A Policy A Day: Capping School Donations

In the lead-up to the election, we are going to examine one policy per (working) day. We've selected policies to be as balanced as possible across a range of policy areas and across the political parties. The idea is to explain the background, analyse the policy to investigate the pros and cons, and give a verdict on the policy at the end. Inevitably, some opinion will make its way in and we make no apology for that - after all, we're voters too. Also, I say 'we' because this series will feature some guest posts from other young people, to share their thoughts and ideas as well. A list of all the articles is available here. Enjoy!

Today's post is by Simon Johnson.

In July 2014 and to great public fanfare, the Labour party announced a package of educational reform designed to reduce inequality and improve social mobility amongst the young people of this fair land. Labour faithfully promises that it will, through the benign and liberal agency of the Ministry of Education, improve the life chances of all young New Zealanders, set the teachers free from the reign of the Hated Honourable Hekia Parata [1], and institute general happiness across New Zealand schools which will be set free from the shackles of poverty and oppression. In short, a new Jerusalem for education in New Zealand's "green and pleasant land." [2]

All good, tub-thumping stuff and an overall aim that no sensible commentator could argue against. Of course, making big political statements is easy but making real change requires detailed policies. Time, and Andrew's patience, prohibits me from examining each of Labour's proposed educational policies in the detail they deserve. Instead, I shall limit myself in this blog to focusing on the policy proposal which caused the most hot air in the public press: the proposed additional funding for those schools which do not charge 'school fees' or ask for 'donations'.

At the moment, a state school in New Zealand [3] receives money from the Government to pay for its day-to-day running costs [4]. The amount of money a school receives is roughly calculated on a per-pupil basis, with an additional sum if the school has a large concentration of the poorest students (through the 'decile system'). This, the Ministry of Education claims [5], gives schools the money they need to deliver the core educational curriculum.  In addition to this government income, a school may raise alternative income through other means – international students, trading income [6] and 'donations' are the most common – to fund the additional extras that a school wishes to offer its students. Crucially, a school is not allowed to make 'donations' compulsory [7]. Despite calling them 'school fees' and – worryingly often – exerting a degree of pressure on parents, a school cannot legally require parents to pay school fees [8].  The new policy idea is that the government will give additional money (at the rate of $100 per student) to any school that does not ask for donations.  In this new world, voluntary 'donations' will still be permitted but, so the Labour party believe, most schools will not ask for them. Instead they will take the easy money from the government. Of course, this is only true if the school currently reliably receives less than $100 per student in donations. Otherwise, they would act in an economically rational way and continue to accept donations [9].

As a starter, a close look at the data makes the Labour party look a little foolish. Their policy paper assumes 78% of schools will take up the $100 per student offer [10] and thus this will cost the Treasury $55M per year. To calculate these numbers, they made the erroneous assumption that most schools in deciles 1-7 receive less than $100 per student in donation income. As part of this paper, I have requested from the Ministry of Education school-level financial data [11].  This new data reveals that only 42% (vs. the predicted 78%) of schools get less than $100 per student in donation income [12]. Hence, assuming schools act rationally and only accept money from the government when it is less than their donation income, the policy is likely to cost the Treasury ~$29M (in 2012 dollars). Labour have miscalculated the price by approximately 50%. Oops.

The politically partisan amongst us can now stop reading and enjoy a nice 'yaa-boo' moment at the expense of a Labour party who have got their sums wrong, again. The non-partisan of us can sigh at another example of quick headline grabbing leading to under-developed policy solutions and make a plea (again) for evidence-based public policy.  However, what really concerns me is why this mistake happened. Why do the Labour party think that giving $100 per pupil will level the income disparity between schools? What does this show about Labour thinking?

Partially, it could be that the Labour party don't want to equalise the financial basis of schools, despite their stated intentions. They could also have just been lazy in the calculations. However, let's give them the benefit of the doubt and assume that they intended this policy to have a real impact. In my view, the key reason for this massive misunderstanding is that I don't think the Labour party have got their heads around the extent of the difference in income between the richest and poorest schools in New Zealand.  The richest schools in New Zealand (those in decile 10) have, on average, 59% more income than a school in decile 1. This is additional purchasing power, of the sort of that funds swimming pools, sports facilities and the like. This additional purchasing power is driven by a hefty difference in donation income. 43% of a school's budget in decile 10 is comprised of donation income; 1% in decile 1.  This conclusion doesn't really surprise anyone ('of course decile 10 schools can charge more fees, they have richer parents') but what is amazing is the scale. For every $100 that a decile 1 school spends, a decile 10 school spends $159. This, when magnified over a school's scale, is a phenomenal difference in real spending power – as the next graph shows.

(A technical deviation: the average size of a school in decile 10 is significantly greater than a school in decile 1. Given this, it could be argued that this next graph should not look at the total income per school but instead look at the total income per pupil. If we did this, we would find that decile 1 schools have significantly greater funding per pupil than other schools. However, I would reject the conclusion that follows from this (that there is no issue with regressive funding) – what matters is that high decile schools have a much greater purchasing capacity, which is partially driven by their scale effect.)

Faced with this massive, massive difference in income between schools, $100 per pupil is pretty irrelevant. A government grant of $100 per pupil is simply not enough to rectify the difference in spending power between the poorest and richest schools. The graph below makes this clear: the light yellow bars show the average funding (from all sources) today; the dark yellow bars show the average funding that a school would recevieve under the new model. Nothing changes. The policy does next to nothing to reduce the difference in income between schools of different deciles. Of course, this is not the same as saying that a school will get more money: 42% of schools will get more money to spend. The problem is that this new extra money will be spread evenly across all deciles. If the aim of the policy is to reduce the difference in spending power between schools of different deciles, it will manifestly fail.

So let us ask ourselves a slightly different question: is it a good thing that the New Zealand government should give additional funding to schools (at some amount) if the school agrees to not accept donation income?  In other words, is this a policy which matters?

New Zealand is relatively unusual within the western world for having a culture of school donations. A non-exhaustive benchmarking exercise [13] reveals that UK state schools are completely prohibited from receiving donations by law [14]. Donations, it is argued, would be unfair because they would deliver superior facilities to richer children who could afford to pay for them. As New Zealand shows us, this is undoubtedly true: the facilities offered by a decile 10 school are of a different order to a low-decile school. Crucially, it cannot be shown by any rigorous study that such facilities make a difference to student outcomes. As John Hattie's marvellous book shows, the provision (or not) of sports facilities, drama studios and expensive camps actually makes only a tiny difference on education performance. Much more important to outcome is teacher quality and motivation [15]. If it could be shown that poor children did worse in their exams because they were denied the opportunity that this money can provide, then there would be a compelling case for government invention to level the playing field. This cannot be shown and therefore there is no outcomes-based reason to restrict donations.

(Another technical deviation: due to the mechanics of teacher funding in New Zealand, schools cannot use donation income to pay for teacher salaries or for more teachers [although they can pay for more teacher-aides and teaching assistants]. This is deliberate and limits the ability of richer schools to 'poach' good teachers with higher salaries.  There is a different and much longer argument to be had about whether this protection fully works (a clue: it doesn't) but that is a deviation from this argument. For the moment, it is sufficient to note that being a richer school is not linked in a straightforward way with the ability to pay more for teaching staff.)

This conclusion doesn't feel entirely satisfactory. Even if better sports facilities and drama studios do not lead to better examination outcomes, one could still argue that it is unfair that poorer students are denied the opportunities that the state system (which is meant to be equal for every student) provides to richer students. This is a matter of personal political convictions and a personal definition of what is meant by 'fair'. For myself, I make no clear adjudication on the issue, but I do very clearly acknowledge the political difficulties of abolishing donations in New Zealand.  I leave it for the reader to decide whether they consider this massive difference in income between schools in the state system 'fair'.

Back to the policy. We can conclude:

- The Labour party has got its sums wrong: its proposed change in donations policy is likely to cost 50% less than they predicted and affect only half as many schools as they anticipated [Editor's note: assuming that they stay at the proposed $100/student]
- There is a very real difference in spending power between New Zealand's richest and poorest schools, driven by donation income – and the proposed $100/additional per student does very little to address this.
- This donation income is affecting the amount of facilities a school can provide – but there is no robust evidence that these facilities make students perform better in exams
- Whether to restrict donations comes down to a matter of personal understandings of 'fairness' and whether we think it right that rich schools should have better facilities

The result is that Labour's big new education policy is a bit of a waste of political capital. It will make the budgets of the very poorest schools a bit easier (although it won't bring them up to anything like the level of a rich school) but does not remodel the education system. Rich schools will remain just as rich as they are now; it is not a full-fronted attack on the very real income disparity that exists between schools.  If this is something that Labour are passionate about tackling then they should really tackle it. If it is not a priority, and the evidence suggests that it should not be, then Labour should have spent their time on something which really matters – like teacher quality.

Conclusion of the conclusion: the policy is a waste of political effort. Focus on something which matters.

Simon is a former Treasury official and is now a management consultant. He writes in his personal capacity and has no party-political affiliation. All data is Ministry of Education, released under the Official Information Act and is from 2012. He is happy to share the data on request. He would like to thank the officials who responded so willingly and helpfully to his data requests. He would also like to thank the three people who commented on the article in draft form and whose helpful comments clarified many areas. [Editor's Note: The author no longer resides in New Zealand. He's also rather tall and very British.]

[1] The current Minister of Education, should anyone's memory need a refresh. Refer to also 'Novopay' and 'class sizes' debacles.

[2] As William Blake nearly said.

[3] This paragraph refers to state schools, not integrated schools which have separate funding arrangements.

[4] It also receives money to fund one-off capital (building) expenditure - a different topic.  Teaching salaries are also paid direct by the Ministry of Education, on a national pay-scale, driven by the number of students.

[5] And some headteachers very strongly dispute

[6] e.g. renting out facilities to community groups etc.

[7] The right to a free education is guaranteed by s.3 of the Education Act (1989) – a provision which does not prohibit schools from charging for other non-core expenses (such as school camps, etc.)

[8] This is different for international parents

[9] This is a simplification, obviously, which assumes the transactional costs of donation-receipts to be negligible and no political/ideological reason to act in an economically irrational way.

[10] They don't bother to publish this number. I have worked it out for them based on their stated assumption of 100% of schools in deciles 1-7 accepting the offer and 30% of schools in deciles 7-10 accepting it.

[11] The OIA act is a wonderful thing  - I would encourage people to make more use of it.  This data is now available on request from me to anyone who wants it. [Editor's note: Comment below or tweet at Andrew]

[12] I make two assumptions in this analysis which (unlike the Labour party) I shall make explicit: firstly, this is 2012-3 data, the last year available. It may have changed non-materially in 2013-4. Second, there are a small number of schools who do not report donation income. Unfortunately, I have been unable to ascertain from MinEdu if these are schools which do not report donation income or schools who don't collect them so have excluded all of them. This is very unlikely to change the analysis in a non-trivial way

[13] A fancy term for me google-ing [Editor's note: and not bothering to look very far]

[14] Although new models of 'academy' education are starting to change this, it remains true that there is no culture of parental donation to schools

[15] John Hattie Visible Learning