In her letter of August 30, 1995 Gillian Shephard, the Secretary of State directed us [the school teachers’ review body] to have regard to affordability, given the overall state of schools’ and education authorities’ finances and the level of education standard spending (ESS) for 199697. While we have previously been directed to look at the level of ESS, this is the first occasion on which we have been asked specifically to address the financial state of schools and LEAs.

In the light of the financial pressures on LEAs and schools over the last year, the national employers and those giving evidence to us on behalf of the grant-maintained sector, church schools, the teacher unions and governors, voiced a general call that the pay award in 1996 must be fully funded.

The teacher unions pointed to the statement by [Kenneth Clarke], the then Secretary of State for Education in the parliamentary debate in 1991 on the Bill leading to the establishment of the review body, that when the Government accepted a pay recommendation it must consider whether what had been decided was properly funded. He said that, after considering whether other efficiencies were possible, “the Government may have to face the fact that it is reasonable to make extra provision above that originally planned.” The Government did so in respect of the first recommendations we made in 1992, but said in advance that it would not do so in each subsequent year.

After our pay recommendations were accepted last year, the Secretary of State acknowledged that the funding provision for 199596 was tough. She took the view that it was for local authorities to assess their priorities, look for efficiencies, and use any reserves they might have. However, we had received no specific evidence of where significant savings could be made; nor on the size and purpose of reserves where they existed. As for schools, the Secretary of State took the view that, in addition to any savings they could make, they should use any cash balances they had accrued, although these may have been held for other specific purposes.

The national employers and others told us that the Government’s decision not to make further additional funds available had risked putting many schools into a difficult position which threatened standards of educational provision, although no clear evidence on this has been presented to us.

Prospects for 199697: When the Secretary of State wrote to us last August she told us that she would write again about affordability once planned expenditure levels for 199697 had been proposed by the Government. Meanwhile, the Government intended that a tight regime on pay would continue to play an important part in overall expenditure control, and that financial provision for the public sector would continue to be set on the general basis that pay and price increases should be offset, or more than offset, by increased efficiency and other economies. However, we were told that the Government would consider the need to take account of any expected workload changes, and other specific or exceptional factors, in setting the basic provision for schools.

We received the Secretary of State’s detailed direction on affordability in a letter dated November 30, 1995. This informed us in respect of England (subsequent figures for Wales did not change the general picture) that the Government proposed that ESS would rise by 4.5 per cent to Pounds 17,961. 9 million in 199697. Excluding specific grants, the aggregate of standard spending assessments for education authorities in England was due to rise by 4.4 per cent to Pounds 17,758.9 million.

She also said that the percentage increase in the proposed provision for education was more generous than that for total spending on all services which would rise by only 3.3 per cent, or only 2 per cent when provision for the police service, community care and local government re-organisation was excluded. The Government’s capping proposals would mean that local authorities would be able to use their full education SSA increases for education spending, so long as they did not increase spending on other services by more than was planned by the Government.

The Secretary of State asked us to have regard both to new pressures on resources and also to the further scope that LEAs and schools had for efficiency savings, though no evidence was made available to us to demonstrate what savings could be made. She said that pupil numbers were set to rise by 1.3 per cent between April 1996 and March 1997 and looked to us to keep any recommended increase in pay to a level which would allow teacher numbers to rise broadly in line with that increase - which according to the Department for Education and Employment would mean the full-time equivalent of an extra 5,500 teachers.

[Mrs Shephard] referred to other rising costs and said she therefore expected our pay award recommendation to be considerably less than the percentage increase in aggregate education SSAs. She also asked us to have regard to evidence that some schools and authorities were drawing heavily on their reserves to meet the cost of the 1995 pay award; the extent to which this could be repeated; and whether some reserves had dropped below prudent levels and needed to be restored.

We recognise that any increase in pay bill resources will need to meet both the cost of the 1996 pay award and any increase in staffing levels, as sought by the Secretary of State broadly to match rising pupil numbers in 199697.

We bear all these factors in mind when making our recommendations on pay.

How teachers’ earnings compare:We have again examined how teachers’ earnings compare over time with those of non-manual employees generally, analysing pay for men and women separately. For teachers, average earnings in secondary schools are higher than in primary schools where women predominate. Recent increases in teachers’ pay have taken the earnings of male teachers above the average for male non-manuals. Female teachers earnings have stayed consistently well above average for female non-manual earnings.

Graduate salaries: The normal starting salary for a good honours graduate teacher, aged at least 22, at point 2 on the pay spine for classroom teachers, with effect from April 1995 is Pounds l3,350. This is just below the lower quartile starting salary (excluding any London allowance) for 21-year-old second class honours graduates generally as at September 1995, according to information published by the Association of Graduate Recruiters (AGR). This represents a worsening of the position compared with the previous three years.

Comparative salary progression over the first few years of employment has also worsened for teachers. Most teachers who entered the profession in September 1994 were on a salary of Pounds 14,151 by the end of their first year in September 1995. According to the AGR’s data, this was about equal to the lower quartile for their contemporaries generally. The data also show that after three years the salary for most teachers was below the lower quartile for graduates generally.