COMMONS

Oversight arrangements for free schools not yet working effectively

09 May 2014

The Public Accounts Committee publishes its report into the establishment of free schools.

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

"Recent high-profile failures at Al-Madinah School, Discovery New School and Kings Science Academy demonstrate that the Department for Education and the Education Funding Agency’s oversight arrangements for free schools are not yet working effectively to ensure that public money is used properly.
“By implementing the free schools programme quickly, the Department has achieved clear progress on a policy priority, but opening new kinds of schools at such speed inevitably gives rise to risks.

The Department and Agency have set up an approach to oversight which emphasises schools’ autonomy, but standards of financial management and governance in some free schools are clearly not up to scratch.

The Agency relies on high levels of compliance by schools, yet fewer than half of free schools submitted their required financial returns for 2011-12 to the Agency on time.

Whistleblowers played a major role in uncovering recent scandals when problems should have been identified through the Agency’s monitoring processes.

The Department and the Agency must improve their arrangements for audit and accountability of free schools so that we can follow the taxpayer’s pound and satisfy ourselves that public money is being used appropriately.

We are also concerned that applications for new free schools are not emerging from areas of greatest forecast need for more and better school places.

The Department has received no applications to open primary free schools from half of districts with a high or severe forecast need for extra school places.

Around 87% of projected primary places in the free schools opened so far were in districts that had forecast a high or severe need for extra places, but only 19% of secondary places in the free schools opened so far were in such areas.

We are calling on the Department to set out how, and by when, it will encourage applications from areas with a high or severe forecast need for extra schools places, working with local authorities where appropriate.

The Department should also be more open about the reasons for making decisions in favour of opening free schools. It was unable to give us a consistent explanation of how its decision-making process leads to certain applications’ approval and others’ rejection, and how this represents value for money.

Capital costs of the free school programme are escalating. The most recent round of approved free schools had a greater proportion of more expensive types, such as secondaries, special and alternative provision, located in more expensive regions such as London, the South East and South West. If this mix of approved free schools continues, there is a risk of costs exceeding available funding."

Margaret Hodge was speaking as the Committee published its 56th Report of this Session which, on the basis of evidence from Peter Lauener, CEO, Education Funding Agency, and Chris Wormald, Permanent Secretary, Department for Education, examined the subject of establishing free schools.

Free schools are all-ability state-funded schools set up in response to what people say they want and need in their community to improve education for local children. The Department has made clear progress on implementing a policy priority by opening new free schools quickly. The Department has strengthened aspects of the way it selects which applications to approve. However, we are concerned that applications for new free schools are not emerging from areas of greatest forecast need for more and better school places. Around 87% of projected primary places in the free schools opened so far were in districts that had forecast a high or severe need for extra places, but only 19% of secondary places in the free schools opened so far were in such areas. We also have concerns over standards of governance in some free schools. Recent cases of poor financial management and governance in a small number of free schools highlight the need for improvements to the Department’s and the Education Funding Agency’s monitoring arrangements.

Free schools operate independently of local authorities and have freedoms over their curriculum, school day and term time, staffing, and budgets. The Department invited the first applications to set up free schools in June 2010 and the first 24 free schools opened in September 2011. By September 2013, there were 174 free schools open with a further 116 in the pipeline to open from September 2014 onwards. The Department estimates that it will have spent £1.1 billion on free schools by March 2014, of which £0.7 billion will be capital expenditure on buildings and land. The Department implements free school policy, assesses and approves applications, and has overall responsibility for value for money. The Education Funding Agency (the Agency) is responsible for acquiring premises, and for the funding and oversight of financial management and governance in open free schools.

Recommendations

The Department could do more to draw on the experience of the early tranches of free schools to understand the take-up of places. The Department intends that applications to open free schools respond to local demand to improve education. The programme is demand-led and, as part of the selection process, applicants must provide evidence of the parental demand for places. The Department considers ‘demand’ in broad terms to include a need for places, a demand for better quality provision or for a type of school that offers a distinctive approach. At the early stages of an application, there is bound to be less certainty about eventual demand and there are different expectations about how quickly schools will recruit pupils depending on the different rationale for the school. For example, a school responding to a need to places may fill faster than a school responding to a demand in quality, as it takes time for schools to establish a reputation for quality with parents. The NAO report showed that, in their opening year, free schools attracted three-quarters of their planned numbers of pupils, but many free schools admitted fewer pupils than planned admission numbers. Sometimes this was a consequence of schools opening in temporary accommodation; sometimes it was due to a lack of accurate forecasts of demand.

Recommendation: The Department should reflect on what it has learned about demand using the evidence base from free schools it has already opened, and review its guidance to free school applicants, as well as its assessment criteria, accordingly.

The Department should be more open about the reasons for making decisions in favour of opening free schools. The Secretary of State is ultimately responsible to Parliament for decisions about opening schools. Nonetheless, there is an argument for much more transparency about these decisions are made. By opening free schools, the Department is allowing a wider range of providers to establish schools and there is understandable public interest in the way the Department makes decisions about which schools it approves. Applications are initially scored against published criteria, however the Department then considers several other factors to varying degrees when making decisions, including practical factors such as whether applications are competing for the same parental demand or the same site, and other local factors, such as an area’s level of deprivation and the need for extra pupil places. The Department was unable to give us a consistent explanation of how its decision-making process leads to certain applications’ approval and others’ rejection, and how this represents value for money. Greater transparency would strengthen public confidence in the Department’s process to approve the very best free school applications. 

Recommendation: The Department should be more open about publishing the reasons for determining that a free school application be progressed.

The Committee is concerned about the escalating capital costs of the programme. The Department’s capital budget for free schools is £1.5 billion to March 2015, of which it estimates that it will have spent over £740 million by March 2014 since the launch of the programme in June 2010. The most recent round of approved free schools had a greater proportion of more expensive types, such as secondaries, special and alternative provision, located in more expensive regions such as London, the South East and South West. If this mix of approved free schools continues, there is a risk of costs exceeding available funding. The Department’s cost estimates when approving individual schools have so far proved to be inaccurate. The Department acknowledged that publicity surrounding free school applications can inflate the market value of the proposed site, particularly in London, where sites are subject to competing demands. It also faces the risks of additional costs arising from the use of temporary accommodation on the initial opening of some free schools, from the need to provide off-site facilities such as playing fields, and from securing planning permission for permanent accommodation. We are further concerned about the potential for these pressures to be exacerbated if local authorities do not factor the need for new school building into local plans. This would be mitigated if local planning authorities allocated sites for schools when developing the local plan.

Recommendation: The Department needs to apply tighter management of the capital costs of the programme and to work with LEAs to identify sites for schools so that land costs are not inflated.

One of our primary concerns in relation to the implementation of this policy is that arrangements for the audit and governance of free schools are not yet effective. While we recognise the progress made in establishing free schools quickly, opening new kinds of schools at speed also gives rise to risks. Recent high profile failures in governance and poor financial stewardship at a few free schools indicate that the oversight arrangements are not yet working effectively enough to make sure public money is used properly. The Department and the Agency have set up a light-touch governance model which requires high levels of compliance by schools, yet fewer than half of free schools submitted their required financial returns for 2011-12 to the Agency on time. The Department and the Agency also seem overly reliant on whistleblowers when problems should have been identified through their own audit and review processes. We have reported separately on the use of confidentiality clauses in public sector employment contracts to constrain staff from speaking freely about concerns of public interest. We are therefore disappointed to learn that the Agency does not specifically prohibit schools from including confidentiality clauses in employment contracts.

Recommendation: The Department and Agency should evaluate whether their arrangements for audit and accountability fully address the risks in the programme. The Agency must address poor levels of compliance by free schools with its governance and financial reporting requirements. It should also update its financial management guidance to forbid the use of confidentiality clauses in school’s staff contracts.

There has been no demand to open free schools in some areas with significant forecast need for additional school places. The need for additional school places can be met by either expanding existing schools or opening new ones – effectively the only way to open a new school being to establish a free school or an academy. However, the Department has received no applications to open primary free schools from half of districts with a high or severe forecast need for extra school places.

Recommendation: The Department should set out how, and by when, it will encourage applications from areas with a high or severe forecast need for extra schools places, working with local authorities where appropriate.

Further information

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