Money is the big problem


There has always been a paradox at the heart  of  Education Secretary Michael Goves  invocation of  the Swedish  education  model as an inspiration for the  Free schools reforms  here-in Sweden  groups were and are allowed  to profit from Free schools,  here  providers are not. Anders Hutlin, one of the architects of the Swedish reforms, now with Pearson Education,  has  long stressed how important the profit motive was in getting Swedish reforms off the ground, and has criticised the Government for not allowing providers to profit from managing state schools here . Around three quarters of Swedens  Free schools are run for profit. At a time when state funds are in short supply failing to incentivise the private sector to get involved in backing and  running Free schools looks to  have been  a big mistake. He and his team of advisers cant say they were not warned though. Both  the   Policy Exchange (which Gove helped establish) and Reform think tanks ,  supported profit making in state schools when Goves team were drawing up their plans for Free schools .

Indeed Rachel Wolf ,who is the Director of the New Schools Network, which helps parents to set up Free schools, co-authored a report for Policy Exchange in 2010 which said:

At present academy sponsors are barred from making a profit. There is no legislative reason why profit should not be allowed (these schools are simply classified as independent schools). When Tony Blair introduced academies, officials and the most radical ministers (including Lord Adonis and John Hutton) knew that allowing profit would provide a significant boost to the market, but considered the politics unworkable. 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 Massey-Policy Exchange 2010)


The Financial Times in a Leader in January  agreed that for the Free schools initiative to thrive it needed capital from the private sector. It opined ‘ To assemble the necessary capital, one must engage with the private sector and allow sponsors to run state-funded schools for profit. This ought not to be a problem for Mr Gove. One of the models he frequently cites is the Swedish system, which allows private entities to do just that.’

The Government is shutting off  a vital source of capital, investment , management expertise  and innovation at a time of public retrenchment. The Liberal Democrats,  before the election ,had proposed  a  model in which private providers would  be required to meet their own capital costs, but then be  allowed to recoup them through the recurrent funding  they receive from the state. This is essentially a diluted  version of the Swedish model, which also requires private  providers to put up their own capital funding, but which  allows them to make a profit as part of the deal

Now Julian Astle, of Centre Forum, the think tank closest to the Liberal Democrats ,  believes that the apparent lack of momentum in the Free schools initiative-just 30 have so far been approved – is not due to a lack of interest, but to a lack of capital. He writes in the FT (23 Feb) ‘ Parents and community groups don’t have the money to set up a school, yet only £50m has so far been made available for start ups – compared with the £25m average cost of each Academy opened under Labour.’

Astle  adds that the obvious solution is to draw more private capital into the system and as  most people putting their own money on the line expect a return- so, he asks, why not let state-funded schools run for a profit?

Astle flags up the political difficulties of allowing for profit state schools but  claims that simply relying on charities and  ‘indefatigable parents’ will not deliver the reforms the Government wants. He suggests  that ‘  At the very least the coalition  must allow those providers who cover start-up costs to recover them by retaining revenue, even if full for-profit status is a longer-term aspiration’

Toby Young, while accepting that the profit issue is sensitive , sees no reason why the Department couldn’t make it easier for free schools to pay management fees to private education providers. The Department should put a procurement framework in place that would enable free school Academy Trusts to enter into contracts with private companies without exposing themselves to an increased risk of legal challenge. Young believes that  would enable more free schools to be established.

Of course allowing profitmaking  would present big political challenges, but on the other hand, a failure to deliver on the Free schools reforms , and allowing this initiative to run into the sand,  will provide an even greater challenge  and, indeed, a threat  for the coalition government. Free schools reform  is a flagship policy and therefore one on which the Government will  very much be judged when it comes to the next election.


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