Briefing Paper

by Janet Beales Kaidantzis

March 2000

• Background on Britain’s Emerging Education Industry 
• Contracts for Whole School Operations 
• Contracts for Local Education Authorities (LEAs) 
• Support Services 
• The Education Industry in the U.K. 
• Policy Issues 
• Conclusion 
• Contacts 

The United Kingdom consists of the countries of England, Wales, Northern Ireland, and Scotland. With the exception of Scotland, education policies and practices are broadly similar throughout the U.K. Scotland’s system of education differs significantly from the rest of the U.K. and will not be covered in this briefing paper.

The 1870 Education Act marked the direct involvement of the state in education. Previously, education had been left to the Voluntary Church Societies. The 1870 Act, established during the reign of Queen Victoria, set up a system of local school boards with the power to provide schooling paid by taxpayers. In 1880 compulsory education was law and became free in 1891.

Today, education is compulsory from age 5 to 16. After age 16 young people can choose whether to continue with their formal education, enroll in the government’s vocational training program, or go to work. Seventy percent opt to stay in education in a regular public school (known as 6^th form education) or attend a "further education" college. Students who do not wish to continue in school are guaranteed a place on the government’s training program. The training program involves a mix of public and private employers, which provide varying levels of on-site training. Additionally, individuals are encouraged to develop their own skills. The National Vocational Qualifications (NVQs) certify an individual’s ability to meet the skill levels required for work.

Unlike the U.S. where education is fairly decentralized at the state and district levels, education in the U.K. follows a prescriptive national system of curriculum, educational targets (standards), assessment, pupil testing, and school inspection. Acts of Parliament and Statutory Instruments govern the education system. Similar to state education codes in the U.S., this legislation encompasses legal rights, obligations, and penalties, and controls some spending for education. Citizens in the U.K. do not have the power of the initiative and therefore can not introduce legislation. Occasionally an individual Member of Parliament (MP) will introduce a statute, but more often statutes are introduced by the government.

In terms of number of schools (though not necessarily the variety), parents in the U.K. generally exercise a broader degree of school choice than parents in the U.S. A student may attend any public school provided a place is available. Over 90 percent of the school-aged population attend a public school. Just 7 percent attend private (independent) schools, which number 2,270. Typically, a primary school is co-educational and serves students age 5-10; secondary schools serve ages 11-16 and beyond (if they offer 6^th form education) and may be either single-sex or co-ed. There are several categories of public schools.

County schools: wholly owned and maintained by the Local Education Authority (LEA).

Voluntary schools: provided by voluntary bodies, the majority of which are churches. They are financed and maintained by the LEA but the assets of the school are held and administered by the trustees. (For purposes of governance and management, the new Kings College school operated by 3E’s Enterprises is organized as a non-denominational voluntary-aided school.)

Grant-maintained: Funded by central government, grant-maintained schools previously had more local autonomy than other public schools. With the change to Labor government, grant-maintained status has been replaced with foundation status, and some budgetary autonomy these schools once enjoyed has now been lost. Although "start-ups" were not allowed, GM schools were most like the charter schools of the U.S.

Specialist schools: Enables secondary schools to develop a strength in a particular subject while still following the national curriculum. Similar to magnet schools in the U.S.

Special schools: Provided or funded by the LEA for some children with special needs. (Special schools may be privately owned and operated and receive public funding, similar to the U.S. model.)

Every public school is governed by a Board of Governors made up of elected parents and teachers, as well as members of the local community. While the headmaster (principal) is responsible for day-to-day management of the school, the Board of Governors plans the school’s future direction, makes decisions on the school’s budget and staffing, makes sure the National Curriculum is implemented, selects the headmaster, sets admission criteria, and is accountable for the performance of the school.

Funding for public schools comes from the LEA. The LEA must delegate at least 85 percent of the "potential school budget" to the school itself to manage. School budgets are calculated using a formula based on student enrollment. Schools are free to decide how to spend the budget and to determine staffing levels. In addition, the LEA provides capital funding. (Voluntary-aided schools may receive up to 85 percent of the needed capital funding but must make up the balance elsewhere).

Many children under age five attend state-funded nursery schools, or nursery classes attached to primary schools.

Religious education is not part of the National Curriculum, but is decided locally. Parents have the right to withdraw their child from religious education with government guidelines directing that schools not use religious education to urge a particular belief system on a pupil.

Almost all teachers complete a lengthy teacher-training course at a university to earn Qualified Teacher Status (QTS). Teachers at private schools are not required to have QTS.

Public schools undergo government inspection every six years (or more if problems persist). A failing public school may be subject to one of several consequences: it may be given a specific time period in which to improve or face closure; the running of the school may be transferred to another governing body; or it may be closed by the Secretary of State.

The current wave of school service contracting in the U.K. began in September 1998 when Ram’s Episcopal Primary School near London contracted with the Center for British Teachers, known as CfBT, to provide technical, managerial, and support services. CfBT also recruited and employed the school’s head teacher. While limited in scope, the contract between Ram’s Episcopal and CfBT represented the first time that a private company had been involved in the day-to-day operation of a public school.

In 1999, school officials in Surrey County embarked on a more ambitious plan to contract services when they put the services of an entire school out to bid. Kings Manor School in Guildford had experienced declining enrollment for many years and showed some of the lowest test scores in the country. Although located in the affluent London suburb of Guildford, Kings Manor drew most of its students from the adjacent Park Barn Estate, a housing development for low-income families. Under Britain’s universal school choice policy, the more motivated parents living near Kings Manor tended to select other, better performing schools in the area. As a result of low enrollment and poor performance, Kings Manor was faced with either closure or reorganization. That’s when the Surrey County Council’s Local Education Agency (the equivalent of a school district) decided to try something different.

According to Steve Clark, Deputy Director of Education for Surrey, he was inspired by the U.S. experience with the Edison Project. Initially, however, he approached the University of Surrey as a potential partner for the failing school. But when the University declined, Clark pursued the idea of bidding the school out to a private company.

By law, such contracts must adhere to European bidding protocols. Surrey County Council advertised the bid throughout Europe. Ultimately the LEA received nine expressions of interest from potential operators with a total of four companies, all of whom were British, submitting bids—3E’s Enterprises, Nord Anglia, CfBT, and Education Partners. The Edison Project considered the project, but declined to submit a bid citing limits of scale and flexibility.

The Surrey County Council awarded the contract to 3E’s selecting it on the basis of cost effectiveness and its overwhelming popularity with parents’ groups who reviewed each of the four proposals. The school, renamed Kings College for the Arts and Technology (the equivalent of a combined middle and high school in the U.S.), will enroll up to 900 students age 11-18. Current enrollment is 400 students. As its name suggests, the new school will emphasize learning technologies, including video conferencing and the Internet, and supplement the required National Curriculum with a diverse offering of music, drama, media, design, and other arts. For those students who choose to continue their education beyond age 16, enrolling in what is called the "sixth form," Kings College offers an alternative to the "A-level" exams known as the International Baccalaureate, a qualification program for entry into universities. It also offers vocational courses for students pursuing careers in the trades.

Under the agreement with 3E’s Enterprises, based in Birmingham, England, the company will be responsible for recruiting and supervising staff, setting admissions policy, adhering to the National Curriculum, and managing day-to-day operations.

3E’s will be compensated with a management fee and a bonus tied to enrollment growth. Kings Manor is currently under-enrolled and receives substantial subsidies from the County Council to cover its high fixed costs. The County Council hopes that retaining 3E’s will help it boost enrollment at the school, spreading fixed costs over greater numbers of students and thereby reducing unit costs so that the school will operate more efficiently eliminating the need for subsidies.

The school, which will officially close and then re-open on September 1, 2000, has become a focal point for debate over contracting arrangements. Representatives from the National Union of Teachers (NUT) have called it a "dangerous precedent" and say that the LEA has "reneg(ed) on its duties and promises" to the taxpayer.

However, the idea of school contracting has received consistent, high level support from Tony Blair’s Labor government. Estelle Morris, Britain’s education minister, said, "We have made it crystal clear to local authorities—and we mean it very, very seriously—that if there are other people who can provide a service for schools which is in the best interests of that school, then we will allow them to do so."

In a widely quoted January 1999 speech, Education and Employment Secretary David Blunkett took the idea of schools contracting even further than the Kings College arrangement. He announced, "We are advertising for contractors that are capable of providing an effective service where an existing one is failing. They could include not-for-profit or private service providers, or indeed a neighboring LEA. We will only act where it is clear that the LEA cannot or will not do the job effectively." Blunkett received over 670 requests for applications following the speech.

Moreover, Britain’s leading education publication, the Times Education Supplement, a widely read weekly newspaper, has urged readers to given open consideration to privatization. In a May 1999 editorial focusing on the DfEE’s decision to bid out services of the failed LEA in Islington, the newspaper acknowledged that, "Many will fear that this is the thin end of a sinister privatization wedge – but they should beware of over-reacting. Such strategies are likely to be used only sparingly." The editorial concluded by stating, "The key criterion must be: what works? When the traditional system fails, so abjectly, we are in unknown territory. So let’s explore."

In Britain, every LEA (the equivalent of a U.S. school district) undergoes periodic review by the central government known as an OFSTED inspection (Office of Standards in Education). The purpose of these inspections is to ensure that schools and LEAs are delivering effective education to students and complying with state standards. Failure of an OFSTED inspection is grounds for central government intervention, which could lead to closure, reorganization, or, most recently, the contracting out of one or more LEA services.

Following a series of damning OFSTED inspection reports, the central government announced that it would place up to 15 LEAs out to bid. These included the LEAs of Hackney, Islington, Liverpool, and Leicester. Liverpool was eventually removed from the list of failing LEAs designated for privatization after making a number of improvements. But large portions of the Hackney LEA were contracted out to Nord Anglia, which will provide school improvement services to the LEA’s 25,000 students during it’s three-year contract. CfBT won the contract to provide services to Leicester. And, in the most sweeping privatization of all, a small education consulting firm called Cambridge Education Associates (CEA) won the contract to provide virtually all the educational services for the LEA of Islington.

Starting in April 2000, CEA will begin providing all central services directly to the London borough’s 70 schools (enrolling roughly 25,000 students). These will include school improvement, preventing school failure, sharing good practice, and implementing the literacy and numeracy strategies. Other services to be run by CEA are payroll, finance, governor (school board) support, and special educational needs assessment.

The decision to contract with CEA was prompted by the most recent OFSTED inspection report, which declared that seven of the LEA’s schools were "failing" while another seven were described as having "serious weaknesses." Specifically, the OFSTED report condemned the LEA’s services as expensive and deficient. The report also found that the LEA had failed to raise standards and had not adequately monitored school performance. In 1998-99, just 27.4 percent of the LEA’s students achieved acceptable grades on the government’s standardized tests, the General Certification of Secondary Education (GCSEs), versus a national average of 47.9 percent. As part of its contractual agreement, CEA must raise Islington’s GCSE’s scores to 39 percent. In addition, all schools under the management of CEA must pass OFSTED inspections for the contract to be renewed. The contract is renewable for a maximum of seven years and is valued at $28 million annually (£17 million). Media reports say the company will earn profits of $900,000 (£600,000) on the arrangement.

The Fair Funding Act, passed recently by Parliament, enables individual schools to directly purchase their own support services either from the LEA, which has traditionally provided such services to schools, or on the open market. Says Carl Morris, sales and marketing director for Gardner Merchant, the largest private provider of school food services and other support services, "It cuts out the middle man" enabling schools to shop around for the provider that best meets their needs. As of late 1999, Fair Funding had just been implemented in primary schools, but its real impact probably won’t be felt until after April 2000 when the legislation is phased in for secondary schools, which purchase services in significantly higher volumes. According to Morris, most primary schools, which tend to enroll smaller numbers of students, don’t offer the economies of scale that private providers need to operate. He says his company and others have "come back into the school market" because of the opportunities offered by Fair Funding at the secondary level.

The total market for food services in U.K. state primary and secondary schools was $1.1 billion (£685 million) in 1997. Of that, $250 million (£150 million) went to private food-service contractors with the LEAs providing the greatest share of food services. Other large providers of school food services in the U.K. include Initial, The Granada Group, and the Compass Group. The later two companies own a number of food service subsidiaries trading under different names.

Carl Morris notes that school food services have not been a highly sought after market by private contractors. He says politics, cronyism, and poor information from the LEA’s current in-house provider about actual costs makes food service provision a high risk operation for private companies looking to win a contract.

School transportation in the U.K. involves a mix of public and private providers and can include buses, trains, and car-for-hire (taxi). Unlike the U.S., there is no widely used, specialized mode of school transport (i.e. the yellow school bus). Instead the LEA arranges for public-service buses (county buses) to provide a school run as part of their regular service. The LEA can also contract with private bus companies to provide school transport. Additionally, the LEA may provide a pass to students to ride the train or a regular community bus to and from school. Occasionally, the LEA will pay the cost of a taxi to transport a child.

Children are automatically eligible for LEA-funded transportation if they attend the public school nearest their home and live beyond walking distance. They will also be given free transport if they are allocated to a more distant school due to lack of available space at their neighborhood school. Parents who choose to send their child to a public school that is further away, under the UK’s school choice program, are responsible for arranging transport. Likewise, children attending private schools are not eligible for LEA-funded transport.

As an industry, the education sector in the U.K. is just beginning to generate investor interest. In early 1999, Capital Strategies, a London investment bank tracking the industry, began publishing the Business of Education newsletter. Later that Spring, it

held it’s first public forum on the topic. Until recently, interest in the industry has been tepid, because, as in the U.S., education is dominated by local and central government. Capital Strategies estimates that just 10 percent of the $65 billion spent annually (£40 billion) in England alone is currently in the hands of the private sector. These private-sector services include private schools, pre-schools, higher education, teacher recruitment, careers guidance, schools inspections, and IT provision.

But with the introduction of several new government policies, including outsourcing, Fair Funding, and major grants for IT and capital expenditures, analysts at Capital Strategies believe that the private-sector share of the market is poised for growth. Contracts to manage LEAs, for example, will be worth $1.6 billion (£1 billion) over the next 5 to 7 years. In response to these and other developments, Capital Strategies launched the Education and Training Index (ETI) in 1999. The first of its kind, the ETI is composed of 21 publicly traded, U.K. companies, which derive at least 10 percent of their revenues from the education and training sector.

Notably, just one company in the ETI offers education management services, Nord Anglia. The majority of the index is composed of IT, publishing, training, and support services. These other sectors of the U.K. education market have attracted several U.S. companies including NCS Inc., New Horizons, Global Knowledge, and McGraw Hill. Sylvan Learning Systems was awarded the $200 million (£125 million) contract to administer the UK’s driver license theory test. SABIS and Center Academy each operate a private school in England. Arthur Andersen, KPMG, and PricewaterhouseCoopers consult for LEAs.

For all the excitement surrounding the emergence of an education industry in the U.K., there are a number of policy issues inhibiting steady growth, particularly in the area of mainstream education for ages 5 to 16.

Unlike our system of state and local control, the UK’s education system is highly centralized. 3E’s Enterprises, winner of the Kings College contract, will still have to follow the National Curriculum, teacher pay schedules, and other central government regulations. This lack of flexibility has discouraged some private providers, such as the Edison Project, from participating.

To date, the Department for Employment and Education (DfEE) has used the management contracting option as either a threat or a punitive measure for failing LEAs. This has needlessly polarized the issue and has discouraged local agencies from embracing privatization as a versatile tool for improving standards. In the U.S., contracting is used more creatively by local officials to tackle a host of educational, financial, and enrollment problems. When privatization is voluntarily embraced, rather than forced upon an LEA or school from above, it is likely to have a greater chance of succeeding.

In the late 1990s, charter school legislation in the U.S. revitalized and greatly expanded the number of contract partnerships for school management and instruction. It did so by creating autonomous, new schools with the authority to make decisions about how to deliver education services independent of traditional school boards. The U.K. lacks such a vehicle to accelerate the growth of school contracting. Britain’s 1,200 Grant Maintained schools came closest to the U.S. charter-school idea, but the Labor government rescinded their autonomy in 1999 on the grounds that they enjoyed preferential treatment.

Unlike the U.S. where education policy is set largely at the state and local level, Britain’s education system is primarily controlled by the central government making it more susceptible to dramatic policy shifts with each change in party government. The current Labor government’s promotion of LEA contracting, for example, could be reversed by the next government in office. Says Paul Warren, Capital Strategies Executive, "There is a lot of political risk for companies involved in taking over schools. If the government changes with the next election, they might be taken back into the public sector."

As in the U.S., success in the education market depends on a host of factors. Chief among them is the challenge of navigating those areas dominated by local and central government providers. Policy changes and government imperatives, such as that issued by David Blunkett in January 1999, can open the door to private providers. However, creating the kind of political and regulatory environment in which an education industry can thrive is a far more daunting task.

In the absence of broad policies that decouple education provision from strict government control (as charter legislation is doing in many U.S. states), the private provision of instruction and school management in the U.K. will be piecemeal at best. For the present time, growth-oriented companies may be better off focusing on niche or ancillary services, or targeting those age groups at either end of the compulsory education spectrum (e.g. pre-school, higher education, and adult education). For Britain’s education industry to truly thrive, government policy makers must open the door to the private sector even wider.

*Telephone and fax numbers are listed as dialed from the U.S. When dialing from the U.S., omit the (0) in the local number.

British Government Departments
Government Centre for Information Systems
www.open.gov.uk

Department for Education and Employment
Sanctuary Buildings
Great Smith Street
London SW1P 3BT
011-44-(0)171-925-5000
www.dfee.gov.uk/

Independent Schools Information Service (ISIS)
56 Buckingham Gate
London SW1E 6AG
011-44-(0)171-630-8793

Local Education Authorities (LEA)
The Local Government Association
26 Chapter Street
London SW1P 4ND
011-44-(0)-171-664-3000

Cambridge Education Associates (CEA)
66-68 Hills Road
Cambridge CB2 1LA
England
011-44-(0)1223-578-500
www.cea.co.uk
email: cea@cea.co.uk

CfBT Education Services
1 The Chambers
East Street
Reading RG1 4JD
England
011-44-(0)118-952-3900

3E’s Enterprises
P.O. Box 1017
Cooks Lane, Kinghurst
Birmingham B37 6NZ
England
011-44-(0)7803-189-878

Nord Anglia
Strathblane House
Ashfield Road
Cheadle, Cheshire SK8
England
011-44-(0)1908-569-693

Gardner Merchant Education Services
Stonehill Green, Westlea
Swindon, Wiltshire SN5 7UD
U.K.
Tel. 011-44-(0)1793-512-112
www.gardnermerchant.com

Gardner Merchant is the largest provider of food services to universities, colleges, and independent schools in the U.K. In addition, the company provides cleaning, reception, security, and sports field and ground maintenance. Gardner Merchant Education Services is a member of the Sodexho Alliance, "the largest food and management services company in the world," according to company literature.

Centre Academy
Mr. Fin O’Regan, headmaster
92 St. Johns Hill
Battersea London SW11 1SH
U.K.
Tel. 011-44-(0)171-738-2344
Fax 011-44-(0)171-738-9862

Type of school: Independent school for students with learning disabilities.
Ages served: 8-18
Enrollment: 45
Tuition: Lower school: $18,000 £11,000
Middle school: $19,000 £11,500
Upper school: $19,800 £12,000

Centre Academy serves an equal mix of American and British students with learning disabilities, dyslexia, and moderate attention deficit problems (ADHD). While the school primarily serves students enrolled by their parents on a private-tuition basis, the school does accept students placed by the LEA. Tuition for these students includes a $3,300 (£2,000) surcharge for related services (counseling, etc.) provided. Centre Academy is a privately held, for-profit school and is affiliated with the six Center Academies in Florida.

U.S. Contact: Eric Larson, president, Center Academy/LLL Licensing, Inc. 6710- 86^th Ave. North, Pinellas Park, FL 33782. Tel. (813) 541-5716.

SABIS School Network
International School of Choueifat
Mr. Salah Ayche, director
Ashwicke Hall, Marshfield
Wiltshire SN14 8AG
U.K.
Tel: 011-44-(0)1225-891-841;
Fax: 011-44-(0)1225-891-011
Email: iscuk@sabis.net
Website: http://www.iscuk-sabis.net

Type of school: Independent, academic program with international focus
Ages served: 10-18 (grades 6-13)
Enrollment: 250 students for summer term
70-100 students for academic year

Tuition: Academic Year:
Grade 6: $15,500 £ 9,400
Grades 7-9: $16,600 £10,100
Grades 10-13: $17,300 £10,500

Summer School:
7 week session: $3,300 £2,050
4 week session: $2,300 £1,400
3 week session: $1,800 £1,100

This is a very small specialty school in the SABIS School Network. It is the only residential school operated by SABIS and its 160-acre grounds serve more students during the summer months than during the regular school year. Most of the regular students are from countries in the Middle East. The school offers a strong academic curriculum with an international focus. Currently five graduates of the school are studying at Oxford and Cambridge colleges. In the summer, students come from all over the world to attend. SABIS charter schools in the United States send a number of students each year for free for special training as student life prefects.

The school is a private, for-profit school. Although it is part of the SABIS School Network, it is not owned by the U.S. company but by Mrs. Saad and Mr. Bistany, whose last names form the SABIS acronym.

U.S. Contact: Udo Schultz, vice president business development, SABIS Educational Systems, Inc. 6385 Beach Road, Eden Prairie, MN 55442. Tel. (612) 829-9352.

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Janet Beales Kaidantzis is an independent education researcher. She can be contacted at jbeales@logantele.com.

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