Monday, 2 April 2012

Protecting spending on children and young people

by Mark Corney

Last week, I argued that the real story behind Budget 2012 for education and skills is how much of this part of our public services is expected to contribute to the extra real terms spending cuts of £6.5bn in 2015/16 and £10.5bn in 2016/17.

At the heart of these cuts is the battle between AME and DEL.  

Annually managed expenditure (AME) is revenue and capital spending that fluctuates with the economic cycle. Examples include debt interest and welfare spending. Departmental expenditure limits (DEL) is revenue and capital spending which can be managed over three years. Examples include most but not necessarily all spending on education and skills.

The Coalition could save the entire £10bn from AME or from DEL and, of course, a mix of both. Bearing in mind the state of the economy and the public finances, however, it is unlikely that ‘education and skills’ will be totally immune from further spending cuts.

To appreciate what might be at stake, it is critical to know what budgets are treated as DEL and AME and for different purposes. 

Two distinctions must be borne in mind. The first is between grants and loans. The second is between tuition, financial support and welfare.

As a general rule, spending on tuition allocated directly to providers and financial support paid as grants directly to students count as revenue DEL. By contrast, spending on welfare paid as grants to parents with children up to the age of 16 and 16-19 year olds in full-time further education – such as child benefit and tax credits - counts as revenue AME.

The truly complex element, however, is the treatment of fee and financial support loans taken out by students. The cost of interest rate subsidies and defaults counts as resource DEL whilst the principal less repayments counts as capital AME.

Thankfully, loans do not apply to the funding of children and young people and should not do so whatever the fiscal position.

In England, spending by the Department for Education on provision for children and families, nursery, primary and secondary schools up to 16 is around £44bn and is treated as resource DEL.

In addition, spending by HMRC (Her Majesty’s Revenue and Customs) on welfare support to parents with children up to the age of 16 in the form of child benefit and child tax credit is around £30bn and is treated as resource AME.

Spending by DfE on the tuition costs for 16-19 year olds in full-time further education - at schools and colleges - and apprenticeships is around £7.2bn and counts as resource DEL.

At the same time, DfE spends about £0.2bn on financial support to 16-19 year olds in full-time further education – principally the new 16-19 Bursary Scheme which replaced Education Maintenance Allowances worth £0.6bn – and counts as revenue DEL. Confusingly, however, HMRC pays parents with 16-19 year olds in full-time further education welfare support in the form of 16-19 child benefit – costing about £1.5bn – and 16-19 child tax credit – costing around £2.2bn. Yet, both 16-19 child benefit and 16-19 child tax credit count as resource AME rather than resource DEL.

Looked at in this way the priority of the Coalition for children and young people up to 18 is clear under the present spending review. It is choosing to maintain DEL at the expense of AME. It is prioritising the pupil premium paid to schools over child poverty. And it is maintaining spending on schools if not colleges but reducing child benefit and child tax credit.

Meanwhile, the classification of financial support paid directly to 16-19 year olds and counting as resource DEL funded by the Department for Education, and child benefit and child tax credit paid to parents with 16-19 year olds in full-time further education counting as resource AME funded by HMRC explains why the Coalition made the error of scrapping EMAs.

Today, the Coalition is open to the charge of putting teaching before child poverty. Indeed, child poverty could get worse as cuts to other welfare benefits kick-in such as caps on housing benefit and increasing the number of hours worked to claim tax credits.

Similarly, the Coalition seems to be putting full participation in education and training by 16 and 17 year olds by raising the participation age to 18 before student poverty. Places in full-time further education are being maintained but child benefit, child tax credit and EMAs are being slashed or abolished.

The Coalition needs to think very carefully before cutting welfare for families to maintain spending in the classroom. Child poverty does not stop at the school gate.

Yet, savings for the next spending review will have to come from somewhere. And in the field of education and skills there is only one area left - adult skills and higher education.

Mark Corney is policy adviser to the Campaign for Learning and writes in a personal capacity

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