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Tough tie-breaker facing the nation

Adair Turner, director general of the CBI, asks if we should spend more on schools and colleges, or just reorganise funding to better effect

Question One. "Britain's education system is failing both young people and the economy. Pounds 36 billion is being spent but the outcomes being achieved are not good enough. Either we are not spending enough, or we are not getting value for money." Discuss.

As an exam question, this would cause enough of a headache. But it is one Britain faces, and we must find the right answer. How much we spend, and how those funds are used, is of crucial importance, whoever wins the general election.

In our new consultation document Does it add up? published this week, the CBI has put the spotlight on value for money in education. We are aiming to understand better the impact of funding decisions on learning, and seek the views and expertise of others as part of the national debate now required.

Business has a legitimate and intense interest in the output of the education system - the skills and abilities of the workforce. The National Targets for Education and Training, against which we can measure our performance, have done much to raise awareness. To provide world-beating skills for the next century we need to meet and exceed these targets. But our progress instead seems to be slowing (see graph).

Discussion must now focus on present resources, and on those needed to meet the targets. How much do we and should we spend, how is spending distributed and is this optimal? Is the system simply underfunded? Or can we improve value for money enough to get the results we need, without extra spending?

There is a good case on both sides. The wide variation in the value for money we get from different schools and colleges suggests that some should be able to improve performance without extra resources. It is clear, for example, that correct choice of teaching methods can make a big difference to learning pace. And we also know that if children have the right skills and confidence by age 11, they will learn more effectively later. So there is an argument for focusing efforts early in the system, redistributing existing budgets to better overall effect.

But equally there are areas where extra investment would make a big difference - suggesting that we need to spend more. The case for smaller class sizes in the first years of education is persuasive. Studies show that small classes do improve learning in the early years. And the example of the private sector certainly suggests that well-informed and well-resourced parents believe class size makes a difference. Private schools have a pupil teacher ratio of 10 to 1 compared with 23 to 1 in state primary schools. Maybe these consumers are irrationally spending money on resources which make no difference but it seems unlikely that this market is so irrational.

Other areas which would benefit from investment include teacher training - especially in-service training - and co-ordination and promotion of best practice. There is also a case for increasing the pay of some teachers to attract and keep high quality people.

The question is whether we can fund these necessary new investments with the savings generated by value for money improvement. If this can be done successfully, then no new money is needed to meet the education targets. But current measures of performance in education don't answer these kinds of question. So we need to bring in many people's expertise - the Government, researchers and teachers and lecturers themselves - to analyse the facts as a basis for action on the results. The CBI aims to tap this expertise as we develop our thinking further.

What already seems likely however, is that we will need to improve aspects of the funding system itself, if we are to improve value for money both from existing funds and from any new resources. There has been a good deal of innovative work in recent years on new funding methods and new techniques, by Government, funding councils and local education authorities. But there are still more options to explore:

* the way in which the funding of schools falls between central and local government certainly bears review. At present central government suggests to local authorities how much they should spend, but local government can spend more or less at the expense and to the benefit of other budget categories. Unproductive political battles follow each budget day, with each side blaming the other for underspending. Politicians need to resolve this difficult situation. A possible solution is to allow local authorities to spend more, but not less, than central government suggests. The Government would then be expected to ensure adequate funding of schools and the right distribution of funds between primary and secondary schools - and to be held accountable.

* whatever the result of the budgeting process, we need to encourage improvement in performance. There is currently only a very tenuous link between funding and an institution's success in helping students to progress. This relationship is rarely measured, and (except in further education) never rewarded. The Government recently announced that it would develop output-related funding for school sixth forms. This is an important and welcome step. We should now explore how funding related to performance could be extended to all schools and universities. Once this is in place it may be possible to use "value added" measures of student progress which take into account prior learning and capabilities in assessing performance.

* if more resources are needed, they must deliver the highest possible rate of return. The Government could target funds on specific initiatives as discussed above. But it might also be effective to invite under-performing institutions to bid for money, if they felt that lack of funds was genuinely standing in the way of improvement. If a school or college could demonstrate that more resources would help, then it would be given a grant - the later stages of which would only be handed over if the institution achieved demanding targets.

These two sets of questions - whether we should spend more, and whether we should reform the funding system - need to be tackled rigorously. They need a serious and informed debate, and I hope today's contribution from the CBI helps further progress. The UK cannot afford either ignorance or complacency.

The author is director general of the Confederation of British Industry. Copies of Does It Add Up? can be obtained from the CBI Publications Unit on 0171 395 8035 price Pounds 10 to CBI members, Pounds 20 to non-members.

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