Private education and the credit crunch

20 Nov 2008 BBC News Online

Credit crunch bites schools

By Mike Baker
Independent schools face a tougher economic climate
We are hearing a lot about the effect of the recession on jobs, retailers, and property prices, but what about schools?


The most obviously affected will be private schools (of which more in a moment) but the state sector is not immune. Yet, perhaps surprisingly, some of the effects could be positive.

For a start, state schools have almost certainly been saved from industrial action by the current financial climate.


Despite a ballot vote in favour of action over pay, the leadership of the National Union of Teachers was clearly influenced by the economic climate in deciding not to go ahead with strikes.


It was probably shrewd of them to recognise that public support would have melted faster than a snowball in a teapot at a time when workers in the private sector are envying the relative job security, and final salary pension schemes, of teachers.


If the ballot had been held six months ago, when there was real anger over the below-inflation pay award, the turn-out would probably have been bigger and the leadership more likely to have endorsed industrial action.


Meanwhile, teacher training colleges can brace themselves for a substantial rise in applications next year. In the past, recession has always proved to be the most effective recruiting sergeant for teaching.


So if a greater proportion of our brightest graduates decide to enter teaching, allowing recruiters to be more selective, there will be a small silver lining from the recession.




In the immediate future, state school budgets are relatively immune from the recession as, for the first time last year, the government set out a three-year funding settlement that lasts until 2011. If inflation falls as predicted, that money will go further, meaning significant real terms growth.


There may even be some gains if the government accelerates capital spending programmes to stimulate demand in the economy.


Longer term may be a different matter, depending on how well the public finances emerge from the recession and the underwriting of the liabilities of the banks.


But while the picture for the state sector looks relatively benign, it is very different for some independent schools.


This week, delegates at a preparatory schools conference at Wellington College were warned by Noble Hanlon, from chartered accountants Haysmacintyre, that the current pending recession is likely to be far worse than those experienced in the 1990s and 1970s.


"Survival for many will be paramount as the financial crisis unfolds," he said, adding that private schools would "not be immune". They would have to act to protect income and control their spending or "the alternative is closure or merger".


Mr Hanlon told me that the nature of the recession, with jobs going in the financial services and other white-collar areas, mean this recession is likely to have a bigger impact on independent schools.


He says they will feel it more from next autumn but 'undoubtedly they are already feeling the effects, and it is happening quite quickly'. He says some schools have already had pupils withdrawn.


His warning came too late for two private preparatory schools in the north of England which this week announced they will be shutting at the end of this term.


Elsewhere there is plenty of evidence that parents are already feeling the pinch over school fees.


Opting in


The Buckinghamshire Free Press, for example, quotes a primary head teacher who has experienced a rise in pupils transferring from the private sector. The local education authority is quoted as saying 130 more pupils transferred in this year.


And in Kent it is reported that 20% more pupils sat the 11 plus for state grammar school entry this year.


This, of course, is unscientific evidence and it is likely there are cases elsewhere suggesting that private school demand is holding up.

But history suggests there will be a delayed downturn. The last UK recession started in the third quarter of 1990, with negative growth lasting until the start of 1992.


Pupil numbers in independent schools held firm for a year or two before declining. According to the Independent Schools Council census, private school pupil numbers moved into negative growth in 1992. They then fell by 1.5% in 1993 and by 1% in 1994.


So, if that pattern is repeated, the independent sector will not feel the worst of the pinch until about 2010.


Since parents have to give a term's notice before cancelling fees, it is certainly likely to be well into next year before bursars really notice major effects.


There are other pressures that could make things worse. For a start, fees have been rising by more than inflation for some years now. They are already up by about 40% since 2003 and this year saw an increase of around 5.8%.


Independents schools will, of course, have the option of reducing their costs. With the current pupil: teacher ratio as its lowest ever, at 1 teacher to 9.6 pupils, there is plenty of scope for this.

Charity test

On the other hand, schools are feeling the breath of the Charity Commission on their neck as it continues to look into whether independent schools are meeting the public benefit test.


Already the charities regulator in Scotland has said four schools are failing the test. This may well encourage schools to increase their means-tested bursaries, thus placing a further burden on parents paying full-cost fees.


Senior schools face the additional problem of a demographic squeeze, with the number of 15 to 19 year-olds in the population due to fall by 11.5% between 2008 and 2020. Amongst 10 to 14 year olds the decline is smaller and only lasts until 2012, when the trend is up again.


The only bright spot for independent schools is that the falling value of sterling will make their fees more affordable for many overseas families, although these only make up about 4% of the market.

This generally gloomy scenario may prompt more schools to move into the state sector, using the City Academy route, which allows them to maintain their special ethos, their outside partners, and a degree of independence.


Five schools have already made the switch to the state sector. Others are currently in talks. The head of Wellington College, Anthony Seldon, has predicted that as many as 25 independent schools could become Academies by 2010 if the recession is a long one.


The independent sector has, of course, faced this sort of threat before. Yet its share of the education market has remained fairly steady at about 7% for several decades.


Much depends on how deep, and how long, this recession proves to be and whether or not, as predicted by some, it hits the middle-classes hardest. For now, though, independent schools would be wise to batten down the hatches.

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