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  • Huckfield main points and conclusions are in this colour.
  • Links or documents are highlighted in this colour.

Huckfield recognises that there is already growing private sector provision in Schools and Colleges but is sad to see a substantial Social Investment in Education Report advocating greater private sector expansion in the guise of Social Investment.

As a Board Member of the Social Entrepreneurs’ Network Scotland, which operates its own Code of Practice for Social Enterprises, Huckfield supports Social Enterprises which:

  • are genuinely democratically set up and controlled, with appropriate structures for their governance
  • do not distribute any surpluses
  • include a “lock” on their assets to protect them from external takeovers and buyouts

However, in postings on this site Huckfield frequently warns that in the eyes of the Coalition Government, Social Enterprises include a much wider range of organisations, which don’t even resemble these Senscot Code requirements. As shown below in What is a Social Enterprise? below, a Social Enterprise may be a private company paying dividends to its shareholders. Many of these will welcome this Social Investment in Education Report since it opens the door for them to access mainstream funding in Schools and Colleges.

Background and Outline

Social Investment in Education is presented in a way which initially may look innocuous. But it threatens jobs and undermine standards, especially in Schools and Colleges.

Social Investment seeks to harness and promote the delivery of public services through philanthropy, private and charitable sources, including private equity investment and lending. As shown below, these investors expect a return on their investment from cheaper delivery of these public services.

Social Investment in Schools and Colleges

Big Hitters in Social Investment

Social Investment in Education was published on Thursday 27 June 2013 by the Young Foundation, Big Society Capital and the Private Equity Foundation. These are among the big hitters of Social Investment.

Private Equity Foundation, a London-based Charity backed by private equity groups including KKR, Apax and Terra Firma, focuses on disadvantaged young people, and is merging with Impetus Trust, which promotes and delivers venture philanthropy with charities and Social Enterprises.

While Huckfield does not doubt their sincerity, their Report opens the door more widely to greater private sector involvement in Schools and Colleges with an attendant threat to the terms and conditions and jobs of those currently employed.

The Report’s Main Areas of Focus

Social Investment in Education on page 9 outlines its main focus areas:

  • Post 16 Vocational Education. The Report says on page 9:

“The rise in the school leaving age to 18 creates demand for 50,000 to 100,000 new school and college places. Subject to regulatory approval, this market is fairly open, with charitable and commercial providers able to set up, and be paid in arrears according to pupil numbers”.

“Unlike the other markets we are examining, this is mainstream provision. It therefore has structurally higher visibility that the ancillary services considered below. The one-off rise in demand provides a window of opportunity for the setting up or expansion of innovative providers in this area”.

As the Guardian Report on Thursday 27 June by Nicholas Watt and Patrick Wintour warned:

“They were looking for £2bn cuts (close to 10% cuts on the Treasury baseline). There was a paper circulating from the Treasury that wanted all (Further Education) provision put on to a loan basis.”

Page 27 on The Post Vocational Market continues:

“This market is open to a number of providers, including charities, commercial companies and Social Enterprises. The easiest funding route is known as the Zero Funded Contract, and subject to regulatory approval, allows the operator to open its doors and be paid for the pupils it signs up.”

For further details on this, please see Education Department Opens the Door with Zero Funded Contracts below.

Page 27 of the Social Investment in Education Report continues:

“Over the medium term this should be a fairly stable market. An established provider offering recognised qualifications and training is unlikely to be disrupted by abrupt changes in political direction; the leaving age is unlikely to be lowered again, and Colleges can adapt as qualification requirements change. Of course investments in new start-ups or expansion remain as risky as in any other business sector, but no more so.”

In the Chancellor’s Spending Review on Wednesday 26 June 2013 Further and Higher Education are shown on page 39. Further Education funding will be reduced by a further £260mn in 2015/16. FE faces a bigger reduction than HE. And this comes after the disappearance of Educational Maintenance Allowance the the Future Jobs Fund. These are areas where Social Investment will make inroads, for which Social Investment in Education offers timely advice to new providers.

Social Investment in Education on page 9 continues its main focus areas:

  • Central Government, through Social Impact Bonds and other Payment by Results contracts
  • Though page 9 does not give details of specifics, the following represents the starting point:

    “The £30m DWP Innovation Fund is the largest example of this sort of funding in the world at the moment, and focuses on a range of primarily educational outcomes. If SIBs (Social Impact Bonds) can generate enough of a saving to pay for themselves, they could be a very large market. The Government continues to invest considerable sums in developing this market, and education is and will be a key focus”

    Social Impact Bonds now have a significant presence on Government websites:

    “Social Impact Bonds (SIBs) are designed to help reform public service delivery. SIBs improve the social outcomes of publicly funded services by making funding conditional on achieving results. Investors pay for the project at the start, and then receive payments based on the results achieved by the project.”

    In Social Impact Bonds: Planting for Future Growth May 2013, KPMG shows in more detail how Social Impact Bonds might work in Local Government.

    All this leads to private investors providing funding, taking equity stakes in those delivering public services and receiving a financial return on their investment based on a payment by results or outcomes basis if these results or savings are achieved.

    Social Investment in Education on page 9 continues its main focus areas:

  • Services provided directly to schools, with a focus on the Pupil Premium.
    The Report says on page 9:

    “The greatest opportunity is probably to change teaching practice in a substantial and long-lasting way, although specific targeted help to high-need pupils is also very valuable.

    “Up-to-date data suggests that this group is very much open to the possibility of investment. There are some concerns in the investor community about their capability to put together a credible plan to repay the investment, due to a lack of skills. However there is a considerable amount of money going into the sector to improve investment readiness, and we would expect this to bear fruit in the coming years.

    Based on the Sutton Trust Education Endowment Foundation Teaching and Learning Toolkit, the Report in Figure 3 on page 19 shows “The most effective modes of intervention, by months of acceleration”. It also shows the relative cost of each programme.

    Page 24 on Does the evidence base impact on practice? says:

    “There is now a credible and accessible synthesis of the research base (in the form of the EEF toolkit), extra funding to implement it in the shape of the Pupil Premium, pressure from Ofsted to spend it well, and monitor how it is being spent. This suggests to us that the use of the evidenced techniques outlined above will rise over the next few years.”

    This is really saying that the Pupil Premium might be better spent on external providers. Those in education unfamiliar with the language of Social Impact Bonds may not be accustomed to measuring everything in money terms.

    Page 15 of Social Investment in Education says:

    “Research by York University estimates an average lifetime public finance cost of £56,301 for a young person who is NEET aged 16 to 18. 11 The resulting estimated aggregate public finance costs of 16-18 year old NEETs range from £12bn to £32bn. The costs to the public purse of the failure to master basic literacy have been estimated at up to £2.5bn annually.There is a considerable financial gain to be harvested by improving outcomes for this group, providing potential opportunities for payment by result investment structures”.

    Page 16 of Social Investment in Education outlines how all this might be sold at the School Gate:

    “Given the pressure on local authority budgets, local government is – and will remain – a very difficult market into which to sell services. Instead, individual schools, via head teachers, are increasingly the key market for Social Enterprises.”

    So new providers will approach Head Teachers directly.

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    What is a Social Enterprise?

    Social Investment in Education frequently refers to ‘Social Sector Organisations’. Some readers may believe that Social Enterprises in this Report are non profit organisations, including Companies Limited by Guarantee and registered Charities. But all that has changed.

    “Good Fit” Social Enterprises

    In Social Enterprise Market Trends May 2013, the Cabinet Office introduced a new definition for Social Enterprise, which really means “You can call yourself a Social Enterprise if you want to”. Page 8 says:

  • The Classification of a Social Enterprise
    In the Small Business Survey (SBS) 2012, 24% of SME employers thought of themselves as Social Enterprises (defined as a business that has mainly social or environmental aims)”
  • “Whether a business answers ‘very good fit’ or ‘quite good fit’ is perhaps a judgemental matter, dependent on how a particular individual chooses to express themselves… For this reason, Report will focus on both those enterprises who consider themselves a ‘very good fit’ to the Social Enterprise classification, and also those enterprises who consider themselves a ‘good fit’ to the Social Enterprise classification (which includes both those enterprises who think that are a ‘very good fit’ and ‘quite a good fit’, to the social enterprise definition).”
    Previously Social Enterprise UK on page 8 of State of Social Enterprise Survey 2009 and on the acknowledgements page of Social Enterprise UK Fightback Britain 2011 reckoned that there are 62,000 Social Enterprises contributing £24bn to UK Gross National Product. In Social Enterprise Market Trends May 2013 the following represents what the Government would like us to accept as the ‘new normal’ for Social Enterprise – more than 10 times that number:

  • Total Estimated Number of UK SME Social Enterprises 2012. Page 11 Table 3.3 shows, using the ‘good fit’ definition, 688,200 Social Enterprises in 2012. But only 179,500 were employers.
  • Gross Value Added by Social Enterprises. Page 14, Table 3.9 shows £55bn Gross Value Added by all ‘good fit’ Social Enterprises and £41bn by those who were employers”.
  • Legal Status. Page 20, Table 4.5 shows that nearly 40% of ‘good fit’ Social Enterprise were Private Limited Companies. This has fallen from over 50% in 2010.
  • So the Government now believes that, if they believe they are a “good fit”, anyone who is self employed and private companies which distribute dividends to their shareholders can call themselves Social Enterprises.

    So, if you feel that way inclined, why not call yourself a Social Enterprise?

    And Don’t Forget the Shareholders

    In October 2012 Social Enterprise UK published its own Why Social Enterprise? A Guide for Charities. On page 11 under Structure/Options, the Guide lists:

    • “Limited Liability Company (limited by Guarantee or Shares)”.

    Big Society Capital’s Definition of Social Sector Organisations includes for profit companies. The requirements for funding ‘For Profit Social Sector Organisations (SSO)’ are described in Big Society Capital’s Governance Agreement:

    “1.1 A for-profit SSO will:

    1.1.1 have objects set out in its constitutional documents which are primarily concerned with the provision of benefits to society (see addendum detailing Social Objects);

    “1.1.2 have a policy in relation to the distribution of profit after tax that ensures surpluses are principally used to achieve social objectives. Practically this means that the payout of
    cumulative profit after tax to shareholders will be capped at 50% over time, and therefore
    ensures that any surpluses generated over time will be mainly:

    • reinvested in the business;
    • applied in advancement of its Social Objects; or
    • distributed or donated to other social sector organisations.

    “1.1.3 have a constitutional or contractual lock on its Social Objects, dividend and surplus
    distribution policy”

    What all this means is that a Social Enterprise may be a private company which pays dividends to its shareholders but reckons that it is a “good fit”. Microscopes and micrometers may be used!

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    Keys to the Door

    Chosing the Easiest Way to Make a Return

    In its Conclusions and Recommendations on page 41, Social Investment in Education is open about why The Report’s Main Areas of Focus above have been selected:

    “We have suggested that three areas could form the cornerstone of a portfolio in this area, combining social and financial returns:

  • 1. Finance new post-16 Education and Training Institutions that reach those groups who have been failed previously and supply basic skills and contact with employers in new and engaging ways.
  • 2. Funding the best-evidenced interventions through an SIB/PbR (Social Impact Bonds/Payment by Results), with the additional benefit of demonstrating that this is a viable asset class.
  • 3. Scale Social Enterprises that help schools use the pupil premium wisely, in light of the evidence (carefully selecting those that understand the challenge of selling in this market).
    “We have specifically selected opportunities which we think will succeed against the existing policy environment and would not require dramatic structural changes to the system. Indeed, the core opportunity for Social Enterprise has occurred because Central Government has stepped back from directive management of the education Sector. It has given institutions more autonomy over their budgets, and is holding them to account for outcomes, rather than specifying solutions. It supports outcome-based structures such as SIBs (Social Impact Bonds), and welcomes a range of innovative new entrants, such as in the post-16 market. The greatest policy requirement is that the Government continues to operate in this way.”

    Since New Labour ushered in the whole concept of Social Investment after Sir Ronald Cohen’s Final Report of the Social Investment Task Force April 2010, there is little indication so far that a change of Government on Thursday 07 May 2015 might result in a change of policy.

    Education Department Opens the Door with Zero Funded Contracts

    Page 44 of Social Investment in Education under Standard Route shows how student funding will be delivered directly to Academies, Colleges and other providers. The role of Local Authorities becomes ever more limited.

    “The standard funding route in the new system is directly from the EFA from 2013 on a per student basis. This is approximately £4,000 per full time student (600 hours). Academies, colleges, and providers will get their funding in this way, though the system is still lagged (funding is based on data from the previous year) and is calculated through data returned in census for schools/academies or Individualised Learner Record (ILR) for colleges and other further education providers.

    Page 46 of Social Investment in Education on Zero Funded Contracts

  • “Zero-funded contracts are a new funding route to allow commercial and charitable
    institutions to enter the 16 to 19 education market. It joins the other market entry options offered by the EFA (Education Funding Agency) – Free Schools, University Technical Colleges, Studio Schools, and responding to open procurements run by the EFA.
  • “Under a Zero-Funded Contract institutions will receive £0 per student for the first year of operation – funding then starts from the second year of delivery, subject to compliance with the contract. Students at zero-funded institutions will still be eligible for bursaries.”
    On Tuesday 26 March 2013, the Department for Education announced Zero Funded Contracts Gateway Opens

    Huckfield and others have few doubts that other doors will open for more Zero Funded Contracts!

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    Higher Education?

    The incursion of For Profit Universities into Higher Education is already highly controversial. Almost politically unnoticed, BIS Alternative Providers Draft Guidance in April 2013 permits For Profit HE providers’ access to the English Student Loan System. They will also remain outside HEFCE Controls on Student Numbers in England until 2014/15.

    As shown above, Big Society Capital and its Social Investment Financial Intermediaries prefer not to distinguish between Charities, Companies Limited by Guarantee and private companies paying dividends to their shareholders. All this will increase fears that in an already highly politically charged arena, further For Profit and private equity intervention in English Higher Education could follow the Social Investment route.

    And, Finally

    In the Introduction to Social Investment in Education, Objectives and Scope on page 12 says “We understand a ‘good opportunity’ for social investment to have three qualities”:

  • “It must have efficacy, in other words there must be a good reason to believe that it will improve the educational outcomes.
  • “It must be marketable, in that there must be someone who will buy the service or product.
  • “Finally, it must be investible. There must be a need for social investment, investees with skills and capabilities to generate a positive return on the investment, and a proportionate level of risk”.
  • While few will doubt or question efficacy, many will ponder and struggle over how marketable or investible might describe initiatives helping or supporting disadvantaged young people.

    Many trade unions have long viewed Social Enterprises as code language for an ultimate private sector threat to their jobs. As a strong supporter of real Social Enterprises Huckfield is sad to see a Report openly advocating this.

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