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The end of summer term announcement by education secretary Justine Greening that she had found an extra 拢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鈥檚 (DfE) existing budget 鈥� without an extra penny from the Treasury. But within the fine print was a serious challenge for those building and repairing the UK鈥檚 schools: 拢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鈥檚 underfunding of the 420,000 additional school places needed between now and 2021, and where the National Audit Office has identified a 拢6.7bn maintenance backlog, this is a significant cut. Peter Colenutt, chairman of the Education 好色先生TVs and Development Officers鈥� Group (EBDOG), says that while the body welcomes the new money for schools: 鈥淒etails are awaited to understand how the redirection of funding from capital will impact on current capital priorities [鈥�] Any reductions in capital funding will need to be considered carefully.鈥�

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 拢420m will come from the main capital budget, 拢280m from free schools and a further 拢200m of revenue funding from the government鈥檚 central school improvement programmes (see Where does Greening鈥檚 拢1.3bn for teachers come from?). A spokesperson for the department responded to questions from 好色先生TV 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鈥檚 announcement 鈥� that capital spend can be raided to fund shortfalls in teaching budgets 鈥� 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鈥檛 represent an immediate threat to previously approved projects and programmes.

A source close to the department said the Priority School 好色先生TV Programme (PSBP), for example, is not likely to be hit by the overall capital cuts 鈥� 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 拢415m to just 拢100m 鈥� despite a guarantee given in February it would not fall below 拢415m even if expected tax receipts didn鈥檛 materialise. But a departmental source said: 鈥淚t鈥檚 a bit academic because I don鈥檛 think the Education and Skills Funding Agency (ESFA) ever got its hands on it, so it never had a plan to spend it.鈥�

Marcus Fagent, education sector lead at consultant Arcadis, says: 鈥淎 big chunk of this cut is the healthy pupils money, which was not fully spent. So they鈥檙e stopping money that it was debatable whether it was finding its way into schools鈥� pockets anyway.鈥�

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 鈥渇rom the narrow point of view of the industry, nothing has been put on hold as a result of this鈥�.

Another industry source, who declined to be named, said: 鈥淲e don鈥檛 think the industry has really lost money here 鈥� our conclusion is that the DfE needed to be able to justify where they鈥檇 found the money and that this is smoke and mirrors. When the money is needed in future it鈥檒l be made available.鈥�

We don鈥檛 think the industry has really lost money here [鈥�] this is smoke and mirrors 

Industry source

 

Not-so-free school

This doesn鈥檛 mean the 拢280m cut to the free schools programme, while relatively modest in terms of the 拢1.3bn spent on the programme every year by the DfE, won鈥檛 put pressure on delivery. The department鈥檚 announcement said the cut meant 30 planned free schools would now instead be delivered by local authorities. However, a spokesperson said the government鈥檚 overall promise to build 500 free schools between 2015 and 2020 was unaffected. The departmental source said: 鈥淭hey鈥檝e 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.鈥�

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 拢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 鈥渂asic need鈥� funding to create additional school places. So, much of the money 鈥渟aved鈥� from the free schools programme is likely still to need to be paid out through the 鈥渂asic need鈥� funding stream to meet the cost of the 30 schools. 

EBDOG鈥檚 Colenutt says: 鈥淢any 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.鈥�

Ageing asset

But there are wider issues at stake following the announcement. First, the 拢200m cut to revenue spending on school buildings, described as the redirection of 鈥渢he department鈥檚 central school improvement programmes鈥� can only exacerbate the maintenance backlog identified by the National Audit Office. Its report, published in February, found that the then 拢6.7bn maintenance backlog 鈥渨ill double between 2015/16 and 2020/21, even with current levels of funding, as many buildings near the end of their original design life鈥�.

Arcadis鈥� Fagent says: 鈥淭he school asset is an ageing asset which we are not replacing quickly enough 鈥� any reduction in school maintenance funding is only going to make the problem worse.鈥�

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 拢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: 鈥淭his is the first time that we have seen government openly funding school operations by raiding the capital funding pot.鈥�

He thinks further calls on capital may yet be made.

Steve Beechey, group strategy director at contractor Wates, says it sets a worrying precedent. 鈥淢aintenance of the estate is a huge issue and historic underfunding is why it鈥檚 in the condition it鈥檚 in,鈥� he says. 鈥淭here needs to be adequate funding for teachers alongside a sufficient programme of capital works. You can鈥檛 rob Peter to pay Paul.鈥�

If more money is needed for the teaching budget from capital spend, Fagent says there are efficiencies possible 鈥� but only if the department is more radical in its thinking (see What are the options for sourcing capital spend?).

鈥淚t 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,鈥� he says. 

There needs to be adequate funding for teachers alongside a sufficient programme of capital works. You can鈥檛 rob Peter to pay Paul

Steve Beechey, Wates

Optimism

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 好色先生TV that they understood the ESFA was bidding to Treasury for a third and enhanced phase of the 拢4.4bn PSBP.

The source close to the department said: 鈥淭he ESFA is bidding for more money than you can possibly imagine. While it looks like capital funding has lost out at the moment, there鈥檚 an autumn Budget coming up and what you give up one minute can come back the next.鈥�

Another source said 鈥渁 big PSBP3 programme鈥� was in the pipeline, with the ESFA aiming to secure a 鈥渞olling鈥� 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鈥� Beechey declined to comment on reports of a PSBP3 specifically, but said: 鈥淲e know there is a significant pipeline of schools work planned in addition to what鈥檚 been declared as officially in the pipeline at the moment.鈥�

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.

鈥淚 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.鈥�

The full impact of Greening鈥檚 announcement therefore cannot be guessed until after the chancellor鈥檚 first autumn Budget in November. 

 

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