Schools should be able to make a profit within a regulated environment

The need  to access capital may be a deciding factor


Mike Baker formerly ,the BBCs education correspondent, was told recently at a meeting held under Chatham house rules,  ie non-attributable- by the head of a big for-profit private school provider, that there is not enough money in the government’s ‘free schools’ programme to entice companies like his to get involved. It doesn’t require the brains of an Archbishop to work out who this was (how many big for profit providers are there?) His  organisation he said  would ‘not be getting involved in “free schools” as it would damage our reputation as we cannot do it at the per pupil funding that’s on offer’.

He did say, however, that some for-profit private school firms that took a ‘stack ’em high, sell ’em cheap’ approach might see something they could get out of the ‘free schools’ programme. For now, the Chief Executive quoted above, argued that there were much better prospects for the for-profit sector to open new top-end fee-charging schools, despite the fears of recession. He dismissed as ‘complete rubbish’ the idea that chains of new cut-price private schools would be a threat to the traditional independent schools sector. The sector has remained pretty resilient so far, but has not expanded.

He told the conference: ‘I do not see a socio-economic emerging class on family incomes of £50,000 going to no-frills schools at £6,000 a year and offering no more than state schools, and maybe less, and with classes of 30 pupils’

Its worth noting though that these top end schools seem to be looking abroad in  growing numbers ,as conditions at home become increasingly competitive, and with  regulatory and staff costs rising  above inflation  .Many are now  involved in punitive  facilities  races, to ensure that they offer as much as,  or more than ,their nearest rivals (ie gyms, swimming polls, all weather pitches, athletic tracks, theatres etc)

At present, for-profit firms can only be involved as management companies (for which they receive a fee) but cannot sponsor and open a school directly. Under existing legislation, already in place as it happens, before the Coalition came to power,  governing bodies were allowed  to contract out services, under an arrangement known as the management fee,  or the  Edison model. However, this approach was not, it has to be said, encouraged by the last government, sensitive  to claims that it was seeking to privatise the maintained sector  However,  the system of charging management fees is now  being seen by some  as a way to incentivise private firms to run schools. To date just one pioneering school has been allowed to do this in England- Turin Grove school in Edmonton, north London .The management fee was  paid to Edison Learning, which has a  sound track record of running Charter schools in the States. In April 2007, the governing body, working with the local authority, granted a contract to Edison Learning, to lead and manage the school for three years. Although this contract is not being renewed most stakeholders seem  to think that the arrangement was a success.

Free schools are, of course, new schools that have a similar legal status to Academies operating under the new Academies Act.   They are not as such permitted to make a profit.

But the Government, living within  increasingly tight monetary constraints is struggling to find the funds to sustain long term, the free schools initiative. Remember the Government also has to find funds for the pupil Premium outside the current education budget and has had to cut back drastically  on the schools building and refurbishment programme which it inherited( a Capital Review is currently underway to find a  credible way out of the fix.)

As things stand there are many Tories and even a few Liberal Democrats who see tapping in to the private sector and its access to capital as the only viable long term option. The Private sector, by and large,  given its duty to shareholders, will only want to get involved if it can secure a reasonable return on its investment and this means- making a profit. Investing in a one off school is not an attractive option. However, running  a network of schools with the economies of scale and cost savings for centralised services that go with it  might be-but the sums have got to make sense.  Interestingly enough, the think tank Policy Exchange, co-founded by the education Secretary Michael Gove and very influential in Tory circles, came down in favour of profit making in state schools in a report out  just before the election . It stated ‘There is no doubt that the politics are not easy. However, if we seek a large number of chains to drive expansion in the schools sector then this is one nettle that will need to be grasped – at least by allowing management fees between schools and private companies. Barring profit reduces the pool of organisations which want to set up several schools, and means those that do exist do not have a direct incentive to expand.(Blocking the Best: Obstacles to new, independent state schools; Anna Fazackerley, Rachel Wolf and Alex Masse; Policy Exchange March 2010)

What is perhaps  less well known is that CentreForum, the Liberal think tank, delivered a paper  in 2008 also coming down  in favour of allowing profit making. In a collection of essays on Labour’s academy schools programme, the think tank suggested that  English schools should be able to follow the Swedish example. “None of the three main parties in the UK is currently prepared to countenance the idea of schools making a profit out of state funded education,’ wrote  Julian Astle, director of CentreForum. “It is unclear whether their squeamishness is justified, however. Only by giving private operators a profit incentive to enter the state school system will enough investment be attracted to expand the academies programme to the size that will be required to raise education standards significantly,’ he added.

Forgive me for stating the obvious but we  would have no public services if it wasn’t for profit making. Profit making businesses are the generators of the wealth on which incomes taxation and  all else including public services depends.

Indeed Charities  too would not exist if it wasn’t for proifitmaking either , both in terms of the  provenance of donations received  from  wealth generating individuals and institutions  but also   from the fact that  Charities aim to make a surplus (profit)  to  ensure their sustainability. It was an American nun ,after all,  running a charitable Health Care Chain who coined the phrase ‘ No Margin, No Mission’.

Some new thinking is  urgently  needed in this area, sensitive though it may be. Profit making already happens in state education, almost wherever you choose to look, from private companies running big government contracts, to the management of special schools  with challenging pupils , young prisoners education, teacher training, ICT and school inspections  and it works well. Private companies can build the school, dress its pupils,  equip them  with books and ICT, train the teachers,  advise pupils what exams to sit and careers to  pursue and inspect the school, but  cant then  manage the education of the children in the school  . What sense does that make?   Of course it could easily  work, it does abroad –a privately run state school   operating  in a regulated environment with transparency and clear contractual  accountability, delivering improved  performance, working with other local schools as part of its contract, while remaining non-selective and inclusive.

Remember that some, albeit a minority, of  ‘ democratically’ elected councils have allowed failing schools to continue to fail, often already disadvantaged   children, over many years, blighting their hopes and aspirations and life opportunities. The private sector may not be a panacea but in certain contexts and circumstances and if properly regulated   it could play a  valuable role in managing schools, and raising standards  and  private sector companies merit   a place in the supply chain, along with public and not for profit providers. It is certainly  generally true that free markets  drive up quality and drive down price, and  are the best way of delivering the goods and services that people want and need.  As the Swedish example of free schools  demonstrates not only do  these  independent schools  have high standards but evidence shows that  they help to  raise the standards of other  municipal schools in their local areas.


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