Scottish education reforms are fraught with financial challenges

25 Jan 17

Holyrood's plan to remove education funding from local authorities ramps up financial risk and might not improve student outcomes. A transitional period would be helpful

The Scottish Government recently consulted on its proposed reforms to the nation’s education system. Under consultation were plans to shift the responsibility for resource allocation to headteachers, away from local authorities.  

Many commentators in the local government sector view this reform as a move to centralise control of the education system within the Scottish Government. It would reduce local government’s sphere of control and take away accountability for education from locally elected representatives.

In its response to this consultation, CIPFA took an objective look at the evidence to support such reforms. The evidence pointed to there being no one single enabling model to drive school-led improvements in education.

In fact, Ofsted and Watchsted inspection data for England up to February 2016 shows that 85% of local authority maintained schools were rated ‘good’ or ‘outstanding’ compared with 82% of academies. After allowing for a number of potentially distorting factors and changes to the inspection framework in 2012, the data still demonstrates a gap in performance in favour of local authority maintained schools compared with academies. As such, in its submission to the Scottish Government’s consultation, CIPFA concluded that presently there is no clear evidence that the academy policy drives overall improvements in educational performance.

CIPFA’s review of the available evidence points towards the need to have a strengthened middle tier, whether this is part of local government or through separate regional bodies as proposed in the consultation. Currently, that middle tier is where local authorities operate – between central government and the schools.

This does not mean, however, that the reforms should focus on the overall structure of education governance. In fact, the evidence suggests the opposite: that structures are less important in driving school improvements than other factors. What is shown by the evidence is that successful school systems demonstrate certain characteristics and behaviours.

Efforts should therefore focus on developing those characteristics and behaviours displayed by successful school-led improvement models, both at home and internationally, within a strengthened middle tier.

Within England, the National Foundation for Educational Research has reported on a range of local authorities where school-led improvements have been initiated. Some of these emerged as a consequence of local authorities setting up specific vehicles; they focus on educational outcomes and enable the schools and school leaders to take greater responsibility. In its submission, CIPFA calls for sector reforms to focus on desired outcomes rather than the structure of governance, or any individual entity involved.

The proposed reforms could see 2,500 new individual business entities created – in the event all schools fall outside of local authority control. This would necessitate careful consideration of the implications for public financial management, at the level of Scottish Government, local government and schools. The range of issues to consider is wide and CIPFA’s submission helps to provide a focus on some of the key questions to be resolved.

A significant issue is where control and ownership of the school estate would lie following the proposed reforms to move resources directly to schools by taking them outside of local authority control. The school estate in Scotland includes £4bn of assets financed through private finance initiatives or the Scottish Government non-profit distributing model for private finance. CIPFA identified evidence in its submission that points to potential transfers of PFI-financed assets to academies in England being a stumbling block to academy status. This is due to the future rising costs of PFI commitments due to indexing within contracts against a static or shrinking school budget. The boards of some academy groups in England are taking the view that this would make the transfer of some schools unaffordable in the medium to long-term.

In Scotland the PFI issue is likely to be a greater concern given the higher level of PFI financing within the school estate compared with elsewhere in the UK. Evidence suggests that per capita, Scotland has 40% of PFI schools with 8.5% of the population of the UK. CIPFA’s review noted that there is £17bn of future PFI debt to be paid by local authorities relating to schools in Scotland. If the schools are outside of local authority control and resourced directly through the Scottish Government or through a Scottish Government controlled regional body, holding the debt for the private financed arrangements could be problematic. The Scottish Government has the ability to borrow and hold debt; however, this is a limited power. The Scotland Act 2016 enables up to £3bn of borrowing for capital purposes and £1.75bn for revenue purposes, the latter being used primarily for smoothing the volatility of revenues from devolved tax-raising powers. The proposed reforms would need to address both the issues of future viability and where this level of future debt would reside.

The issue of the school estate also leads to a consideration of the future funding of capital investment in school assets – be it for overall maintenance and component replacement, or for full replacement. Local authorities have much wider borrowing powers than the Scottish Government. The capacity to fund future investment would need to be addressed if schools lay outside of local authority control.

Overall, the day-to-day cost of education to local authorities is more than £5bn annually. This funding comes from the Scottish Government and council tax payers. The proposed reforms would distort this relationship and require revisions to the local government funding settlement, as well as a consideration of how that change impacts the council tax payer.

Like any separate business entity, the schools themselves would need to consider their own administrative requirements, including their VAT status and other financial planning, reporting and record-keeping requirements. Also, a consideration of the financial management skills and expertise that will be required from headteachers to manage these resources will have to take place. Through its support to education reforms in England, CIPFA has identified and put in place a suite of tools to support up-skilling and the changing nature of the role for headteachers in England.

The reforms in Scotland would represent a significant change in legal responsibilities for local authorities in Scotland, as well as a major shift in how public finances invested in education are managed and controlled. In its submission, CIPFA advocates the need to provide for a period of transitional arrangements to implement any changes resulting from these reforms. This would include a shadow period of transition where local authorities and any new regional bodies that act as the middle tier operate in parallel prior to any formal handover date. Without full consideration of these financial management issues including an appropriate transition plan, CIPFA believes that the proposals would expose schools to significant financial risks.

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