IFS: Autumn Statement leaves colleges, nurseries and universities out in the coldColleges, nurseries and universities facing severe financial challenges from higher-than-expected inflation

In the 2022 Autumn Statement, the Chancellor provided an additional £2.3 billion in funding to schools in England. This is likely to take school spending per pupil in 2024 back to its most recent high point in 2010 and leave schools better able to face rising costs. However, no overall real-terms growth in 14 years still represents a significant squeeze on school resources.

There was no extra funding for the early years, colleges, sixth forms and universities, despite the fact that they also face significant cost rises.

Colleges and sixth forms are in a particularly difficult position. They saw the largest cuts in spending per pupil up to 2019, cuts which are only due to be partially reversed. In addition to rising costs, the number of 16- to 18-year-olds is projected to rise by a total of 18% between 2021 and 2030, which would make for 200,000 extra students by 2030. This comes at a time when the government has scaled back departmental spending plans after 2024.

These are the main conclusions of the new ‘Annual Report on Education Spending in England: 2022’ by researchers at the Institute for Fiscal Studies, published today, and funded by the Nuffield Foundation as part of a wider programme of work looking at trends and challenges in education spending. All figures are in 2022–23 prices and represent new IFS estimates of spending per pupil across different stages of education in England.

Reduced resources devoted to education spending

• Education spending represented about 4.6% of national income in 2021. This is about the same share of national income as in the early 2000s, mid 1980s and late 1960s, but lower than the mid 1970s and late 2000s, when it was well over 5% of national income.
• Total spending on education was about 2% lower in 2021 than in 2010.
• The share of total government spending on education has fallen from 12% in the early 1970s to 10% today. Whilst the share of total spending on education has been falling, the proportion of the UK population in full-time education has risen from 18% in the early 1980s to an all-time high of 20% during the 2000s, where it remains today. In sharp contrast, as the share of the population over 65 has risen, the share of total spending on healthcare has more than doubled from just over 9% in the late 1970s to over 20% today.

Early years providers face big cost rises

• Despite a planned £170 million boost to funding by 2024, rising costs mean that total spending on the free entitlement will buy 9% less in 2024 compared with 2021. Virtually all of this squeeze is yet to be felt.
• That does come on the back of a big boost to early years spending since 2010. Spending on the free entitlement to a funded childcare place was about £4 billion last year, more than double its 2009 level. While spending per hour increased by 28% in real terms between 2009 and 2021, the bulk of the increase in free entitlement spending has been driven by the addition of new entitlements, for disadvantaged 2-year-olds and for 3- and 4-year-olds in working families.

No growth in school spending per pupil over 14 years

• School spending per pupil in England fell by 9% in real terms between 2009 and 2019. This represents the largest cut in over 40 years, but it came on the back of a significant increase in spending per pupil of over 60% during the 2000s.
• School spending per pupil is set to return to 2010 levels by 2024. The additional £2.3 billion in the 2022 Autumn Statement puts schools in a better position to meet the cost of increases in teacher salaries and support staff salaries, as well as rapid rises in energy and food costs.
• The pupil population is expected to decline by 700,000 or 9% between 2024 and 2030. This would reverse all of the increase in the pupil population since 2010 and create less demand for school places.

Further education colleges and sixth forms faced biggest cuts and now face biggest challenges

• Large cuts between 2010 and 2019 will only be partially reversed. Additional funding in the 2019 and 2021 spending reviews will allow spending per student to rise by 9% between 2021 and 2024. Yet even with the additional funding, college spending per pupil in 2024 will still be around 5% below 2010 levels, while school sixth-form spending per sixth-form pupil will be 22% below them.
• Colleges and sixth forms face higher costs as a result of unexpectedly high inflation, but they received no additional funding in the 2022 Autumn Statement. Colleges have only offered staff a 2.5% rise in base salaries this year, much lower than the 5% offered to teachers. This could worsen existing difficulties in recruiting and retaining college staff. But the cost of any larger increases in pay would have to come from already tight budgets.
• Large increases in student numbers will put pressure on future budgets. The number of students aged 16–18 is expected to rise by 10% between 2021 and 2024, and a total of 18% between 2021 and 2030. This would make for 100,000 extra students by 2024, or 200,000 extra by 2030. The extra costs associated with higher student numbers will need to be found within departmental spending plans, which became a lot tighter after 2024 in the Autumn Statement.

Increases in adult education funding not enough to reverse past cuts

• Total spending on adult skills and apprenticeships is set to increase by 22% between 2019 and 2024 as a result of £900 million in extra funding announced in the 2021 Spending Review. However, this only reverses a fraction of past cuts: total adult skills spending will still be 22% below 2009 levels. Spending on classroom-based adult education has fallen especially sharply and will still be 40% below 2009 levels even with the additional funding.
• There has been a fall of more than a quarter in the number of apprentices since 2016–17 but no change in spending. This decline reflects a big fall in apprentices at lower levels, and an increase in higher and degree-level apprenticeships which are costlier to fund.

Reduced resources for higher education

• Successive cash-terms freezes in the cap on tuition fees have reduced the real-terms value of resources for teaching. Spending per student fell by about 11% in real terms between 2017 and 2021, which takes spending per student back to the same real-terms level as in 1990. This is projected to go lower still due to policy commitments to freeze tuition fees up to 2025, and no extra public funding for teaching or to cover higher-than-expected inflation.
• Long-term costs to the taxpayer have also been cut substantially by this year’s package of student loan reforms, which has shifted more of the cost burden onto graduates. The exact saving is uncertain, but the taxpayer cost of issuing student loans has probably been reduced by £2½–3 billion for students starting courses in 2023. These cost savings will be partially offset by growth in student numbers, which are expected to grow by 13% or 150,000 between 2021 and 2026.

Luke Sibieta, IFS Research Fellow and author, said: ‘Following a period of cuts to most areas of education spending, since 2019 the government has provided a boost to education funding. In the case of schools, this will take spending in 2024 back to its high point in 2010, though no growth in spending per pupil over a 14-year period is still a significant squeeze in historical terms. Colleges and sixth forms are in a much worse position. They saw bigger cuts in the last decade, which are only being partially reversed. Unlike schools, they received no additional funding in the Autumn Statement for higher-than-expected costs and will need to accommodate an extra 200,000 students by 2030. Likewise, higher-than-expected inflation has seriously eroded the value of spending on the early years and higher education.’

Josh Hillman, Director of Education at the Nuffield Foundation, said: ‘This report provides an authoritative account of the significant financial strains impacting all sectors of our education system. While these are not being felt equally, we can see that early years, primary and secondary schools, post-16 provision and higher education are all facing challenges that can only compromise the standard of teaching, care and support being delivered to our children and young people. They are ultimately the ones who will lose the most from an education system which is receiving historically low levels of funding as a proportion of government spending.’

ENDS

Notes to Editor

1. The IFS report ‘Annual report on education spending in England: 2022’, written by Elaine Drayton, Christine Farquharson, Kate Ogden, Luke Sibieta, Imran Tahir and Ben Waltmann, will be on the IFS website at 0001 Monday 12^th December

2. This research has been funded by the Nuffield Foundation as part of the project ‘Spending across stages of education’ (grant number EDO /FR-000022637). The authors gratefully acknowledge funding from the ESRC via the Centre for the Microeconomic Analysis of Public Policy (ES/T014334/1) at IFS.