add to this grant, but will remain free to do so
if there is local support for such additional spending on schools.
All that they will no longer be able to do is divert funding
intended for schools to other services. Local authorities will
remain responsible for the distribution of funding between schools
in their areas using locally agreed funding formulae and subject
to a minimum guaranteed per pupil increase each year for every
school, as now.
Since these proposals will not directly affect the
distribution of funds between schools, it is not necessary for
the Department to know the financial position of every school.
That is a matter for local authorities, who have freedom, for
example, to target funding towards schools in financial difficulty
outside their normal formulae and will remain responsible for
supporting and promoting good financial management in their schools,
including preventing excessive balances and deficits. The 51
authorities which received the lowest increases in resources for
education between 2002-03 and 2004-05 are also receiving a two
year package of transitional grant—worth £180 million
in total—to help them to get schools in financial difficulty
back into balance. The introduction of three year budgets will
also help all schools to plan ahead and avoid both deficits and
unnecessarily large surpluses. Where schools do have existing
deficits, three year budgets will help them to plan to eliminate
those deficits over time.
5. The consequences of the problems with schools'
funding in 2003-04 have been far-reaching. Given that the settlement
for 2003-04 was distributed using a new funding formula, it is
remarkable that within eighteen months the whole rationale for
that original change, that the funding system needed to be fairer
and more redistributive, has been abandoned in favour of a highly
pragmatic near flat-rate system, with three year budgets being
introduced in two years' time. This change has lead to the loss
of the LEAs' ability to make any executive decisions about schools'
funding in their areas and will, we believe, inevitably lead to
far greater involvement of the DfES in day-to-day management of
the school system.
8. Given the school funding problems encountered
in the spring of 2003, the risk to the Government of an ill-prepared
or poorly-managed move to central funding could be profound.
The distribution formula introduced in 2003-04 is
not being abandoned. The formula has been used for both the 2004-05
and 2005-06 settlements. The Department also intends to use the
same formula—subject to some minor changes—to distribute
the new Dedicated Schools Grant from 2006-07 (with transitional
arrangements to ensure that schools in LEAs which have been spending
above the Schools Formula Spending Share do not lose out). The
proposals are to ring-fence that grant—to ensure that authorities
cannot divert money intended for schools to other services—and
require local authorities to give schools their budgets for up
to three years ahead. Neither of those proposals requires a change
in the distribution formula. Nor is there any reason why they
should lead to greater involvement by the Department in the day
to day management of the school system: local authorities will
remain responsible for the distribution of funding between their
schools according to local formulae and for the strategic management
and quality assurance of the local school system.
The current system does not give schools flat rate
increases in their budget shares, and nor will the new arrangements
from 2006. Local authorities will remain responsible for determining
a local formula for the distribution of funds to schools, in consultation
with their Schools Forums. Budgets will not be fixed in cash
terms for three years ahead but will be responsive to changes
in pupil numbers; and we are currently consulting on the extent
to which other changes in schools' circumstances should be taken
into account in finalising budgets each year. The aim is to strike
the right balance between giving schools greater certainty and
stability on the one hand, and ensuring that budgets accurately
reflect the circumstances of the year in question on the other.
It is true that the Minimum Funding Guarantee (MFG)
ensures that schools receive a minimum per pupil increase each
year: this means that any distributional change will happen gradually,
rather than suddenly as happened in 2003. The number of schools
which will need an additional allocation to bring them up to the
level of the MFG, and the number which will receive increases
above this minimum level as a result of the local formula, will
vary according to the level at which the MFG is set: two thirds
of schools received increases above the level of the MFG in 2004-05.
The consultation document seeks views on the level at which the
MFG should be set in future: again, the aim is to strike the
right balance between certainty and predictability for schools
on the one hand and responsiveness to changing circumstances on
the other.
The Government's proposal to introduce a new Dedicated
Schools Grant to local authorities and three-year budgets for
schools from April 2006 will not centralise school funding. Local
authorities will continue to be responsible for the distribution
of funding between the schools in their area.
6. It cannot be right to make far-reaching changes
to the funding system for schools because of reported problems
without quantifying those problems to see if change is merited,
nor without understanding fully the nature of any failings so
that the changes can be demonstrated to address them.
7. The DfES seems content to say that the formula
spending share system failed, but that it does not matter to what
extent and for what reasons it did not deliver the desired result.
This is incredibly short sighted. There is not proper evidential
basis for saying that change is merited, and no way of being confident
that the changed system will address any problems that exist.
For a Department that believes in evidence-based policy the DfES
has remarkably little evidence to support the changes it is making.
The Department believes that it has a good understanding
of the reasons why some schools encountered funding difficulties
in 2003-04, following detailed consultation with our national
partners. One of the key factors was that the introduction of
a number of changes at once led to significant distributional
change, and that schools did not have sufficient warning to be
able to plan effectively on the basis of the new information.
The fact that, as the Committee has found, the funding problems
turned out to be less widespread than originally suggested supports
this explanation: it was the suddenness of the changes that caused
the difficulties for many schools, rather than the changes themselves.
The Department's proposals for 2006 and beyond will
directly address this problem by giving greater stability and
predictability to schools—building on the changes that have
already been put in place for 2004-05 and 2005-06. They are based
on feedback from schools themselves and their representatives
and have received strong support from the headteacher, teacher
and governor associations. The introduction of three year budgets
is also consistent with the proposals of the Office of the Deputy
Prime Minister to introduce three year settlements for local authorities,
which again are intended to enhance the ability to plan ahead
effectively and make the best use of resources. The Department
believes that it is right that schools, as well as the rest of
local government services, should benefit from this longer planning
horizon.
Staff reductions
9. We accept the principle of the Gershon review's
proposals to increase efficiency in public services and to redistribute
resources to the front line.
The Department is fully committed to the Efficiency
Review's objectives of freeing up resources for redeployment to
the front line, and have a strong record of success in this area;
for example, our work on value for money, reforming the workforce
and reducing bureaucracy in schools. The Department is managing
an increasingly demanding delivery agenda while reducing its overhead
costs in real terms. The Department plans to achieve £4.3
billion in efficiency gains by 2007-08, contributing towards the
Government's overall efficiency target of over £20 billion.
These efficiency gains are not about cutting
spending on front line services, and overall DfES spending will
continue to rise year on year. The key aim is to help
front line organisations make better use of their funds, increasing
value for money.
10. In order for us to understand fully what is
being proposed, the Department should make public both the detailed
reasoning behind the headline 31% staff reduction and a comprehensive
assessment of the risks in making that reduction, and the ways
in which they are to be managed. In particular, the Committee
needs to have evidence that schools' funding will in future be
overseen effectively without a large new bureaucracy.
The Five Year Strategy for Children and Learners,
published in July 2004, and in particular Chapter nine: 'Managing
the Transformation', sets out the reasoning behind the major
reform that is underway in the Department. We are using programme
and project management disciplines to manage the delivery of the
reform programme, including the key risks involved and we
will provide the Committee with a note of how we are doing
this before Easter. The changes in role will enable the Department
to reduce its staffing by 1,460 by 2008—a reduction of 31
per cent on October 2003 levels. This will be achieved by less
direct management of the system and less direct service delivery;
by removing overlap between the responsibilities of the DfES and
its agents and partners; and by continuing efficiencies. A smaller
Department will also help to reduce burdens at the front line.
The Department has set out in greater detail for
its staff in April and May 2004 the impact of the proposed reductions
on different areas of the Department's work, on different locations
and on different grades. Copies of the key messages to staff will
be placed in the House of Commons library along with a new booklet,
The DfES of the Future, published in February 2005 which
provides more detail of the rationale behind the changes. The
core role of the Department will be to: support Ministers in providing
strategic leadership to the system; develop policy by drawing
on high quality analysis and real knowledge of how the system
works; involve, and build support among, partners and stakeholders;
and communicate the vision powerfully.
The Department itself will do less direct management
and direct service delivery. It will increasingly be designing
systems which can deliver the Government's policy objectives without
over-prescription and bureaucracy. It will use the guiding principles
of the Five Year Strategy—personalisation and choice, diversity,
freedom and autonomy and stronger partnerships—to underpin
its work.
The Department will continue to fulfill the normal
day to day responsibilities of a Government Department. This
means supporting Ministers in carrying out their public and Parliamentary
duties, managing taxpayers' money well, and making a success of
the Freedom of Information Act by providing high quality information
to Parliament and the public. We will strive constantly to improve
the standard and efficiency of these services.
There is no intention, or need, to create a large
new bureaucracy for schools' funding.
Financial management capabilities of the DfES
11. In the case of ILAs, the objective of expanding
training was given such a high priority that the caution normally
associated with Government policy implementation was completely
overlooked. With schools' funding, although we may never have
a clear picture of the extent of the problems, one difficulty
was the way in which the settlement for 2003-04 was presented
by Ministers, leading all schools to expect large sums of extra
disposable income which in many cases did not materialise. The
lessons here are clear: always have a rigorous risk assessment,
and do not oversell a particular policy where, as with school's
funding, accurate forecasts of the outcome are not available.
12. Virtually the whole of the public sector will
be in transition over the next five years as the Gershon proposals
are implemented, and the Government will no doubt argue that the
DfES along with other organisations has to contribute to the success
of those changes. At the same time the DfES will be implementing
the wide-ranging policy changes that we have discussed in this
report across all schools and across all children's services.
We have identified financial management and project management
problems that have occurred within the Department, and it clearly
needs to address its methods of working in order to limit the
possibility of similar problems in the future.
Since the Committee's hearings in 2002 on the failure
of the Department's Individual Learning Accounts programme the
Department has continued building on the lessons learnt to develop
financial, risk management and programme and project management
skills across the Department, using professional specialist expertise
where it is needed.
More recently the Department has developed and is
currently implementing a Departmental Risk Improvement Plan to
further develop and foster a management culture which supports
well thought-through risk taking and innovation. This plan focuses
on the areas where we need to raise our risk management capability
including the effective management (not just identification and
assessment) of risk; improving the management of risk with delivery
partners; and improving the clarity of risk management strategy
and policies. The plan is backed up by a robust evaluation strategy
which will allow us to monitor and review progress and its effectiveness,
and provide us with evidence upon which to base decisions about
future improvement actions.
Government purchasing policies specify that contracts
are let through competitive tendering, and the EU Procurement
Directives further specify that large projects are tendered across
the EU member states. Tender responses to each procurement exercise
are assessed on their own merits against clearly defined criteria.
It is not at all improper that one supplier may be successful
in more than one procurement exercise.
The Education Maintenance Allowance (EMA) national
assessment and payment service project is a recent example of
programme development where good risk management and contract
management procedures were used to successfully launch the scheme.
Procurement of the service was carried out under negotiated procedures,
commencing with publication of a notice in the Official Journal
of the European Community on 1 December 2002.
The initial six selected contractors were reduced
to three at the evaluation process with the assistance of specialist
external advisors. Detailed negotiations followed and Capita
was appointed as the supplier. Although the procurement process
was protracted the Department successfully launched the EMA service.
Time spent on developing the business model and statement of
service requirement, recognising and securing an appropriate level
of expert advice and resource to support the tendering process
and the production of highly detailed and specialised material
before best and final offers proved highly valuable.
There has long been a recognition that market capacity
and capability are issues across Government. Sir Christopher
Kelly led an Office of Government Commerce (OGC) team which produced
the December 2003 report Increasing Competition and Improving
Long-Term Capacity Planning in the Government Market Place.
Competition and the level of market maturity, capacity
and capability varies between different market segments and some
markets appear relatively immature. It is true that in some market
segments, it appears that certain suppliers seem better prepared
to bid and have the infrastructures, capacity, and understanding
of the system to provide better delivery assurance during tendering.
The Department has successfully supported the creation
and development of new markets through a range of activities including
dialogue with prospective suppliers; carrying out soft market
testing discussing the likely procurement strategy, using open
specifications that focus on outcomes, appropriate contracts,
risk transfer arrangements and by minimising supplier "lock-in"
through developing exit provisions into contracts.
Following on from the Kelly report the Department
is also participating in the markets initiative led by the OGC.
The Department assisted in producing the November 2004 best practice
guidance Market Creation for the Public Sector and will
continue to assist OGC in taking forward the Kelly Action Plan.
Further education
13. It makes no sense that a student undertaking
a course at a Further Education college should, other things being
equal, be less well funded than a student taking the same course
at a local school. The Secretary of State appears to recognise
that truth, but progress towards equal funding is painfully slow.
Greater urgency is needed. Further Education colleges should
not be seen as a means of providing education on the cheap.
The Government recognises that there is a funding
gap between school sixth forms and further education (FE) colleges
in the resources provided for students aged 16 to 18 following
similar programmes. Our policy has been to raise the level of
funding for colleges, as and when we are able to secure the resources
to do so. FE colleges are not providing education 'on the cheap'.
Funding comparisons between schools and further education
are far from straight forward, and there are different ways of
looking at it. Given that funding per learning aim is at the
heart of the Learning and Skills Council's funding system for
schools and colleges, the main measure used is the difference
in funding rates for an AS/A2 qualification. In 2002/03 the difference
between the AS/A2 base rates for school sixth forms and further
education colleges was 10.5 per cent.
At the 2002 Spending Review a record funding increase
for the FE sector was delivered. The increased funding enabled
the Learning and Skills Council to deliver a 4.5 per cent increase
in funding rates in 2003/04 for all colleges that agreed development
plans. In the same year, school sixth form funding rates increased
by 3 per cent—resulting in a narrowing of the funding
gap to 9 per cent. FE colleges that delivered against their plans
receive a further 5 per cent increase in funding rates for 2004/05
compared with a 4 per cent increase for schools—a further
narrowing of the gap to 8 per cent. We expect a similar step
in funding rates in 2005/06, further reducing the gap to 7 per
cent.
The Government also recognises that funding cannot
be divorced from issues of quality. As a result of the recent
additional investment in the sector and the introduction of our
Success for All strategy, we have seen overall improvements to
the further education sector. Overall, learners are achieving
more and the vast majority (90 per cent) are satisfied with their
learning experience. College success rates are up from 65 per
cent in 2001/02 to 68 per cent in 2002/03. This latter figure
means that more than 80 per cent of learners stay to the end
of their course; and, of those, just over 80 per cent pass it
successfully. The introduction of national floor targets is making
an impact on quality and standards. The number of colleges above
their floor targets has risen from 84 per cent in 2001/02 to 86
per cent in 2002/03. Work-based learning success rates are also
rising and poor provision is being closed. The majority of employers
(80 per cent) are also satisfied or very satisfied with the training
they receive from colleges.
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