Payouts to shareholders would be first for FE sector with model possibly extended to schools, says Barnfield boss
A federation that runs a chain of academy schools plans to become the first in the country to run a state further education college as a profit-making business. The change – which is to be put before the college's governing board at Easter – would mean surplus cash from the college could be used to pay a dividend to shareholders.
The Barnfield Federation, which runs four schools in Luton, wants to be the first academy backer to take advantage of a provision in the Education Act 2011 that allows further education colleges to run on a for-profit basis. Academy schools are not at the moment run for profit. But the federation is exploring doing so in future if the law is changed to allow it.
Barnfield's chief executive, Pete Birkett, is looking at creating a new business model for schools by establishing a private company that would raise funds from private equity and pay dividends to shareholders.
Public funds from the Department for Education would be paid into a company limited by guarantee, which does not have shareholders.
As a first step, Birkett is proposing to set up this model for the Barnfield further education (FE) college, which sponsors three schools in Luton. Shareholders would receive a portion of the college's financial surplus.
Birkett said: "As legislation changes, we could possibly bring in the academies. I can't do that until there is permission to do that.
"If we can make it successful in the FE sector, there's no reason we can't make it successful in the schools."
The proposed model marks the latest step in the privatisation of public services under the coalition, after the Guardian disclosed recently that two police authorities had invited private security firms to bid for services including criminal investigations.
Birkett said: "We're ready to step up a level – modernise public service thinking and delivery.
"We'll be able to attract third-party investment in our buildings and infrastructure, which is what we need.
"I think there'll be opportunities to review existing terms and conditions and say, are they fit for purpose, for the 21st century?
"So, traditionally we've had three-term years – do we want to continue with three terms a year? Is the time now right to make changes that will deliver improved outcomes in a more efficient way?"
Barnfield is also proposing to use the new model to provide incentives to staff through share ownership.
Birkett said he had contacted a private equity group with an interest in education to discuss the proposals. "The response to that, yes, they believed there'd be a lot of interest from private investors."
Regulatory changes in the Education Act which have gone largely unnoticed allow FE colleges to be privatised.
The new model gave greater flexibility over how to spend surplus cash, Birkett argued. "Why do we want to sit on lots of reserves when we could be spending them throughout the organisation? There are restrictions on what we can use reserves for – we can't give staff a pay award. But in a company you decide."
Birkett argued that running a school as a business created a strong incentive to raise standards and attract more pupils.
"If you've got a school that has capacity for 1,000 students, and it's only got 500 because it's failing, its income is only half what it should be. If you can create good schools, you're going to be filling to capacity and you can invest. And if we can raise equity through other means, then that's got to be good, that's what we're trying to do."
The Conservative thinktank Policy Exchange has argued in a recent report that private companies should be allowed to set up and run schools under a social enterprise model that would give employees a share of ownership and re-invest a portion of any profit back into the school.
The deputy prime minister, Nick Clegg, ruled out profit-making in state schools in a speech last year. However, the education secretary, Michael Gove, a former chairman of Policy Exchange, has approved a free school in Suffolk that will outsource management to a commercial company in a 10-year contract worth £21m.
Birkett said he expected the government to relax barriers to profit-making in future. At present, academy schools are run independently but are still classed as public sector bodies. Their surpluses cannot go to shareholders.
Birkett said: "I see that happening in the near future. If you look at fee-paying independent schools most of them are successful, so why couldn't that happen in the public sector? Why couldn't we use the fee-paying school approach to drive standards?"
According to the Institute for Public Policy Research, a left-leaning thinktank, there is only "weak" evidence to support the claim that commercial providers will raise standards in schools more rapidly than the existing mix.