The Economic context
The Autumn Statement will be the new Chancellor of the Exchequer Philip Hammond’s first statement of intent on managing the UK’s economy and public finances following the political upheaval which has gripped the UK, the US, and indeed the globe since the start of summer 2016. It will also present the first forecasts for the economy of the Office for Budget Responsibility (OBR) since March.
While the long run implications of Brexit are highly uncertain, there is a consensus among economists that the short-term prospects for economic activity have worsened. The Treasury-reported average of independent forecasts obtained shortly before the EU referendum gave average predictions of 2017 GDP growth of 2.1 per cent. By November this had fallen to 1.2 per cent. Their earlier analysis of the longer term prospects for a post-Brexit Britain suggested a reduction in annual GDP of between 3.4 and 9.5 per cent 15 years later.
This has a knock-on effect on tax revenues. The Institute for Fiscal Studies (IFS) have said that the £10.4bn surplus expected in 2019-20 in the OBR’s spring forecast will be replaced by a £14.9bn deficit.
As already hinted, the Chancellor may seek to prop up domestic demand in the face of the uncertainty by relaxing spending restraint and borrowing more. This would be crucial because, even with education spending faring better compared to other areas, and schools funding being ‘protected’, the Education Policy Institute previously forecast reductions in per-pupil real funding of 7.5% by 2019-20.
However, it is expected that ‘give-aways’ in this year’s autumn statement will serve two purposes. The first is supporting the so-called-but hard to-properly define ‘just about managing’ (or JAMs, as they have come to be known). Second is boosting investment spending. Capital spending is likely to be prioritised, continuing the gradual reversal of the plan in the Coalition Government’s 2010 Spending Review for big reductions in public investment that we have seen over recent fiscal events.
Potential changes in the provision of and eligibility for early years education and childcare
Measures targeting families who are “just about managing” are reported to include additional childcare subsidies. All 3 and 4 year olds are already entitled to free early education for 15 hours per week, and this is due to be extended to 30 hours per week from September 2017 for families in which each parent is earning at least the equivalent of 16 hours per week at the national living wage and below £100,000 per year. Analysis by EPI highlights the risk that many children from families on the very lowest incomes, who do not qualify for the extended entitlement, will increasingly struggle to access a high quality place for their free, universal 15-hours of childcare.
Without further details of the additional childcare subsidies due to be announced this week, it is difficult to know how far they may exacerbate or mitigate these issues. If the subsidies constitute increases to the rates paid to providers via local authorities to deliver the universal and extended entitlements, or additional capital funding to support further expansion of the sector, then it may be that they help to ease some of the burdens associated with the policy as it stands. However, the government has so far stood by the funding rates announced in the last Autumn Statement.
Depending on the definition of ‘just about managing’, it may be that the government chooses to extend the 30-hour entitlement to some families who are not currently expecting to qualify, although this could hinder the stated objective of the policy to incentivise parental employment. EPI’s analysis suggests that there are families who will not be eligible for either the early years pupil premium or the extended entitlement, due largely to the per parent income requirement for the 30-hour entitlement; such families may fall into the ‘just about managing’ category. Whilst this change would offer some support to a group of those families which EPI highlighted as particularly vulnerable to the risks associated with the 30-hour entitlement, it would nevertheless place additional strain on the capacity of the sector and potentially intensify the risks for 3 and 4 year olds who remain ineligible because they are from families on the very lowest incomes.
The statement could give a hint about the government’s strategy to widen school capacity
The Department for Education’s recent green paper, Schools that work for everyone, proposes various reforms intended to secure access to high quality school places for all pupils, ‘not just the privileged few’. The government’s consultation on these proposals does not end until mid-December, and it is therefore very unlikely that the Autumn Statement this week will announce funding for any specific measures relating to the green paper. However, it is clear that there are demographic pressures which are driving an urgent need for more schools: the number of primary school pupils is projected to increase by 3.8 per cent between 2016 and 2025 and the number of secondary school pupils by 20.6 per cent over the same period. It may therefore be the case that the government chooses to announce funding designed to increase capacity in the school system generally (for example, funding for free schools), with more details relating to its specific allocation to be provided following the government response to the consultation.
Waiting for the next move on academies and the National Funding Formula
The March 2016 Budget announced the Government’s commitment to a fully-academised schools system with all schools being academies, or in the process of becoming one, by 2020. The white paper Educational Excellence Everywhere was published the following day and set out the legislation that the Government proposed to bring forward. Those proposals have now been shelved, at least for now, with ministers announcing that they will not introduce further education legislation in this Parliament.
This decision raises a number of questions around previous spending decisions, not least the £600m cut to the Education Services Grant – made under the assumption of a reducing role for local authorities in the running of schools. The Government may therefore come under pressure in the Autumn Statement to reverse this decision.
The Budget also re-iterated the government’s commitment to a National Funding Formula to schools to be phased from 2017-18 with the intention that 90 per cent of schools who gain additional funding under the formula would receive the full amount they are due by 2020. The government had set aside around £500 million of additional core funding to schools over the spending review period.
Ministers have subsequently announced that the roll out will not now happen until 2018 but, in the meantime, the General Secretary of the National Association of Head Teachers (NAHT) has written to the Chief Secretary, asking him for assurances on education spending. Russell Hobby welcomes the commitment to the National Funding Formula, but suggests that it will only work if there is sufficient money in the system and that two-thirds of teachers are already having to make significant cuts or dip into reserves to stave off deficits.
The soft drinks levy could be an opportunity to invest in schools
Budget 2016 announced a new soft drinks industry levy to encourage companies to reduce the amount of added sugar in the drinks they sell. It is expected to be implemented in April 2018 and the government estimate that it will raise £520m in the first year. They have committed to spending this additional revenue on educational interventions over the next five years, including:
- Doubling the primary school PE and sport premium from £160m per year to £320m per year from September 2017;
- Providing up to £285m per year to give 25 per cent of secondary schools increased opportunity to extend their school day;
- Providing £10m per year to expand breakfast clubs in 1,600 schools from September 2016;
- Investing £20m per year in a new Northern Powerhouse Schools strategy to support educational outcomes in parts of the North of England.
While the Treasury has already consulted on how the soft drinks levy will work, there has been no further information to date, on how the additional funding for longer school days and breakfast clubs will be allocated.
There is a risk that if the proposals for the soft drinks levy are weakened following the consultation period (thereby raising less money for the Exchequer), the spending commitments to schools will, in turn, be jeopardised.
There is therefore an opportunity for the Autumn Statement to commit more funding in this area if it increases its estimate of how much funding will be generated from the soft drinks levy. An obvious area for increased investment is breakfast clubs, where research published last month found that offering relatively disadvantaged primary schools in England support to establish a universal, free, before-school breakfast club can improve pupils’ academic attainment.
Changes affecting International students could damage universities’ financial health
The Home Secretary Amber Rudd announced at the Conservative Party Conference that she aimed to bring the number of international students down, and the Teaching Excellence Framework (TEF) could be used to decide which universities are entitled to keep or increase their international student intake. Under this scenario, many London-based and Russell Group universities ranking within the bottom third on the new measures, including the LSE, King’s College, Bristol and Edinburgh, could be particularly affected. Further restrictions could be challenging for the country’s top universities, as they are among the highly reliant on international students; especially the LSE, the Imperial College, UCL, Liverpool, and Manchester.
Cutting the number of international students could potentially result in income losses for universities. Data from HESA revealed that, in 2014/15, international and EU students’ fees accounted for around £4.9bn, or 15 per cent, of the overall sector income. A worrying thought for many is whether conditions for domestic students would be changed again in order to compensate for potential income losses.
£2bn extra a year to offset potential damage of Brexit on research and innovation
Theresa May has today pledged that £2bn extra a year will be made available to conduct research to boost innovation and productivity until 2020. The announcement aimed to reassure businesses and universities, two sectors that have been showing growing concerns over the effects of Brexit in terms of access to the common market and to European research funds, respectively.
The Autumn statement may clarify how much of the total sum will be made available to universities, either directly or through research councils, but it is unlikely that the awarding criteria will be set. In such case, the sector will be waiting for the criteria to be disclosed, as the priorities of the government may attempt to privilege some areas of research over others. If the governments’ criteria differ widely from those of the EU, then the expected resulting scenario is one with winners and losers and the sector facing further imbalances.
Additional funds to Mental Health unlikely, yet money could be invested more wisely
In the March 2015 budget, the government announced new investment of £1.25bn (up to 2020) for children’s mental health.
Despite a much greater spotlight being shed on young people’s mental health, particularly in the media, research conducted by the Education Policy Institute earlier this year found that a quarter of young people are being turned away by specialist services. The EPI’s Mental Health Commission’s report, launched earlier in November, also highlighted the risk that the additional money is not being spent as intended. For example, in this financial year, £119m has been allocated to the local NHS leaders but it is in their general budget so they have a choice on whether to spend it on children’s mental health or not.
A key risk to look out for in the Autumn Statement is any further reduction to the local authority Revenue Support Grant. The risk of any reduction is that this Grant is a source of funding for early intervention support services which are a vital part of the children and young people’s mental health system. Cuts to these services over the last six years since 2010 are a likely driver for the increase that we have seen in referrals for specialist mental health services (a 64 per cent increase over the two years to 2015).