Dale Bassett: Education Maintenance Allowance is not value for money

Dale Bassett is Research Director of Reform.

There has been much debate in the media this week over the Education Maintenance Allowance (EMA) – a cash payment of up to £30 a week made to poor 16-18 year olds for staying in education. The Government wants to scrap it, arguing that the £560 million annual expenditure represents poor value for money since it has an estimated 88 per cent deadweight cost. In other words, 88 per cent of recipients would have been in education anyway, even without the handout. The Institute for Fiscal Studies (IFS) put out a bulletin agreeing with the Government’s assessment of the deadweight cost yet arguing that EMA is nonetheless value for money.

The IFS gives three main justifications for this:

1. Even given the deadweight cost, EMA still pays for itself in a cost-benefit analysis.
2. There are benefits to EMA other than encouraging participation (i.e. getting 16 year olds to stay in school).
3. Many Government policies have substantial deadweight costs so it’s wrong to single out EMA.

 Taking each of these in turn:

1. The IFS argues that “the costs of providing EMA were likely to be exceeded in the long run by the higher wages that its recipients would go on to enjoy in future”. This is a questionable assumption, based on the increased earnings that would arise from increased participation in education post-16 and higher qualification levels, versus the cost of NEETs (those not in education, employment or training). But it is far from clear that receiving EMA to stay in education post-16 actually makes an individual less likely to become a NEET. The IFS did not examine whether receiving EMA actually makes people more likely to get qualifications. Above all, even if the IFS’s analysis is right, it is no justification for not better targeting support. Saying that the deadweight costs of 88 per cent are outweighed by the savings made on the remaining 12 per cent provides no reason not to try to reduce the wasted proportion of the spend.

2. The IFS claims that “the EMA may have other benefits: those who receive EMA and would have stayed in education regardless of it might still benefit educationally through other channels: for example through better attendance, or more study time as a result of not having to take on a part-time job.” Yet there is no evidence to support these assertions (or indeed what impact they might have on educational outcomes). “Moreover,” the IFS says, “even if the EMA had no impact on educational outcomes it would still represent a transfer of resources to low-income households with children, which may in its own right represent a valuable policy objective.” This may or may not be the case – but if the Government wishes to transfer cash to low-income households for its own sake, it should do it transparently.

3. The IFS observes that many Government policies have deadweight costs; Left Foot Forward offers some examples. But this is surely a justification for reducing the deadweight costs of other policies, rather than just accepting this as an inevitable waste of taxpayers’ cash.

There are other, perhaps even more important, criticisms of EMA:

4. EMA doesn’t actually raise participation that much. In particular, there remains a very significant drop-out rate between the ages of 16 and 17, which suggests that even with EMA many pupils don’t see enough reason to stay in school.

5. Participation is not an end in itself, and EMA seems to have little effect at actually improving results. The IFS’s own research shows an extremely marginal improvement in A-level grades. A major study by the Joseph Rowntree Foundation suggests that although it probably does increase participation, EMA does not seem to have much impact on outcomes, with GCSE results remaining by far the most important factor in determining post-16 attainment.

6. Defenders of EMA have not always considered how else the money could be spent. Even if EMA has benefits (which the five points above draw into question), does that mean it is the best way of spending over half a billion pounds of the education budget? Rather than bribing kids to stay in school, focusing on improving the quality of teaching would raise attainment, participation and future earnings.