1.  AN ANALYSIS OF EDUCATION SPENDING TRENDS, 1997-98 TO 2005-06

Education expenditure as a proportion of gross domestic product (GDP)

  1.1  Public expenditure on education in the United Kingdom was equivalent to 5.7% of GDP in 2005-06, a rise from 4.7% in 1997-98. Table 1 shows education spending as a proportion of GDP for each year since 1997-98. Spending has increased as a share of the economy during a period of economic expansion, so the resources made available have increased significantly in real terms. It is worth adding that public expenditure on education and skills as a proportion of GDP was also well over 5% in the early 1990s. There is now evidence that the increase in public expenditure on education (as a percentage of GDP) is levelling off. Health expenditure, on the other hand, continues to rise more sharply as a proportion of the economy.

  1.2  The Institute for Fiscal Studies analysis of Education expenditure shows a table comparing education expenditure in the UK compared with other major OECD countries.[11] The UK figure is now ahead of that in Japan, Italy and Germany, but lower than in France and the USA.

EDUCATION EXPENDITURE, BY SUB-SECTOR, IN REAL TERMS

  1.3  Table 1 showed overall UK public education expenditure as a proportion of GDP. Another way of analysing spending is to compare changes adjusted to take account of inflation (ie in real terms). Table 2 shows real terms spending on each phase of education in each year since 2000-01. It is important to note that this table is different from similar ones presented in earlier years because the Departmental Report has dropped the key all-education spending table that has been published in previous departmental reports. That is, the Department no longer publishes a simple, real terms, table of expenditure on each phase of education distinguishing between current and capital expenditure. Table 2 has had to be calculated from a number of other tables published in different volumes. No reason is given for removing the table from the 2006 report, nor is there any obvious reason for starting the time series in 2000-01.

  1.4  Spending on each phase of education has increased in real terms in the years since 2000-01. The final column of the table shows overall spending changes over the full period up to 2005-06. Overall, DfES's spending on schools (current and capital) increased by 123%, compared with 48% in further education and only 15% in higher education. Local government's expenditure on schools rose by just 13% in real terms. The table shows very clearly the shift from local to central funding of schools in the years since 2000-01. From 2006-07, all spending on schools will run through the DfES line of the table.

  1.5  Table 3 summarises spending per pupil/student data for the schools, FE and HE sectors in each year since 2001-02. The time series shown runs only from 2001-02 because the Department now provides data over relatively short periods. Spending per pupil/student has increased fastest in schools, followed by further education. Pupil numbers have been falling since 2003-04, though only modestly. By contrast, real terms higher education spending per student has risen by only around 5%, suggesting a continuing major relative shift of public resources away from universities towards other phases of education. Other university resources, for example from endowments and fees, may have increased.

2.  THE DFES AND THE REFORM OF SCHOOLS FUNDING

  2.1  Last year, the Committee noted the continuing salience of schools funding as a national and local political issue. In particular, the Committee stated that it expected to be "consulted at an early stage on the Government's plans for the new schools funding system" which is to be implemented by 2008-09. In the Department's response to the Committee's Report, it was stated that the Government "had offered national partners the opportunity to comment by 31 May [2006] on the issues set out in the terms of reference for the review of school funding: we would welcome the Committee's views on these issues too".

  2.2  It is not clear that the Department actually consulted Committee members on its proposed review of schools funding. Perhaps officials thought sharp-eyed MPs would become aware of the document from one of the consultees listed in the letter accompanying the Terms of Reference sent to Directors of Children's Services and others.

  2.3  The Terms of Reference document discussed a number of possibilities:

—  Dedicated Schools Grant (DSG) could be retained (ie to base the next year's allocation of DSG on the previous year's, making marginal changes to allow for inflation and/or new priorities) or, alternatively, it would be possible to move to a new formula.

—  Specific grants could in some cases be merged into DSG, though this might need transitional protection for some areas or schools.

—  Deprivation measures within the DSG (at school level) will be considered in the context of a technical review of indicators and an analysis of "deprivation statements" local authorities were required to produce by May 2006.

—  The nationally-determined Minimum Funding Guarantee (MFG) may or may not continue. Also, it might be possible to change the MFG in such a way as to allow a greater degree of redistribution between schools.

—  Ministers are prepared to consider academic year budgets, though not academic year accounting.

—  The detailed operation of multi-year budgets will be examined, in particular, the need to achieve predictability yet also ensuring schools are aware of coming pressures on budgets (eg pay settlements).

—  The effectiveness of Schools Forums will be reviewed to see if their powers should be extended to embrace capital funding issues, possible changes to decision-making powers, possible changes to constitutional arrangements and the need for guidance and advice.

  2.4  A package of measures will be put forward during the early months of 2007 and the Department has stated it would also welcome the Committee's views on this package.

  2.5  It is impossible to know what the new funding arrangement will look like, though it is unlikely it will move radically away from the existing school-by-school allocation of resources. There is very great pressure on the Department to ensure that schools' funding is "flat" from year to year. Any sharp redistribution of money produces gainers and losers—and only losing institutions react. The problem created by such pressure for stability is that it makes it difficult for the Government to shift resources towards schools with rapidly-increasing spending needs.

  2.6  The possibility of a national funding formula for schools is not ruled out. The Committee's predecessors argued for such a reform, though successive governments have resisted demands for a single national formula. But now there is a national allocation of resources for schools (the Dedicated Schools Grant) the logic of a single national formula is significantly greater than before.

  2.7  There is a choice to be made between, on the one hand, broadly freezing per capita allocations where they are today and, on the other, allowing for possible redistributions of money between schools in different circumstances.

3.  GERSHON AND PRODUCTIVITY

  3.1  The Departmental Report states on page 96 that "some £875 million worth of efficiency gains have now been realised" in the period from 1 April 2005, though the DfES can "only report on some £578 million from 2005-06". These totals are part of the £4.3 billion in annual efficiency gains to be delivered by 31 March 2008. Thus, even using the larger number, the Department appears to have delivered 20% of the required efficiencies within 33.3% of the time (ie in the first year).

  3.2  Schools have never been directly approached about the delivery of Gershon savings. The Department is attributing savings to the schools sector on the basis of "grossing up" information about performance based on surveys. There is little information in the annual report about the use to which the efficiency savings have been put. Instead, there are descriptions of what is to be achieved in future. It would be interesting to know what items and services schools and other institutions have been able to purchase with the £875 million so far released for new uses.

  3.3  Productivity is an issue the Committee has considered previously. In recent years, official measures of productivity in public services have been subject to significant attention. The Office for National Statistics (ONS) commissioned a major inquiry, undertaken by Sir Tony Atkinson, to improve the measurement of public service productivity. Subsequently, a UK Centre for the Measurement of Government Activity has been created to move forward work on productivity in services such as education.

  3.4  In preparation for the Committee's annual expenditure scrutiny, a letter was sent to the ONS asking for up-to-date and historic information about productivity in public sector education. To date, there has been no reply. It remains clear that establishing a credible statistical measure of productivity in British education has—and continues to prove—very difficult.

4.  PRESENTATION OF THE DEPARTMENTAL REPORT

  The Departmental Report is the DfES's annual opportunity to explain its objectives and achievements. For some reason, the form and layout of the document is subject to regular change and re-presentation. A comparison of this year's "Contents" page with that for last year (published as recently as October 2005) suggests a complete re-design and reform of contents. By contrast, the Department of Health (DH) has kept a very similar layout for at least the last three of its departmental reports.

  Moreover, many of the key statistical tables have been changed, with a number of important tables dropped altogether. The removal of last year's Table 12.3 (which had been included in the equivalent document for many years) showing education spending by central and local government by sector in real terms is a serious loss for those wishing to understand the overall nature of provision over time in England.

  Tables have different starting points (1999-2000, 2000-01, 2001-02, 2003-04 or 2005-06) and there is no explanation of why so many different ones are used. The very first table in the volume is an organisational chart of officials, while the first chart shows the "Growth in Ofsted Registered Childcare Places". The second chart looks at "England under 18 and under-16 conception rate". While the subjects covered by these charts are important, it might be thought to be more logical to start a document of this kind with overall facts and figures about expenditure, inputs and outputs. The DH does precisely this.

  The report also includes some curious uses of language. On page 8, for example, the Department lists "The Behaviours" it is seeking to promote. While there is nothing objectionable in the statements that follow, the use of English is perhaps unusual.

  It would be interesting to know whom the Department imagines will use the Departmental Report and how they annually determine its content and lay-out. The Committee is not, it would appear, consulted about such matters.

June 2006