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Coffee House

Gove to Treasury: let schools borrow!

28 December 2012

10:51 AM

28 December 2012

10:51 AM

For all the good intention of Michael Gove’s school reforms, there have been only a few dozen new schools so far. When I interviewed him for The Spectator earlier this month, I asked if there was much point to all this if the successful schools could not expand (and, ergo, add capacity to the system). Crucially, Academies cannot borrow because the Treasury doesn’t allow it – a relic from the Gordon Brown control freak days. How much of an impediment is this? I didn’t run his answer in the magazine version of the interview as this is a fairly technical point. But as Brown knew, it’s on seemingly dull issues like borrowing powers that can decide the success or failure of public sector reform that he so loathed. Anyway, here’s the exchange.

FN: Even a corner shop can’t expand without the ability to borrow. Is this not a huge, obvious and unnecessary restraint on the expansive creative abilities of the good schools to who you have just given freedoms?
MG: Yes, it is. But because Academy schools are regarded as part of the public sector we can’t allow them to borrow according to the accountancy rules.
FN: Well, change the rules then.
MG: You’re telling me, I’d love to change the rules but I have to accept the fact that these accountancy rules are set by bodies, statistical and other bodies, over which I don’t have control. I think that we should allow Academy schools and other organisations which are essentially social enterprises to borrow but the rules on public sector borrowing overall prevent us at the moment from doing so. It’s a point I’ve tried to address. There are a number of institutions in the UK which exist to safeguard public money. You have the Office of National Statistics, the National Audit Office and the Public Accounts Committee. The ONS say, for understandable reasons, you can’t have or you should not have borrowing which affects the public sector which is off the public sector balance sheet. You can’t be an Enron government, okay…

The whole point is the focus of all these organisations is on, or can be on, inhibiting innovation and preventing experimentation occurring within the public sector in order to drive up standards. They can say: hey, look, we’re responsible for saving money because there’s a risk that if you were to allow the public sector or public sector institutions to borrow in this way, that that would contribute to an increase in public sector borrowing overall which would undermine the confidence that credit rating agencies have in the viability of the government so therefore don’t do it.

And the National Audit Office similarly say, as they said recently, look at all these new Academies! Some have not been absolutely perfect from the word go therefore there is an inherent risk, therefore you should have better regard for public money. The National Audit Office cannot investigate local government and how it spends its money and how it’s failed in particular areas with school, so you get an unbalanced picture of accountability.

Combine that with some of the other constraints on policy innovation, and you find that we have – overall – created is an inbuilt culture of risk aversion in the British political system and the British political culture. Whenever anyone tries to do anything different, then there are always a group of institutions, a chorus of critics and an opposition all ready to denounce a change before it has had a chance to succeed,

If you’ve got an organisation like Harris which has proven itself, [allowing it to borrow] should be a no-brainer. There has to be a way, I believe, of saying: these are reputable organisations which have had a transformative effect on children’s education, treat them like grown-ups.

It was Brezhnev who observed that the public sector shies away from innovation ‘like the devil shies away from incense’. Gove is saying, in effect, that the Treasury’s borrowing laws (policed by all of these institutions) reinforce these stifling instincts. To give borrowing power to school chains of a certain size is a fairly easy change for the next Budget. And given the potential of England’s education sector to blossom into an education industry, there’s every incentive to do so,

Sure, letting schools borrow involves an element of risk. But not letting them borrow risks the supply of schools failing to keep up with the increasing demand – which is arguably a greater risk.

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