Capital funding for schools Contents

1School places and free schools

1.On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Education (the Department) and the Education Funding Agency (the Agency) on capital funding for schools.1 The Agency is an executive agency of the Department. We also took evidence from the Chairman of the Education and Building Development Officers’ Group (EBDOG) and the former and acting head teachers of Hetton School, a secondary school in Sunderland.

2.There are about 21,200 state-funded schools in England, educating 7.9 million pupils aged between four and 19. The school estate comprises an estimated 62 million square metres of internal floor space. The Department provided £4.5 billion of capital funding for schools in 2015–16. Its aims are to improve the condition of existing school buildings and to provide more school places, both to meet demand and to increase choice. An increasing amount of funding is being channelled through the Free Schools Programme. The Government has committed to open 500 more free schools between 2015 and 2020, with the aim of increasing choice and raising educational standards.2 It has also announced funding for a further 110 free schools beyond 2020.3

3.The Department is responsible for setting the policy and statutory framework for capital funding and securing value for money from this funding. The Agency is responsible for implementing the Department’s policy, in some cases directly and in other cases through local authorities, academy trusts or individual schools. Local authorities are legally responsible for ensuring that there are enough school places for all children in their area. Academy trusts and local authorities are responsible for making sure that their school buildings are well maintained.4

Meeting the demand for places

4.Between 2010 and 2015, the Department and local authorities created 599,000 new school places at a cost of £7.5 billion, mostly in good or outstanding schools. The school age population is continuing to grow and the Department has calculated that a further 420,000 school places will be needed between 2016 and 2021, 232,000 in primary schools and 189,000 in secondary schools. Places in secondary schools are more costly and complicated to provide as they require specialised facilities such as science laboratories.5

5.School places are not spread evenly across the country—there is pressure on places in some areas, with large amounts of spare capacity elsewhere. In 2015 some local planning areas had fewer than 2% of their places unfilled (the level that the Department funds to allow a margin for operational flexibility), while others had spare capacity of over 20%.6 Spare capacity may have an impact on the financial sustainability of schools because the amount of funding they receive is dependent on how many pupils they have.7

6.We asked the Department to explain in what circumstances spare capacity would become a problem. It told us that, in some cases, spare places did not affect schools’ financial sustainability because they had no cost to the school.8 The Department also explained that what was an appropriate amount of spare capacity varied from one area to another so it would be necessary to have a detailed conversation with individual local authorities to understand their approach. It would expect local authorities to take action if high levels of spare capacity continued over a long period. The Department said that it was not currently focusing on challenging high levels of spare capacity because the school age population was still increasing. Its priority was to make sure that it met this need without spending money unnecessarily on surplus places. Over time, however, it expected it would increasingly focus on reducing spare capacity.9

7.The Department said that its formula for distributing capital funding to local authorities was based on their forecast level of need and local authorities were responsible for spending this money well.10 However, we note that an increasing proportion of capital funding is being spent on creating places in free schools.11

Free schools and choice

8.Free schools are independent of local authority control and can open only when an organisation applies to set one up.12 The Department told us that it is increasingly working to make sure that free schools are in the areas where they are most needed.13 However, free schools can be created in places where extra school places are not required—the Department estimates that 57,500 of the 113,500 new places in mainstream free schools opening between 2015 and 2021 will create spare capacity in their local area. It highlighted that it was creating these places to provide parents with additional choice, thereby fulfilling the Government’s manifesto commitment.14

9.We are aware that parents have much greater choice about where to send their children to schools in some local areas than others.15 The Department could not quantify the amount of spare capacity needed to provide parents with meaningful choice, and told us that this would depend on local circumstances. It explained that it approved free schools with the objective of improving choice where the standards of existing schools in the area were not high enough or where there was evidence of demand from parents. However, from what we heard, the Department does not seem to systematically identify and then target areas of the country where choice is currently poor.16

10.The Department expects free schools to improve educational standards by increasing competition between schools for pupils and funding. It does not yet know whether this is happening.17 The Department told us that it was pleased with the proportion of free schools that have been assessed as good or outstanding and that it expected to be able to evaluate the extent to which free schools improve attainment in three to four years time.18

11.Free school places are more expensive than places provided by local authorities—on average a place in a secondary free school opening in 2013–14 or 2014–15 cost 51% more, while a place in a primary free school cost 33% more. The higher cost is mainly because free schools tend to involve the purchase of land.19

Sites for free schools

12.Where local authorities are unable to provide land for free schools, the Department purchases sites itself. It spent £863 million on 175 sites for free schools between 2011 and 2016. Schools are often needed in areas where land is scarce and in demand for housing. For example, nearly three-quarters of the amount that the Department has spent was for sites in London.20

13.The average cost of free school sites bought by the Department was £4.9 million, but 24 sites cost more than £10 million each, including four that cost more than £30 million.21 The Department commonly pays well in excess of official valuations.22 On average it has paid 19% over the official valuation, with 20 sites costing over 60% more. The Department said this was because the official valuations for each site were based on past deals for similar premises and on the site’s existing use, and did not equate to the true market value.23 It highlighted that HM Treasury reviewed, after the event, a sample of purchases made at 20% or more above the official valuation, and prior approval from HM Treasury was needed for purchases made at 60% or more above the official valuation. The Department said that it believed that it had not made any land purchases that represented poor value for money. It added that it would walk away from a site if it thought it was too expensive.24

14.The Department expects to spend £2.5 billion on land from 2016 to 2022, putting it in the same spending bracket as the top five homebuilders in the UK.25 It highlighted that it would need more skills and capacity to handle the increased volume of site purchases. The Department had therefore set up a company (called LocatED) to help manage these transactions more effectively.26 It expected the company would be able to attract more staff with professional property expertise because it would offer standard industry rates, rather than civil service rates.27 It told us that it would be setting LocatED challenging targets to make sure sites were delivered quickly and cost-effectively.28

15.To help with the shortage of sites for free schools, the Department sometimes uses buildings previously used for other purposes such as offices, industrial sites or police stations. It has not yet fully evaluated how these buildings are working in practice.29 The Department told us that school sites have to meet minimum standards but it was difficult to find sites with large playing fields in some localities. It said that it would not be acceptable to have a school without access to play facilities of some kind. Ideally these would be on the school site but this was not always possible, particularly in London. Many schools were using local park facilities or amenities such as climbing walls in community facilities.30

16.When permanent sites are not available, the Department allows free schools to open in temporary accommodation—233 free schools were based in temporary premises when they opened.31 The Department told us that this added to the cost of the programme but there was little difference in the educational quality of schools in temporary and permanent accommodation. We asked about the significant uncertainty that temporary premises can create for pupils, parents and schools themselves. The Department’s view was that it was preferable for schools to open in temporary accommodation if the alternative was that they were delayed or did not open at all.32

Contributions from housing developers

17.Local authorities rely on contributions from housing developers to help fund the cost of school places for children living in new housing developments. In 2015–16 local authorities expected to spend £174 million on school places using ‘section 106 contributions’ from developers.33 The Chairman of EBDOG told us that new regulations, introduced by the Department for Communities and Local Government in April 2015, would reduce local authorities’ opportunities to collect this money.34 These regulations restrict the number of contributions local authorities can pool towards a single infrastructure project like a school, and 37% of local authorities responding to the National Audit Office’s survey said that the restrictions were a major constraint on providing additional school places.35

18.We asked the Department what it was doing to ensure that housing developers are contributing their fair share to the cost of providing new school places. The Department told us that it had a common interest with local authorities to make progress on addressing the issue, and that government departments were discussing the question of pooling contributions. It added that it expected the Department for Communities and Local Government to make a policy statement in summer 2017.36

1 C&AG’s Report, Capital funding for schools, Session 2016–17, HC 1014, 22 February 2017

2 C&AG’s Report, paras 1–3, 1.24

3 HM Treasury, Spring Budget 2017, HC 1025, 8 March 2017, para 4.14

4 C&AG’s Report, paras 4, 5, Figure 1

5 C&AG’s Report, paras 1.3, 1.5–1.7, 1.14, 1.15

6 C&AG’s Report, para 1.9, Figure 5

7 Q108

8 Q128

9 Qq125–129

10 Qq102, 108

11 C&AG’s Report, Figure 7

12 C&AG’s Report, paras 1.15, 1.25

13 Qq110, 181

14 Qq10, 109; C&AG’s Report, para 1.25

15 Qq113, 114

16 Qq130–133; C&AG’s Report, para 1.25

17 Q11; C&AG’s Report, para 1.26–1.27

18 Q117

19 Qq175–183; C&AG’s Report, para 3.14

20 C&AG’s Report, paras 3.17, 3.19

21 C&AG’s Report, para 3.19

22 Qq166, 167

23 Qq160, 164–170; C&AG’s Report, para 3.20

24 Qq161, 167

25 C&AG’s Report, para 3.19

26 Q165; C&AG’s Report, para 3.20

27 Qq170, 196; C&AG’s Report, para 3.20

28 Q170, 198

29 Qq141, 198; C&AG’s Report, para 3.18

30 Qq152–157

31 C&AG’s Report, para 3.21

32 Qq134–145; C&AG’s Report, para 3.21

33 C&AG’s Report, para 1.23

34 Q28

35 C&AG’s Report, para 1.23

36 Qq118–120

24 April 2017