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.




Should firms be able to make a profit from state schools?


The Times columnist Phil Collins (Tony Blair’s former speechwriter not the former Genesis drummer) asked  recently why neither the Tories nor the government are keen on allowing private companies to profit from state schools.  While acknowledging that it might cause problems with the unions, he wrote in the Times on 2 April ‘We are unconcerned when wicked pen-pushers make a dirty profit from supplying our children with writing implements. But woe betide any company that offers to teach kids to read while turning a profit. I know, I know. Pens are not books and being able to write is not the same as learning to read. But we already permit companies such as Edison Learning to manage schools. VT Group makes a living training school staff. Serco makes a healthy return managing the facilities. All of this is profit that comes out of the public grant. And yet, if a company wins a contract in which it promises, on pain of no payment, to teach children to read, the politicians — Tory as well as Labour — think that a principle of scholarly detachment is being breached. But is there really any vital violation if, in return for the gift of literacy, a company gains a capped profit, just like a utility?’

The Tories plans to allow parents to run schools also seems to avoid addressing a rather fundamental problem, with public money  so short, and while  not permitting capital from private sources, where will the funding come from for these new  free schools? Collins continued ‘Charities that run schools cannot be expected to stump up the capital, and it is obvious that the supply of public money has dried up. It is only if a firm can expect a profit that it can be told to provide the start-up capital itself.’

Anders Hultin, one of the chief architects of the free school model in Sweden and a keen advocate of the profit motive, which he claims is an essential driver  of Sweden’s education reforms, argues that there is no reason to assume that the for-profit motive is in conflict with the “quality” of the education. He claims that is akin to saying that the profitability of motor companies reduces the quality of their cars. Hultin also says that he can do more with 90p than a local authority could do with 100p.

We allow for profit companies to run Special schools for our most challenging pupils,to inspect our  schools, to build our schools, to  manage  school improvement services, to run nurseries and to design learning tools used by all our pupils  , but not to run our schools. This makes no sense at all.

Policy Exchange the think tank thought to be closest to Tory thinking, in a recent report conceded that the politics on the profit issue may be a challenge but went on to say ‘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.’

The Observer in a leader  a couple of weeks ago   opined that if indeed local authorities were not sufficiently accountable for their schools then this must be addressed. However it believed  that this can   best be tackled by   New models of schools, such as academies and not-for-profit sponsors that have the expertise to turn schools around.  But it reaches a very different conclusion on the profit motive to Collins. It opines ‘ But if our sense of public service is so poor that we have to slice chunks from the educational budget to pay for corporate management, we have lost our belief in society. A business ethos is valuable; companies should be brought in to clean the kitchens and children should even be taught how to succeed in business, but the principles of profit and cost-cutting are not those we want at the heart of our schools and the teaching  of children.’ There is a certain irony in the Observers posturing here, given that it likes to turn a profit (or surplus) and its managers have had to cut its costs big time, recently, to ensure its very survival Why? Because it hasn’t… err.. been making a profit.  Everyone knew that education would be one of the main battlefields of the forthcoming election, just announced for 6 May, so hostilities have clearly  begun with a  union predictably  also  joining the fray, threatening strikes if schools are taken out of local authority control. (Tory free schools will be outside LA control)

But the reality is that both private companies and not for profits seek a margin to invest in the future and to accumulate reserves.They have to. As Sister Irene Kraus of the Daughters of Charity said ‘ No Margin, no mission’.   Making a  margin, surplus or profit -however you want to describe it-  is good.  Indeed  its essential if you want to ensure the  sustainability of any enterprise. Its what you do with that profit that matters.And if a private company uses its surplus to reinvest in the school or schools  it is running , who could  possibly object to that? (OK, apart from the unions)



Letter -Published; The Independent 8 December 2008

Michael Gove’s admiration of the Swedish model of education is justified.

 However, what he doesn’t explain is that the Conservative variant would not permit private schools, supported by state funding, to make a profit, a key characteristic of the Swedish model. Opposing the profit motive in the running of state schools doesn’t make much sense.

Not only are many special schools profit-making, with local authorities perfectly happy to send pupils to these schools, but a whole range of support services for schools, including teacher recruitment and supply services, are run for profit. Schools are also being designed and built by private companies, under the BSF programme. The national strategies that directly impact on a daily basis on what happens in the classroom in state primaries and secondaries are managed by a profit-making company on behalf of the Department for Children, Schools and Families. Schools inspections are carried out by private contractors on behalf of Ofsted, too. Private companies can build and inspect schools apparently, but can’t run them. There is no intellectual or policy consistency or coherence here.

 The Tories, rather than proposing a Swedish-lite model missing its most essential ingredient, should go for the full monty and allow state schools to be run for profit. This would free up the supply side, improve choice, enhance social mobility and drive up standards in all schools. It’s worked in Sweden, so why not here?

Patrick Watson London SW8



You must be joking


The Sunday Times revealed that a Tory insider says that they have not ruled out state schools being run for profit. Really?

 Looking though at their education team it is hard to see who would be happy for state schools to make a profit.

They understand the logic and rationale, but it’s the politics that are hugely problematic for Tories, who at times appear to be driven more about concerns about whom they might offend than by issues of principle. There is nothing wrong in principle or practice with state schools making a profit,  providing it is within a robust regulatory environment and the model they endlessly seek to emulate, in Sweden, does precisely that . So too do most Charter Schools in the States which are impacting positively in disadvantaged areas. So far, the Tories have insisted they would not let private firms join, partly for fear of being portrayed as “right-wing ideologues” by Labour. Again the Tories seem so sensitive about  the possibility of  offending this  or that vested  interest,  that it can sometimes  be very hard to determine where they stand, or indeed  where  they will choose to  make a stand and on what important matter of  principle. The Tories have at some point got to establish that they are not simply a marginally more robust version of Blairs  pragmatic New Labour, other wise voters might stick with Labour,  or look for other alternatives (The Lib Dems are  exploiting this situation )

 The Tories have belatedly wised up to the fact that if they want to meet their ambitions to  open up  3,000  new schools, a   plan  modelled on a Swedish system, they will need the support of the private sector both in terms of its expertise but also its capital . What has driven the Swedish model is profit making chains of schools, which use their profits to finance further expansion and to up-scale success. Very few shareholders will be interested in investing in enterprises with no return unless it is part of a firms charitable arm and then the scope is by definition very  limited. Tories are right to be concerned that too few voluntary bodies will come forward to set up these schools. Those who might be interested are already involved in Academies and new school trusts but do not have the resources or incentives to up-scale their commitment. Those involved also note that  that there are no financial  incentives to get more involved, particularly against the backdrop of an on-going recession. The insider quoted by the Sunday Times said “We are considering whether private companies should be allowed to join the scheme…we have not made a final decision.” Among organisations that would be interested is Civitas, the conservative think tank, which runs private schools with fees of about £5,000 a year. Investors in Civitas can make profits, but the size of the dividend is carefully limited.


Some Labour politicians have also begun to talk about radical reform of the school system.  We have heard from Alan Milburn. James Purnell, the former work and pensions secretary, who is seen as a key  party thinker and moderniser said last week: “If allowing state schools to be run by profit-making companies encourages equality of capability, we will have to allow it.” Frankly this is a pipedream. The Labour Party allowing profit making state schools? I think not. Even a bruising electoral defeat would not result in any such fundamental sea change in policy. But heck, if you are launching your new career why not indulge yourself with some kite flying?