Institute for Fiscal Studies reaction to Labour’s proposed boost to education spending

Today, Labour will announce a series of education spending commitments as part of an overall plan for a National Education Service. Exactly how a National Education Service would differ from the current institutional arrangements is not wholly clear.

What is clear is that Labour plan to spend significant amounts of additional money on education as compared with current government plans, about £8.4 billion a year in today’s prices by 2021–22 (or £9 billion in cash-terms). This observation details the education spending commitments and compares them to existing government plans. An accompanying observation looks at the rise in corporation tax that Labour would use, in part, to pay for these commitments. Unless otherwise stated, all figures are quoted in 2017–18 prices and will thus be slightly lower than those quoted elsewhere.

Schools

The current government is part way through making the first real-terms cut in school spending per pupil in England since the mid-1990s, which will total about 6.5% between 2015–16 and 2019–20, or about 8% if we include some of the additional costs schools have faced in recent years such as higher pension contributions. If delivered this would leave spending per pupil in 2019–20 at about the same level it was a decade earlier, though still substantially higher than before the rapid increases over the course of the 2000s. Alongside this the current government plans to implement a national funding formula for schools in England. Such a reform was always going to produce relative winners and losers. However, with the current funding situation so tight, it means that schools facing the biggest losses from a national funding formula (a 3% cash-terms cut in funding per pupil between 2017–18 and 2019–20) would likely receive a real-terms cut of 10% between 2015–16 and 2019-20 after accounting for average cost pressures.

Labour have proposed to reverse all real-terms cuts to date and then to maintain school spending per pupil in real-terms at this new higher level. This would amount to an extra £4.5 billion a year in today’s prices (about £4.8 billion in cash-terms), or a more than 10% real-terms increase in the schools budget in England, as compared with its current level of about £41 billion. This is higher than previous estimates by IFS researchers as it relates to a more comprehensive measure of school spending (including the core schools budget, the pupil premium and all types of state-funded schools). In addition, Labour would ensure no school loses out from a national funding formula in real-terms, at a cost of £325 million in 2019–20 in today’s prices.   

Meeting these commitments would represent a significant increase in school spending. It would also continue a pattern of schools being relatively insulated from public spending cuts. Schools were one of the few areas of public services (along with the NHS and aid spending) to be protected from cuts to day-to-day spending under the coalition between 2010 and 2015. Protecting losers from the national funding formula comes at a relatively low cost, but only implementing the National Funding Formula for winners is the easy part of school funding reform. At some point, policymakers should find a way to get the losers on to the formula too. 

This comes in addition to Labour’s earlier announcement to extend free school meals to all pupils in primary schools. They estimate this will cost about £700-900 million a year and is the subject of separate IFS observation looking at the potential costs and benefits of universal free school meals.

Further and Higher Education

Labour have also proposed to bring back the Education Maintenance Allowance (at an estimated cost of £540 million a year in today’s prices) and restore maintenance grants for higher education (at an estimated cost of £1.7 billion a year in today’s prices).

Bringing back the Education Maintenance Allowance (EMA) would reverse a 2011 reform that replaced it with the 16-19 Bursary in England (the EMA was preserved in the rest of the UK). The EMA was a conditional cash transfer that paid 16-19 year olds from lower income households £30 per week to stay in school. The 16-19 Bursary was similar in spirit, but had a significantly lower annual budget of £180 million compared to the £560 million a year that was spent on the English part of the EMA. This suggests bringing back the EMA would cost around £380 million a year; Labour’s £540 million figure suggests they might not abolish the 16-19 Bursary. Previous IFS work found that the removal of the EMA had a small, negative impact on participation and Level 2 attainment, and that short run savings were outweighed by the estimated long run costs, through reduced earnings and higher welfare payments. 

Re-issuing maintenance grants for the poorest students would reverse a change that came into force in September 2016. Labour estimates this would cost £1.7 billion a year by the end of the parliament in today’s prices. In the long-run, however, it is likely to cost less than this as a good chunk of the maintenance loans they would replace would not be repaid.

Adult Education

Finally, Labour have promised to abolish upfront fees for adult learners in further education colleges. They cost this at about £1.4 billion a year in today’s prices by the end of the parliament. The actual cost will depend on the precise details of the policy which are not yet fully clear. However, there are two things we do know. First, providing something for free generally leads to high demand. Second, empirical evidence (http://cee.lse.ac.uk/ceedps/ceedp46.pdf) suggests that most existing adult skill qualification offer poor economic returns in the labour market. Therefore, without clear rationing and a framework that directs people to high-quality qualifications, this policy could end up being poor value to the taxpayer.

Summary

Labour have promised significant increases in education spending. If the additional £8.4 billion, of which £4.8 billion is for schools, is spent well then it will make a positive difference. And the latest economic evidence from the US suggests boosts to school spending can improve pupil attainment and their earnings. There is, however, much we still don’t know about Labour’s plans. What are their plans for early years, tuition fees, or spending in sixth forms and further education colleges? We will hopefully find out more over the next few weeks as Labour publishes its manifesto.