THE CHAIRMAN

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					THE CHAIRMAN:... joint welfare and employment services by local authorities,

Benefits Agency, and the employment service. Jim is going to be speaking to us

on investing in education.



MR JIM LOCKIE (Head of Schools Private Finance Team, DfES): The title of this

session is Investing in Education, but I want to concentrate particularly on

schools. However, I think what I say about schools will apply in many ways to

higher education. The big difference is, as most of you will know, universities are

independent bodies and they each determine how they will undertake their own

investment. Universities and schools have the problems that were mentioned in

the last session: ageing facilities and massive under-investment over a period.



Looking at the schools themselves, Andrew Smith mentioned this morning this

long period of under-investment, and I can say that as a civil servant, it is not a

political issue. Both parties were in Government during that long period when the

post-war building boom finished in the mid-1960s and when almost nothing

happened in the public sector.



We are now faced with the situation where over 60% of all the schools in the

country -- and my figures here are based on England but the position is very

similar in the rest of the UK -- are beyond their useful life. I do not know

whether you can see it on the slide, but 14% of all schools are pre-1919. There

is a very significant number of Victorian schools. While, if you are a teacher, you

would be very pleased to have your Victorian school pulled down and something

better built, I can assure you that when we try to do that there are very large

numbers of people who think that they look very pretty and who want to keep

them.
The great problem is how we move from that current position at the top, 14% of

post-76, to something that is really acceptable for a modern education system.

The replacement cost of the England estate only here, simply to replace it as it is,

is £78 billion, and the current school stock designs are not suitable for the

modern curriculum. So to revive a modernised estate would cost £93 billion.



Andrew Smith smiled a lot while he was speaking this morning, you may have

noticed. That is because he is in the middle of the spending review negotiations

with the Department, and that smile is very common, and at the end of it the

answer is "No". Certainly it is "No" to £93 billion!



In addition to that, simply to keep the buildings running, even if we do not try to

replace them and modernise them, simply to keep them going, we need vast

amounts of money, as you can see, to stop them literally falling down. Up until

very recently, most of the safety laws and other laws, such as the disability and

disablement Act did not apply to schools because it did not really matter, did it, it

was only children going in there!



Now that those laws are actually applied to schools, many of these buildings very

soon will find themselves in the position of having to be closed down or areas of

them being made not usable. If we do not invest money in replacing and

modernising we will have to invest vast amounts of money just keeping them

going. At the bottom of the slide there is reference to sufficient places. That is a

jargon term used by the education industry which means either having enough

places for pupils, or, if you have too many, getting rid of them, because obviously

it costs money to maintain empty places as well. As always, because of

demographics, there will be increases in younger children coming into primary

school at the same time as there will be reductions in pupils going into secondary

schools, and vice-versa. We also have, even with a relatively stable population in
terms of growth, massive movement out and around the country. We have major

depopulation of many inner cities, still, at the same time as growth in the suburbs

and in other areas such as the M4 corridor and in East Anglia, around Cambridge,

and so on. So we need again we think almost £1 billion a year simply to cope

with that.



Jeremy Coleman mentioned earlier about the importance about value for money

and cost, and value for money is supposed to be the focus for all public

investment. We argue with the Treasury there are very clear benefits in investing

money upfront, investing money in new, modern facilities that can cope with the

future rather than, as I mentioned in the figures earlier, continually just coping

with keeping things going, and obviously new equipment, new designs, are able

to save money on maintenance.



But we are trying to look wider now. The Treasury are saying to us "What is the

payback for all this money?" Andrew said some very nice things about the

schools investment programme, and there have been some very good results, but

the Treasury are saying to us "Look, if we are giving you money, what are we

getting out of it at the end? What is the economy getting out of it?”



I have to say that we have found that very, very difficult. We can provide

reports, as we did, expensive reports from consultants -- not Andersen's -- which

have lots of details from headteachers saying "My new school is wonderful. We

like it." And the parent saying "Thank you, thank you; give us more". The

Treasury were not satisfied, so we have been trying to see whether there are

wider links.



The next two sides which I am going to show you are not quite complete

research. There is a bit more work to be done but I think that it will be ready in
about a month. That shows a direct link between investment an improvement in

results from children.



The terms that you can see on the slide: condition, if you think about it, is

maintenance, the condition of the building. In other words, if you replace the

roof, as you can see on the slide, there is a fairly limited improvement in

educational performance, which is not surprising. Children work better when they

are not wet but, other than that, it does not make a great deal of difference!



Sufficiency simply means providing enough places. That can have a negative

impact because that usually means it is an expanding school and there is a

transitional period of more children coming in, maybe new teachers. Suitability

means can the building cope with the curriculum? Are the science laboratories

adequate? If you have children with disabilities, can they access all parts of the

building? Here is a very, very clear demonstration that there is an impact on

children's performance.



There is some further analysis. Key stage one, for those who have not children,

is the very first stage after they have got through the reception. The first year is

the bit where they learn to write their name and do the initial bit of reading, and

so on. There is very clear impact here on improved performance that can be

measured. The figure that you can see at the bottom of the slide is the sort of

thing to the Treasury love, £100 million gives you 30,000 more pupils achieving

key stage one level 2 in writing over ten years.



Further work is looking at how that builds up in secondary areas as well. It is

very difficult to get this sort of information because obviously you can have a new

building and you might get a new headteacher or you might get a really bad

teacher come in, or there might be a bunch of children coming through who
simply are a pain in the backside and you have to put a lot more work into them.

Getting those variables out is quite difficult. The first lot of research we almost

threw away. This looks much more solid and it will be made available when it is

completed.



We see value for money as being wider. Trying to get the message through to

local authorities and others is an issue for us. Value for money means having

that wider vision, the things that the previous speakers have mentioned, that we

should not just be looking at what education is about now, what a school should

deliver, but we should be looking at what that facility can provide for the whole

community over a period of time. I am not just talking about PPP, but the PFI

contract, traditionally 25-30 years.



What will that facility need to provide? What could it provide for the whole

community in 25-30 years? It may be -- it almost certainly will be --

considerably different from how things are now. So we want people to take into

account all these wider issues. We have a number of projects going on at the

moment to look at what the classroom of the future and the school of the future

might be like. For instance, from some early pilots, the use of video conferencing

facilities, which seemed a little bit of gimmick first of all. It seemed very nice, you

could bring the press in and "Hey! We have got it". But actually it has a lot to

gain because one of the major problems in education for all of us in the

community is this massive number of teachers that are due to retire over the

next ten years. There will be more teachers retiring than we can possibly replace

even if the number going into higher education hits the Government's 50%

target.



So we are going to have to find ways of making better use of the teachers that

we have, and that does not just mean getting untrained, cheaper people in the
classroom. Video conferencing does seem to be a very useful way - for instance,

having a skilled science or maths teacher - of having several groups in different

classes over a wide geographical area. Also, which is really exciting, there have

been experiments of having children in schools or in villages in Africa in the same

lesson. As you know, it is relatively cheap technology and it is making very great

use of limited teacher resource.



We need all of those ideas, all of those thoughts, to be taken in and facilities

design that can take on the new ideas that are going to be coming in in ten years’

time that we do not know about yet.



That is an enormous need but, as Andrew Smith said, there has been a significant

change. In 1996-97 there was £623 million capital investment for the whole

school estate; 24,000 schools in England, just under 30,000 in the UK as a whole.

In 2003-04 it will be £3.5 billion in a single year. That is a massive increase. It

is even more massive, as those of you who deal with the industry will understand,

because this is not one agency that is managing this programme, there are 150

local education authorities in England, and about 4000 or so voluntary aided

schools run by faith groups and others who are independent of LEAs who can do

their own contracting. So to get a programme delivered through that way is a

massive undertaking for the public sector, but also for the private sector who

have somehow got to organise themselves to cope with all those different

contracting bodies.



We have made our case to the Treasury, and the noises from the Treasury are

fairly clear that that is our baseline, it will not fall below £3.5 billion a year for the

foreseeable future, and obviously we have made a case for much more, as you

would expect us to.
Within that, just to put it in context, Tim Matthews mentioned earlier his

programme which was about a quarter private finance initiative funding. In this

£3.5 billion a year for 2003-4, we will spend round about £850 million through

the private finance initiative, so it is about a quarter of the whole programme.

Our planning assumes that it will stay somewhere between a quarter and 30%,

and not go above that. The reason for that, even though it is a successful

programme, is that we believe that there is a need for capital to be able to be

used on smaller projects, on fairly quick renewable projects that do not fit in

sensibly to private finance schemes.



The non-PFI money: incidentally, that £3.5 billion that I mentioned, 85% of the

non-PFI bit of that goes directly to local education authorities and schools. The

percentage going into schools directly is increasing, and it is a very clear intention

of Government that those decisions are taken locally by the people who run the

facility and who can decide themselves what is their priority.



So far as the PFI is concerned, within local Government, it is the most successful

programme. We will hit by the beginning of March 500 schools actually under PFI

contracts. They are not 500 new schools. Most of the contracts now will include

a number of other schools under the contract which will have either major

refurbishment, or planned refurbishment or replacement over a longer period

within the contract, but they will receive facility management and private sector

management of services from day one.



That provides an awful lot of benefits, both to the company that can work out a

better deal, but also for those schools who do not need investment immediately

but can get the benefit of not having to worry day-to-day about their building.
Andrew Smith mentioned that headteachers like it, they can be freed up for

teaching. The estimates of headteachers themselves of PFI schools that are

operational is that they save between 10% and 30% of their time by not having

to be site managers. Interestingly, some heads complained that that is the bit of

the job that they liked doing. But that is very significant. If you look at all the

problems with education, everybody will agree that educational leadership and

management is the thing that is essential, and if such a significant part of heads’

and senior teachers’ time is on administrative things, clearly it cannot be on

educational matters.



I will be recommending to Ministers next month projects for the next round. We

have received bids for £3,000 million worth of projects. You can see that the

demand is really very, very substantial.



The good thing now, and the earlier things said about PFI, the impression, the

image, the public debate, is that we now have these, as in other areas,

operational contracts, new schools open, so that we can see whether what was

promised is what is being delivered. We can take sceptics and other educationists

around and say "Look at this. This is what you could get" and talk to the heads,

the teachers, and so on, about what they like about it in what they do not like

about it and what you should learn about it.



Because we have this massive demand, we obviously have to prioritise projects.

As you would expect, we aim to tackle the most urgent building needs. But also,

really importantly, we need to look at the contribution that the project will make

to raising standards. We have over the past two years said to authorities “We will

look at the project on the basis of raising standards. If it is not clear that there is

a link there, you will not get through.” It has required authorities to go beyond

"Our school needs replacing; it is a mess" or "It is not big enough" or whatever.
They have to think about how things are organised, maybe not just in that school.

If they come forward with group schemes, maybe a dozen schools, they have had

to develop ways of schools co-operating with each other. So we do look very,

very strongly at raising standards, obviously addressing the education agenda

and the wider Government agenda, which is about joined up projects between

departments and services so that we now have schools projects that will have

sports facilities which are also public sports, gym and fitness facilities, or public

libraries within a school campus. In rural areas, for instance, there are some

discussions and some thoughts about having school campuses that have a police

station on them. There was some suggestion about prisons, but they thought

that was a bit politically sensitive! Also health facilities in inner-city areas, so that

parents could come in with their children, get advice and see medical experts at

the same time.




The urgent building needs that I mentioned are, firstly, the number

of places, because obviously, that is the most important. This

removal of surplus places in inner cities is really, really important.

The inner cities will tend to be poorer areas, tend to have poorer

educational results, but they have also suffer this massive drain on

the resources of having enormous schools with small and falling

rolls, and they have to spend a significant part of their budget

maintaining it. So, getting rid of those surplus places is just as

important as maintaining new ones. Sorting out serious condition

issues, obviously. But I am arguing, with others, and would like to

see the suitability come to the top. This modernisation agenda is so

important for us, we do not want to be spending these vast
amounts of money and then find in five years’ time that we have

made a mistake.



In the talk on railways, mention was made of a proper asset survey.

I had not realised until a little while ago that in 24,000 schools

around the country there was no requirement for local authorities to

keep any proper asset register. Some of them did not even know

about bits of property that they had. They would get some interest

shown from an estate agent or a company, and they did not even

realise that they owned the property! A couple of years ago we

required all local education authorities to develop detailed asset

management plans and carry out condition surveys. Since then, we

have asked them to carry out suitability surveys, to look at the

buildings and to see how well they could actually cope with

delivering the curriculum. We now link any of these proposals that

have come in to these asset management plans, and I think almost

all local authorities will say it has greatly improved their own overall

management of their estate and their investment decisions.



I should like to say a word about perception because this is

primarily a private sector audience and I do think that it is

important for everybody to understand how important it is that both

the private and the public sector play their part in dealing with
perceptions about investment overall, but about the involvement of

the private sector in that investment.



Andrew Smith I thought made a very positive statement today. In

the past Ministers very often have not. They have either been

nervous or they have said even negative things. I will not name

them but Ministers quite recently have said things like "No private

company is going to make a profit out of an educational asset. We

will not allow it." I am a lifelong public servant, but I am aware that

even before people had thought of PFI and PPP, the private sector

was heavily involved in working with the public sector to deliver

services. Under PFI we now have a different type of arrangement,

but it is very important that collectively we try to help the public

comprehend the need for profit to be made by companies,

reasonable profit, and that that is a good thing because that

enables, encourages and supports further investment.



Secondly, on the issue of PFI and PPP, Government collectively has

been slow to sell the merits rather than very defensively argue the

criticisms. But there is a great deal of information that is available

within the private sector about particular projects, about the costs

and benefits, about what risk means. We talk a great deal about

risk management in PFI; but I know that even my own colleagues in

the public sector find that very difficult, and I have to tell you that I
have been a contract manager with the private sector for a long

time and many people in the private sector do not fully understand

risk management and risk transfer.



To expect the ordinary public to understand it is extremely difficult.

I think that that is an area where we collectively ought to be trying

to do more to educate people to understand what it is about. And

also about the information that we both may have about successes.

There are successful projects out there, both PFI and non-PFI, that

we ought to be celebrating jointly.



I was told by a Minister a little while ago that the only time that the

private sector would say anything positive about PFI publicly is

when they are informing their shareholders of their results. The

rest of the time they prefer to keep their heads down. That is

cynical. Politicians might be like that but civil servants are not.



I know I have laboured this point but I do believe that we

collectively can do much more than separately.



The process of procurement: both the previous speakers have

spoken about ways of improving and creating more efficient

procurement processes. Because of the complexities of the

procurement regulations, we have enormous difficulties in
improving the system in schools, because we are dealing through

the 150 different bodies, but we are introducing and making

mandatory standard contracts for schools this year. We are looking

to see, along with the strategic partnership arrangements that local

authorities are developing, whether we might develop joint venture

companies as a mechanism to improve the efficiency of the process.



Indeed, this afternoon in the Education Bill which is going through

Parliament, we have a new clause which will give powers to the

Secretary of State and to individual schools to join companies, to

set up companies or invest in companies, which we believe will

create greater flexibility. Those companies might include private

sector partners or might not. That all looks very interesting.



Obviously, value for money is the most important thing for us, and

that is where again risk management comes in. At the moment on

average a schools project has something like 12% of the contract

value transferred to the private sector, on the same basis as

already discussed, to where it is best managed. I do not think that

that has necessarily been done in a particularly sophisticated way in

the early projects, and the Audit Commission, which is the NOA’s

partner for local Government, are starting to look at schools PFI

projects this month, and we hope to get some analysis of how that

risk transfer has actually worked out.
Finally, value for money is very important, and the wider value for

money that I have mentioned, the saving in head teachers’ time,

the fact that recruitment retention is greatly improved in new

modernised schools, truancy is reduced, and usually vandalism is

reduced. But it still has to be afforded. Somebody has to pay the

bill at the end of the day. We obviously have competing pressures

from transport, hospitals, prison, the police and elsewhere. The

real concern for us is the increase in construction costs which are

very, very significant, as you know. IPI at the moment is under 1%

at the moment. The Treasury will allow us to build in 2.5% over a

long-term contract and we are getting construction inflation on

tenders at around 7%. In some parts of the north they are coming

in at 10%-12%.



We cannot finance that. The Treasury are certainly not going to

give us more money on that scale simply to achieve the same. So

it is an issue that we need to look at, and much of that comes down

to the supply of skilled staff.



Again, that is a partnership issue. The Prime Minister made this

clear before Christmas that it really is down to the private sector to

play its part in helping to increase the level of skilled labour. That is

a challenge. The Government has this target of 50% of all school
leavers and young people going into higher education. There

similarly has to be this drive to improve, now that there is a

guarantee of sustained investment over long period, the level of

skilled opportunities and to convince young people and older people,

of course, because we are an ageing population, that this industry is

one to be in.



THE CHAIRMAN: Thank you, Jim. That is an interesting insight into

schools investment. Do we have one or two questions for Jim?



[A pause]



You have stunned them, Jim. You have answered all the questions in your
presentation.

				
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