The Department for Education has gained £1.3bn to pay for school education but £900m of this is being taken from maintenance and building budgets. Joey Gardiner finds out what effect this will have on the construction and education sectors, and what precedent it could set for the future
The end of summer term announcement by education secretary Justine Greening that she had found an extra £1.3bn to pay for school education over the next two years was given a qualified welcome by teaching groups.
In it, Greening trumpeted the fact that the money had all been raised from within the Department for Education’s (DfE) existing budget – without an extra penny from the Treasury. But within the fine print was a serious challenge for those building and repairing the UK’s schools: £900m will come out of budgets previously set aside to maintain and improve existing schools or build new ones.
In an environment where local authorities are already seriously concerned about what they see as the government’s underfunding of the 420,000 additional school places needed between now and 2021, and where the National Audit Office has identified a £6.7bn maintenance backlog, this is a significant cut. Peter Colenutt, chairman of the Education Buildings and Development Officers’ Group (EBDOG), says that while the body welcomes the new money for schools: “Details are awaited to understand how the redirection of funding from capital will impact on current capital priorities […] Any reductions in capital funding will need to be considered carefully.”
Details are awaited to understand how the redirection of funding from capital will impact on current capital priorities
Peter Colenutt, EBDOG
The government, however, has so far provided very scant detail on where the funding will be taken from, except to say that £420m will come from the main capital budget, £280m from free schools and a further £200m of revenue funding from the government’s central school improvement programmes (see Where does Greening’s £1.3bn for teachers come from?). A spokesperson for the department responded to questions from Building by saying there would be no further detail until the government responds to the consultation on the National Funding Formula. The response is expected in September.
However, those working in the sector are also worried about the precedent set by Greening’s announcement – that capital spend can be raided to fund shortfalls in teaching budgets – especially since it is likely the government will need more revenue funding to plug holes in years to come. So how concerned should the sector be? And how should it react?
Smoke and mirrors
According to insiders and industry experts, the cuts don’t represent an immediate threat to previously approved projects and programmes.
A source close to the department said the Priority School Building Programme (PSBP), for example, is not likely to be hit by the overall capital cuts – with the majority of capital budget savings due to come instead from the Healthy Pupils Capital Fund, designed to improve school sports facilities, which was only announced in February this year.
This fund, which is paid for by the George Osborne-introduced soft drinks levy, will be slashed from £415m to just £100m – despite a guarantee given in February it would not fall below £415m even if expected tax receipts didn’t materialise. But a departmental source said: “It’s a bit academic because I don’t think the Education and Skills Funding Agency (ESFA) ever got its hands on it, so it never had a plan to spend it.”
Marcus Fagent, education sector lead at consultant Arcadis, says: “A big chunk of this cut is the healthy pupils money, which was not fully spent. So they’re stopping money that it was debatable whether it was finding its way into schools’ pockets anyway.”
In addition, the cuts to the free schools programme, according to Fagent, will largely come from previously approved schools that were not going to materialise anyway, either because the need in the area had dropped away or because they were unable to find a site. The result, he says is that “from the narrow point of view of the industry, nothing has been put on hold as a result of this”.
Another industry source, who declined to be named, said: “We don’t think the industry has really lost money here – our conclusion is that the DfE needed to be able to justify where they’d found the money and that this is smoke and mirrors. When the money is needed in future it’ll be made available.”
We don’t think the industry has really lost money here […] this is smoke and mirrors
Where does Greening’s £1.3bn for teachers come from?
■ Free schools programme – £280m. The department said the saving would be made by delivering 30 of 140 additional schools announced in March through the local authority route.
■ Capital budget – £420m. The department said this amount would come from “ef ciencies and savings across our capital budget”. Most of this, it said, would come from a £315m cut to the Healthy Pupils Capital Fund for improving sports facilities. The department declined to say where the other £105m of savings will come from.
■ School improvement programmes – £200m. The department said it will redirect £200m of revenue funding from the department’s central school improvement programmes towards frontline funding for schools.
This doesn’t mean the £280m cut to the free schools programme, while relatively modest in terms of the £1.3bn spent on the programme every year by the DfE, won’t put pressure on delivery. The department’s announcement said the cut meant 30 planned free schools would now instead be delivered by local authorities. However, a spokesperson said the government’s overall promise to build 500 free schools between 2015 and 2020 was unaffected. The departmental source said: “They’ve taken the funding for 30 schools but told the ESFA they still want it to deliver the same number. In practice, that means they have to find free sites, and will have to talk to local authorities to provide them.”
Currently, the system for meeting the demand for new school places gives the responsibility to provide the places to local authorities, but only free schools can get access to funding for entirely new schools. This means that councils and free school promoters are increasingly working together to get new schools off the ground. But while the National Audit Office this year found that free schools were spending an average of £4.9m per school on a new site, where local authorities are involved they often provide the sites at reduced or zero cost.
Nevertheless, any new schools delivered through these kinds of partnerships still need to be funded. Local authorities provide a statistical return to government each year estimating the number of places needed to be met in their areas, which then informs the allocation of “basic need” funding to create additional school places. So, much of the money “saved” from the free schools programme is likely still to need to be paid out through the “basic need” funding stream to meet the cost of the 30 schools.
EBDOG’s Colenutt says: “Many local authorities continue to see a rise in pupil numbers for which capital funding is essential, through either the free school route or through grants to local authorities to deliver these new school places. Any reduction in [overall] capital for these areas would have a detrimental effect.”
But there are wider issues at stake following the announcement. First, the £200m cut to revenue spending on school buildings, described as the redirection of “the department’s central school improvement programmes” can only exacerbate the maintenance backlog identified by the National Audit Office. Its report, published in February, found that the then £6.7bn maintenance backlog “will double between 2015/16 and 2020/21, even with current levels of funding, as many buildings near the end of their original design life”.
Arcadis’ Fagent says: “The school asset is an ageing asset which we are not replacing quickly enough – any reduction in school maintenance funding is only going to make the problem worse.”
More important is the principle of being able to raid capital funding streams to plug holes in the overall teaching budget, particularly given the likelihood of the government needing to do this again at a later date. While the £1.3bn increase in the teaching budget announced by Greening reflects a 2% increase in revenue funding, the National Audit Office says inflation will push up school costs by 8% between 2015/16 and 2019/20. Fagent says: “This is the first time that we have seen government openly funding school operations by raiding the capital funding pot.”
He thinks further calls on capital may yet be made.
Steve Beechey, group strategy director at contractor Wates, says it sets a worrying precedent. “Maintenance of the estate is a huge issue and historic underfunding is why it’s in the condition it’s in,” he says. “There needs to be adequate funding for teachers alongside a sufficient programme of capital works. You can’t rob Peter to pay Paul.”
If more money is needed for the teaching budget from capital spend, Fagent says there are efficiencies possible – but only if the department is more radical in its thinking (see What are the options for sourcing capital spend?).
“It has to start thinking about putting schools on mixed-use sites in higher-density locations as part of schemes that are value generating, as they do in other countries, and looking at health estates among a raft of other things,” he says.
There needs to be adequate funding for teachers alongside a sufficient programme of capital works. You can’t rob Peter to pay Paul
Steve Beechey, Wates
However, despite all these challenges there is some optimism among those working in the school building sector that the importance of investing in the school estate is recognised in the department. Several separate industry sources told Building that they understood the ESFA was bidding to Treasury for a third and enhanced phase of the £4.4bn PSBP.
The source close to the department said: “The ESFA is bidding for more money than you can possibly imagine. While it looks like capital funding has lost out at the moment, there’s an autumn Budget coming up and what you give up one minute can come back the next.”
Another source said “a big PSBP3 programme” was in the pipeline, with the ESFA aiming to secure a “rolling” rather than time-limited commitment. The department is thought to be likely to aim to get approval for a capital spend programme, with private finance under the PF2 method as a plan B if that fails to win support.
The ESFA declined to comment.
While the PSBP programme is designed to replace schools in poor condition, not address the need for new places, it is seen as the most cost-efficient way to address the maintenance backlog. Wates’ Beechey declined to comment on reports of a PSBP3 specifically, but said: “We know there is a significant pipeline of schools work planned in addition to what’s been declared as officially in the pipeline at the moment.”
Jonathan Stewart, main board public sector lead at consultant Gleeds, says any new programme will have the advantage of being able to ramp up quickly if and when the economy experiences difficulties resulting from Brexit negotiations.
“I know the department will be interested in a re-energised and enlarged priority schools programme. If there is stormy economic weather ahead, it has the benefit of being able to provide a nearly immediate injection of investment into the UK economy.”
The full impact of Greening’s announcement therefore cannot be guessed until after the chancellor’s first autumn Budget in November.
What are the options for saving capital spend?
Marcus Fagent, lead for education at Arcadis, on cost saving ideas for England’s school buildings, according to modelling by Arcadis
■ Land – approx £1.2bn saving
The department’s property agency, LocatED, promised the ability to bring forward mixed-use sites, but too often land has been bought at market value with just a school put on it. Now, more than ever, LocatED needs to maximise the value of all the sites it brings forward, reducing the cost of new land and creating more affordable housing.
It is also better value to have fewer, larger schools. Local authorities should undertake area reviews because rationalising the school estate could realise up to £179m alone.
Many universities and hospitals are inefficient in their use of assets. The creation of mixed-use developments on health sites would reduce the costs for new schools. Meanwhile, the advent of student fees has created up to £2bn per year of surplus, much of which is going into capital investment. Universities could be further encouraged to offer land for new schools, and to establish secondary schools.
■ Funding and financing–approx £413m
The advent of the Community Infrastructure Levy has seen reduced funding flowing from development projects to schools. The rules and guidelines for this should be reviewed, potentially yielding up to £113m.
Meanwhile, up to £200m could be released through private finance. While PF2 increases the overall lifetime cost of a new school, it also defers up-front spend. Renting sites rather than transferring land to the public estate can also help to defer capital cost. A typical school might pay a rental cost of £600,000 per annum, thereby deferring a £15m capital cost. Overall, this could release up to £100m a year.
■ Design and delivery – approx £200m
The ESFA has led the way among public authorities in standardising design and delivery processes but, by aggregating projects, more value can be gained from procuring factory-produced buildings. While new schools are being delivered at a cost of £8,200 per child place, “scope creep” often means that school expansions typically cost between £12,000 and £20,000 per place. The ESFA should set rules and provide support to local authorities to ensure efficiency.
The ESFA allocates £1.3bn of maintenance funding annually to schools. Centralised delivery of these repair programmes on a regional basis would create opportunities for efficiency.
This November’s Building Live conference will feature a session on Building Schools and Universities that are Fit for the Future.
To book your ticket, go to www.building-live.co.uk
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