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