In September 2011, Deputy Prime Minister Nick Clegg declared his support for more diversity and parental choice in education, but rejected the idea of running publicly-funded schools for a profit:

“To anyone worried that, by expanding the mix of providers in our education system, we are inching towards inserting the profit motive into our school system, again, let me reassure you. Yes to greater diversity; yes to more choice for parents. But no to running schools for profit, not in our state-funded education sector.”[1]

Four months later, in January 2012, the Swedish education company International Education Schools (IES) became the first for-profit company to be awarded a contract (£21m over 10 years) to run a new publicly-funded ‘free school’. So, where does this leave the Coalition’s policy on education? Is the UK education sector now open for business? Or does it remain one of the least attractive service sectors in the UK for private investment and entrepreneurial talent?

 The existing role of for-profit companies in education

Contrary to popular belief, for-profit companies already play an important role in our state funded education sector.

Premises, nursery and specialist provision

Every physical item located inside a publicly-funded school, including the school building itself, has been provided by for-profit companies operating in highly competitive markets. For-profit companies also dominate the provision of state-funded nursery schooling in many areas across the country. And for-profit companies such as the Cambian Group also receive public funds to help run pupil referral units (PRUs) and specialist schools catering for children with severe learning difficulties.[2] However, this lies in stark contrast to the primary and secondary sector where the Government continues to direct all public funds to government schools, thereby discriminating against all private alternatives, despite the fact that they may be able to provide a better quality of service.  Within the European Union there is already widespread government support for a variety of private alternatives and the focus is increasingly on what works best.  Greece and the UK are now the only two countries left that do not allow public funds to be distributed to a variety of different education providers.[3]

From a public policy perspective, it is therefore very difficult to understand why the Government is prepared to distribute public funds to for-profit companies that provide schooling to children up to the age of five, but not beyond that point. Or why such companies are deemed capable of delivering world-class schooling to excluded children or those with severe learning or emotional difficulties, but not to all other primary and secondary school children.  What logical explanation could there possibly be for such a dramatic shift in policy between nursery schooling and primary and secondary schooling?

Local authority services

For-profit companies also work with local authorities to help deliver a variety of services to schools, from school meals to special educational needs. For example, Babcock International Plc has entered into a joint venture with Surrey County Council (Babcock 4S)[4] to provide a range of support services to schools, including consultancy, ICT programmes, training and development, and project management. According to the company’s website, Babcock 4S recently presented Surrey County Council with a £1.2 million dividend as a result of efficiencies delivered, whilst continuing to raise education standards. Other examples of for-profit companies providing education services on behalf of local authorities include Arvato Ltd in Sefton, Merseyside; Devon Norse Ltd in Devon; and Cambridge Education in Islington.

Qualifications and inspections

Edexcel, a for-profit company owned by Pearson, is the UK’s largest awarding body, offering academic and vocational qualifications and testing to schools and colleges. Even Ofsted, which has the important role of inspecting schools and maintaining standards across the sector, relies on a number of for-profit companies to carry out the majority of its school inspections. Again, this can only beg the question as to why companies such as Serco and Tribal Group are deemed capable of inspecting the quality of publicly-funded schools, but not of owning and managing the schools themselves. Common sense suggests that if these companies have developed a good understanding of what a good school should look like, they will also be better placed than many to set up, own and manage a publicly-funded school.

Free school management

Finally, as noted above, in September 2012 the Swedish education company International English Schools helped to launch IES Breckland, in Brandon, Suffolk – the first free school in England managed by a for-profit company. This suggests that while for-profit companies in principle are now allowed to manage publicly-funded free schools, public funds are still not allowed to be distributed to these same companies if they were to establish exactly the same kind of school outside of the free school process.  This confusing and contradictory state of affairs is a direct result of the government’s on-going refusal to direct public funds to a variety of different educational providers.  As a result the only way that they can increase choice and variety within the existing monopoly structure is to set up new government schools and then outsource the management of these schools to successful private education companies.

Box 1: IES Breckland In September 2012, IES Breckland became the first free school in England to be managed by a for-profit company. According to the school’s website, “IES Breckland is a school for the future, a school for the community, a school where children are treated as individuals. It will be recognised by all as the outstanding local secondary school, where high standards will be set and expected from all.“Our vision for IES Breckland is for it to be a stimulating, secure and inclusive centre of both academic and vocational excellence in which students from all backgrounds and faiths in Brandon and its surrounding area are equally valued. We will together create a school that has, as its core focus, the delivery of high quality secondary education”.

The private education sector

The notion that for-profit companies cannot be trusted to, or are not capable of, owning and managing publicly-funded schools is rather undermined by the scale and success of the private education sector. There are currently 489 mainstream private schools owned and managed by for-profit companies, educating 82,528 children, which represents approximately 15% of all pupils educated in the independent sector (82,528 of 562,885)[5].  Approximately 83% of these schools are non-selective, and 41% charge fees that are similar to the national average per-pupil funding in the publicly-funded sector.

Box 2: The for-profit sector in overview  There are 489 independent mainstream for-profit schools in England educating a total of 82,528 pupils. The schools in snapshot:

  • 72% preparatory (up to 13)
  • Average size 205 pupils
  • 83% non-selective
  • 80% urban or semi-urban
  • 99% secular
  • Average fees £7,500 (£3,000 – £15,000)
  • Socially and ethnically diverse in terms of pupil composition

Source: James Croft, Profit making Free Schools, Adam Smith Institute, 2010.

Outside of schooling, there are also hundreds of for-profit education companies, such as the Early Learning Centre (ELC), which sell a variety of learning products and services direct to parents. The ELC opened its first store in 1974 and now has 215 stores across the UK, together with over 80 stores in 19 countries internationally. When learning materials are purchased from the ELC, it’s doubtful that parents are concerned with the legal status of the Centre or with what motivates the company to sell its products and services. If the profit motive plays such an important role in helping companies such as ELC meet the learning needs of parents and children, why should the same not also apply if ELC decided to open and manage a school? In fact, wouldn’t trusted brands such as Mothercare or the ELC be particularly well placed to expand into different types of schooling if given the opportunity?

The existing role of for-profit companies in both the public and private education sectors suggests that this type of organisation is already trusted and deemed capable of providing a variety of educational services. It is therefore difficult to justify any existing government policy which continues to discriminate against and restrict for-profit companies from competing with their public counterparts on an open and level playing field. To suggest that for profit companies are just out to make a quick buck from children’s schooling (as suggested by the Stephen Twigg, the Shadow Education Secretary[6]), is a cheap and unjustified slur against the thousands of companies and their employees working tirelessly to help deliver a variety of educational services to children across the country.

Of course, this is not to suggest that all for-profit companies operating in education will always deliver a world-class service. Just as in any other sector of the economy, the level of service provided by different education companies will also differ. However, at the risk of stating the obvious, this will be related to the way in which each company is managed, not because of a fundamental conflict between the profit motive and children’s schooling.

Open public services

An ambitious plan to bring about the end of this kind of government monopoly in the delivery of public services was set out by the Coalition Government in its July 2011 Open Public Services White Paper. Writing in the Daily Telegraph in May 2012, the Prime Minister outlined his determination to bring an end to the closed state monopoly where central government dictates what people get, and how they get it:

“I want truly open public services, where people can choose the hospitals and schools they go to, with the right information at their fingertips to make that choice; where different providers, from the private and voluntary sectors, can come in and offer new services that people can access free.”[7]

Building on the reforms previously introduced by New Labour, the delivery of NHS services has become the first government monopoly to be challenged. The right of patients to choose is now enshrined in the NHS Constitution.[8] The Any Qualified Provider (AQP) approach, allowing patients to choose from a list of qualified providers – whether state, charitable or private – when they are referred by their GP, is also now being rolled out across the NHS. The question of whether a provider of health services is non-profit or for-profit will therefore become increasingly irrelevant. Instead, the focus is now on what works best for each individual patient and guaranteeing value for money for the taxpayer. In short, public funds follow the patient.  The Government hopes that choice of treatment and provider will become a reality for patients in the vast majority of NHS-funded services by 2013/14.

The rationale of this approach is relatively straightforward. Because there are now a number of different organisations that are capable of providing similar services, it is impossible for any government to decide prior to the event which will be the best provider for each different patient at any one point in time. The only way to guarantee that each patient gets access to the best possible provider is to allow each patient to the make the choice themselves.[9] Once again, these developments raise important questions. If the Government now recognises the right of patients to choose between a variety of different health providers, and is now pragmatically focused on what works best, why can this approach not now be applied to education?  Why should parents not also exercise the right to choose what works best in terms of their children’s education?

Free schools and half measures

Unfortunately in education, recent reforms have been much less ambitious than in health and despite the increasing role of for-profit companies in the sector, primary and secondary schooling in England remains a government-controlled monopoly consisting of 326 local authorities and 20,086 government primary and secondary schools, educating a total of 7,451,875 children.

The governments flag ship policy has been the introduction of free schools, which are non-selective state schools (or public sector entities funded by taxpayers), independent of local authority control. However, they are not private or independent institutions. While they may be independent of local authority control, they are certainly not independent of the Secretary of State for Education or the Department of Education. To a certain extent, local government control has simply been supplanted by central government command, and while the current Secretary of State may be very supportive, it is impossible to predict what impact a possible change in government would have on the policy.

While IES Breckland is clearly a positive step in the right direction, it is unlikely to be replicated across the country by IES or any other for-profit education company within the existing policy framework. Unless companies such as IES are allowed to open new IES free schools as and where they please, then little progress will be made.  Without this freedom, IES will not be able to realise the benefits that come with developing a chain of schools and so they may be reluctant to make long-term investments in the sector.[10]  The profit motive will also play an important role in the development of chains of schools, as it provides companies with a clear incentive to expand and multiply. Without the profit motive there will certainly be less of an incentive to expand and replicate success.

It also remains unclear how viable these local non-profit educational trusts will be in the long run, especially after those who set them up have retired. The unpredictable nature of these trusts will certainly increase the risks facing any potential private investor.  In the case of IES Breckland, Sabres Education Trust was set up by a small group of local parents. After its application proved successful, the trust then decided to outsource the management of the school to a private education company. However, this raises questions concerning the role and purpose of the education trust. For example, why not simply miss out the middle man (the trust) and allow for-profit companies set up and manage free schools themselves?

All of this confusion suggests that the Government has failed to make a clear distinction between parental demand (groups of parents demanding a new school in their local area), and the ability of these groups to set up and run a school themselves. However, there is clearly an important difference between the two. If parents want a new school in their local area, then the only option they currently have is to set up a new free school themselves. But in a normal, open market, where there was excess parental demand in a specific geographical area you would expect a number of education companies, either local, national or global, to be attracted to the location. And as soon as one provider showed an interest, more would be expected to follow.

For the free schools policy to be genuinely transformative, for-profit education companies must be free to offer their services to parents and open new schools in response to demand. If they remain fettered, the impact of free schools is likely to be muted. The number of new free schools being introduced represents a very small proportion of the school population indeed. By the end of 2013, there will be an estimated 193 free schools – with only a handful of these being run by for-profit companies. In other words, the projected number of free schools by the end of 2013 will represent just 1% of publicly-funded schools in England. Without reform, therefore, the Government’s free school policy is likely to result in the opening of a relatively small number of new schools, but will do nothing to tackle the problems which continue to plague the rest of the sector.  While free schools are a welcome initiative – they should be celebrated as a glimmering of what an open and entrepreneurial education sector makes possible – not the culmination of that process.

Credit where credit is due, the coalition government have dramatically increased the number of academies from 203 in May 2010 to 1807 by May 2012.  Academies enjoy the same freedoms as free schools (but are former local authority schools instead of entirely new schools) and to date, for-profit companies have been restricted from managing academies, which suggests coalition policy on academies is now lagging behind coalition policy on free schools.  Therefore, for this academy programme to work these restrictions also need to be removed and for profit companies must be allowed to develop and manage chains of academies located across the country.

The education passport

If the Government was prepared to take its Open Public Services agenda to its logical conclusion in education and if it was truly interested in what works best, then it should be looking to more radical solutions. In particular, it should be seeking to address the fundamental flaw in the vast majority of state education systems around the world – governments’ propensity to distribute public funds to institutions rather than to parents. As soon as this happens, governments tend to set up their own schools which then crowd out the majority of private alternatives. The result:  government monopoly. With governments then responsible for the majority of schools across the country, they have little option but to get involved with almost every aspect of how those government schools operate and what they teach.

To break this cycle, the Government could do worse than to examine the system of ‘education passports’ put forward by the Institute of Directors in 1999.[11] These payment passports are analogous to education vouchers in the economic literature. The IoD argued that a voucher system with a top-up facility could create a truly world-class education system for the 21st century. If parents chose to send their children to existing state schools, and not exercise any top-up option at a private school, then education would remain free at the point of use. In advancing the new system, the IoD also pointed out that the debate over market forces in education is not new, quoting John Stuart Mill, from On Liberty:

“If the government would make up its mind to require for every child a good education, it might save itself the trouble of providing one. It might leave to parents to obtain the education where and how they pleased, and content itself to helping pay the school fees…an education established and controlled by the state should only exist, if it exists at all, as one among many competing experiments.”

In a universal system of education passports, all public funds would be directed to parents, not schools, with parents then free to choose their preferred school. As a result, all questions relating to who should be allowed to set up a new school, or whether a new school should be permitted at all, would no longer be the concern of politicians, civil servants, academics or policy experts. Instead, the Government would simply give purchasing power to parents, who would be responsible for choosing between different types of provision. As in the NHS, this is the only way to guarantee that people get access to the best opportunities available.

The three key principles of the education passport system are as follows:

  • The value of the passport is the average cost of a state school place;
  • Parents are allowed to top up the payment with their own contribution towards fees;
  • Both parents and schools are unconstrained – parents can spend the voucher payment at any publicly-funded or private school and these schools have freedom over their waiting list choices.

Since the IoD initially recommended this reform over a decade ago, nothing has changed with reference to the fundamental problem facing the sector referenced above – that the Government directs public funds to schools instead of parents. Until this very simple and common sense reform has been introduced, the prospects for transformational change within the sector will remain severely limited.

The current controversy surrounding the role of the profit motive in education is therefore best viewed as a red herring.  Instead two key questions prevail.  First, should parents have the right and freedom to choose the nature and form of education which their children receive, or should the government continue to dictate?  Second, should our education sector be open and inclusive, allowing a variety of different providers to compete on a fair and level playing field?  When Milton Friedman was interviewed in 2003, he was questioned about his future vision of education and whether he thought that schooling would be provided exclusively by the for-profit sector?  He responded with the following comment:

No, I see competition. Let parents choose. I would expect an open market where there would be a wide variety of schools. There would be for-profit schools, charter schools, parochial schools, and government schools. Which survived would depend on which ones satisfied their customers.[12]

This blog originally appeared as an article titled ‘Profit in education – not a dity word’ in the Winter 2012 edition of the Institute of Directors Big Picture publication.


[1] “Nick Clegg rules out running free schools for profit”, BBC News website, 5 September 2011.

[3] see Private Education in the European Union, Eurydice, 2000.

[5] James Croft, Profit making Free Schools, Adam Smith Institute, 2010, p.7.

[6] Stephen Twigg warns against ‘quick buck’ school profit, Sean Coughlan, BBC News, 31st May 2012 (http://www.bbc.co.uk/news/education-18262859).

[7] David Cameron, “Brick by brick, we’re tearing down the big state”, Daily Telegraph, 28 March 2012.

[8] The NHS Constitution states that: “You have the right to make choices about your NHS care, and information to support these choices.” See: http://www.nhs.uk/choiceintheNHS/Rightsandpledges/NHSConstitution/Pages/Yourrightstochoice.aspx.

[9] In a sign of things to come, Circle recently became the first for-profit company to take over the management of an entire NHS hospital (Hinchingbrooke). They have also opened two brand new hospitals in Reading which now provide a variety of NHS funded services. See: http://www.circlepartnership.co.uk.

[10] For a further discussion about the benefits of chains see Competition Meets Collaboration: Helping school chains address England’s long tail of educational failure, James O’Shaughnessy, Policy Exchange, 17th October 2012.

[11] Graeme Leach, Choice, Choice, Choice (Institute of Directors, 1999).

[12] Milton Friedman, quoted in Choice and Freedom, Pearl Rock Kane, Education Next, Winter 2003/Vol.3, No.1