Andrew Laird: The Government should pilot schools run by companies on a social enterprise model

Andrew Laird is a Director of Mutual Ventures, an organisation which supports social enterprise delivery of public services. He is lead author of Policy Exchange's new report - Social Enterprise Schools.

The schools system faces a perfect storm of rising demand and reducing resources. There is considerable rising demand (500,000 more primary school places are needed by 2018) and, for obvious reasons, public purse capital expenditure is being reduced (by 2014/15 this will be down 60% compared with 2010/11). Our new report from Policy Exchange looks at whether an element of for-profit provision in the schools system could provide some much needed investment and capacity to not only meet basic demand but to give pupils and parents a genuine choice.

We know that for-profit provision is already a fixture in other areas of public service such as health and welfare but what's particularly interesting is the for-profit provision that is already happening in and around schools themselves. Whilst most LAs don't know if a provider of school support services is not-for-profit or for-profit (interesting in itself) there are some good examples of how these service are provided. In Northumberland, 50% of Alternative provision for pupils is provided by for-profits. In Brent and Medway. over 30% of special school provision is provided by for profits and in Middlesbrough, nearly 90% of Nursery provision is provided by for-profits.

Statistics like these will surprise a lot of people, and they beg the question that if our youngest and most vulnerable children are receiving services from the private sector, then why is there such a cultural aversion to allowing a more mixed market within mainstream schooling?

Internationally, the best examples of genuinely mixed schools markets are Sweden (where most Free Schools are for-profit) and the USA (Where about half of Charter Schools are operated by for-profit companies).  Whilst there are good examples of for-profits out-performing state and voluntary sector run schools, if we focus on the whole schools system there are four clear learning points:

• Creating scale - If you accept that choice and competition plays an important role in raising standards across all schools (Tony Blair was making this argument back in 2005), then you need to think about how to generate more provision. In Sweden there are plenty of examples of very good non-profit providers who simply choose not to expand despite more children wishing to attend. For-profit providers are more likely to expand to meet demand for their services than other types of providers - their business models demand it.
• The right kind of scale - Non-profits can expand but it is almost always driven by philanthropy rather than performance. Research from California shows almost no correlation between philanthropic funding of Charter schools and performance. The numbers of non-profit charters are growing for sure... but they are ALL growing, the good and the bad. For-profit providers can only expand if they are successful as they are dependent on pupils choosing to attend. 
• Scale in the areas of most need - As any performance-dependent business does, Private school providers tend to expand into gaps in the market. In education, this tends to be in the most deprived areas. As an example, if we take a major growth period for US private provider Edison Schools, we see that between 1998/99 and 2003/04 the proportion of Edison students from low income families increased from 57% to 78% - a clear demonstration that growth has focused on the most deprived areas.

The context of this debate in the UK is extremely complex. The question of profit is nowhere near as black and white as is sometimes presented but nevertheless there remains a heavy aversion to any form of for-profit provision within the education establishment. Accepting the reality of this, yet also recognising that a new approach is needed given the challenges the system faces, our report proposes a social enterprise model as a sensible middle ground.

This model allows an element of distributable profit (50%), therefore enabling external investment, whilst protecting publicly funded assets and ensuring a minimum level of surplus reinvestment. Schools should also have more financial freedom to take on debt and carry over surplus from year to year. A key element of this model is that teachers should be allowed to take an ownership stake in the schools they run. The government is encouraging this in other areas of public service (such as social care) - so why not allow teachers the same opportunity?

Critically, with this increased freedom and ownership there would also have to be increased scrutiny in terms of financial viability and performance. The central driver should be a better education for children. Existing schools doing a great job have nothing to fear from any proposal that would increase provision and choice - pupils and their parents would have to choose to move schools. If you believe that choice, competition and investment are needed - then it's time to pilot the social enterprise schools model.