Schools as a business ...

[MN164]

I have a gut bad feeling about schools making a profit - groups like Cognita and Alpha Plus (50 schools in the UK between them).

I was trawling around the lists of options and noticed one that is owned by a private investor group and crossed it off my list (list includes all flavours, state, co-ed, faith, private, grammar etc).

Is that wrong and narrow minded?

I am on the finance committee of a large secondary school. I can definitely say that the school is not run to make any profit. In fact, we are facing a deficit over the next few years because the underfunding from the government. All the schools in the our LEA are facing a deficit.

I think you might be referring to academy chains rather than local authority run schools, but having looked at converting to an academy last year I can assure you that the school would not have made a profit if it had converted. The accounting system is different and the funding comes from central government rather than the local authority, but there is no profit to be made.

When schools first became academies there was a financial incentive but that has long since gone.

Schools have to be run like a business these days. Our school has an annual budget of circa £8m, so how else can it be run?

Bunbaker

The school groups I mention own chains of fee paying schools. Most fee paying schools are charities so profits go back into education (facilities, bursaries etc). I haven't checked all of their schools but it is possible that some are "free" schools that take income from the state rather than direct from parents.

Their schools are not charities and they make profits which are withdrawn to pay investors.

It's this business model I am wary of.

They would still have to be run like a business though because if they can't make ends meet the school would have to close.

I agree that it sounds suspicious.

I don't think that all of the "profit-making" schools are based on a model where investors take profits via the annual school income. Cognita for example was set up on a capital growth model. So the fund would invest in the sites, the buildings and the overall business of the school and look to increase this in value in the medium term. Quite often they would buy schools which were proprietor owned and, where possible, grow the school. Obviously there have also been cases when closing the school has been the appropriate option.

I think that it is wise to check how well you agree with the ethos of the school, and this may be one important aspect. But don't assume that there is a steady stream of cash flowing from the schools to the investors, because that isn't the only way, and often not even the main way, in which investors make money.

MN164

Do you use any other profit making company in your daily life? Why should education be different?

That's an excellent question. The answer is, of course, yes. In fact it's overwhelmingly yes but for some very very important things.

Healthcare
Education
Libraries
Police
Etc....

It's perfectly possible to provide everything on a profit making basis. Is that what you, we, voters at large want?

The vast majority of healthcare visits in the UK are to private profit making providers (GPs) and all the drugs you use are from private, profit making companies. The funding is via the state, not direct from your pocket, but still going to a profit making enterprise.
So if you use a GP, why not a profit making school?

Also, why are libraries more important than food?

The only thing I am idealogically wedded to being funded socially is the police.

Taxpayer cost of capital is and always will be materially cheaper than private investors. The idea that "markets" have improved efficiency in the NHS is false. Efficiency measures taken over the last two decades were all achieved by medics and staff.

Take the enormous waste on PFI deals as an example of the private cost of capital ripping us off to the tune of £ billions for decades past and future.

Here's how "cheap" private markets have been for the NHS under PFI deals.

£12bn investment to be repaid
Plus
£72bn!!!! to keep private capital happy

www.bmj.com/content/bmj/342/bmj.d324/F1.large.jpg

If you think that has helped to reduce our debt burden and give a higher standard of health care for less money you need some diagnosis.....

How about the commercial arm of the ministry of justice?

Profit-making does not work for a monopoly essential service - prisons, hospitals, state schools, forests, court service, etc. The problems are partly in the procurement - complex agreements, conflict of interest, differing priorities. But also the user does not pay directly, the provider is not accountable and yet it can be hard to break contracts without penalties. So there is still waste, but with lack of effective oversight, and the state has to bail them out when they fail.

In the private education sector no one forces you to apply and you are paying for it directly, so competition could force providers to offer something worthwhile. But the biggest profit-making, private-equity based chains still make their biggest profits in captive markets (e.g. ex pat workers in Dubai who can't access state schools). Those chains have been much less successful in this country - e.g. GEMS, which sold the majority of its prep schools bought 5-7 years earlier. In a competitive market you have winners and losers. The disadvantage us that children could see their schools close down or lose staff very quickly, or when the chain loses interest, all long-term planning and investment stops.

MN164 I was talking about GP's and drug suppliers who are, and always have been, private companies. I totally accept the Labour PFI deals had a lot of flaws, but that doesn't mean profit making services don't and can't work.

Straggle why are prisons, hospitals, state schools and forests monopoly services?

Monopoly might not be the right word (I'll have to think about that). But I mean essential services that need to be unified rather than fragmented, where there's no alternative (e.g. with Royal Mail or BT there are at least alternative technologies as well as alternative private services for businesses). Internal competition can harm parts of the service and because at a local level, having competition or choice creates waste. So privatising the prisons may mean one big outsourcing contract which can fail badly - that's still a monopoly whether state or private. On the other hand an artificial internal market of multiple providers of schools or within health service could mean that a provider sets up in areas of surplus places and cherry picks places yet no provider steps forward to take over schools/services in challenging areas or circumstances. And smaller LA budgets mean reduced economy of scale and they also fail to be supported. So there is waste, gaps and no overall benefit.

Straggle so multiple food suppliers creates waste, gaps and has no overall benefit. Surely, under your argument, the essential service of providing food should be unified under the government.
NB BT had no alternate technology when it was privatised and is a natural monopoly (as are gas and electricity) because it is not worth running multiple cables to peoples homes.
However, as anyone who has dealt with the French telephone provider will tell you, competion and privatisation have benefitted us enormously.

Not at all like for like. There has never been one massive State Farm or state procurer of food with a budget of £90 billion per year. There is no nationally prescribed diet, training in table manners, league table for the biggest carrots, Ofsted for cooking, or legal weight recommendations for employment. Not everyone needs or wants to eat pork. Some people tolerate oranges, others don't. Don't be daft.

Free schools and academies cannot currently be owned by profit making companies.

The schools provided by these chains are not part of the state system. They do not receive funding from the government.

What matters, surely, is what works. If you can afford to send your child to a fee-paying school and it produces better results than other schools, does it really matter whether or not it is run for profit? I know this does matter to some people but personally, if I was looking at fee paying schools, I would go for whichever school was best for my child.

Ds was at a 'managed for profit' prep. The head sold it on without telling the parents, the first we heard was via a letter the week before the start of that school year. After a little digging I discovered that it had been sold to a developer but they were unable to get access so she sold it to someone who wanted to own a school. The new head was a nightmare. I'd be a lot more wary of a one man band then a business running more than one school to be honest.

I guess I remain uncomfortable with the idea of schools making choices about investing in teachers / facilities or paying dividends.

I don't have an problem with such schools existing. But would you send your kids to one? I suppose the answer is the same for any school. Does it suit your kid?

straggle we only have an NHS as you describe because it was nationalised. Most countries have hospitals competing for patients. The Russians had a nationalised food industry, so it is possible.

All your comments about food could equally apply to health. There is no reason for the state to run all medical care or education, anymore than to run all supermarkets

prh47bridge sensible answer. Even in the fee-paying sector only 15% of schools are 'proprietorial' as opposed to charitable trusts, so only a minority are indeed profit-making. They do tend to get taken over frequently and most are non-selective prep schools.

I think that all state funded schools and their governing bodies need to be considering the school as a business. A business in the sense that what you are looking for always is best value and to be in a position at the end of the year that what you got in as funding for the year, you have spent on giving all the pupils the very best possible education. That is not making a profit but working as in a company to derive maximum benefit to pupils.
When it comes to any school and especially Academies there is a need for a certain amount of cash to be retained within the school accounts as this is needed for cashflow during the year. It may come as a surprise to some but schools do not get the funding in annual amounts but in parts every two months in the case of Academies.
Other posters have mentioned the PFI contracts in schools and NHS and in my opinion that is why you do not leave very large contracts to negotiation between civil servants and senior leaders in the private sector. The later will and have, as these contracts prove, run rings around the civil servants.

The market has run riot through the UK economy for over 50 years now. One "mantra" behind this is that lower taxes will increase productivity. Also the idea that taxes could be cut materially if the market took care of many public services.

Taxes are not just to run lightweight public services. They are to redistribute wealth. Wealth disparity is at an all time high and increasing. There is no longer a proud working class, material middle class and wealthy elite. There is a poverty class, downtrodden working class, stretched and thin middle class and a super elite class (with 75%+ of all wealth, some say 90%). This isn't going to change via the "market". It requires significant government intervention and material redistribution wealth. Frankly, it requires mass nationalisation of private assets.

I've turned into a bit of a socialist on this thread haven't I .....

You have!

The top 1% of earners pay almost one third of income tax. This figure has been rising steadily for some time. A decade ago they only contributed 20%. The bottom 50% of earners contribute around 10% of income tax. This has been falling steadily.

So privatising the prisons may mean one big outsourcing contract which can fail badly -

www.bbc.co.uk/news/uk-23447437

We do have some privatised prisons. There is hardly anything, even essential services that dont involve some profit making companies along the way.

State schools often use temp agency staff and the agencies are profit making.
The police use contractors which are profit making (caterers, cleaners, consumables).
I can't think of any major industry which doesn't use any profit making companies.

The incomes of the top 1% have increased far faster than their income tax payments... One has risen colossally, the other, "steadily."