The Problem of Sparsity in Education Provision

Central government contributes around one-half of the cost incurred by local authorities in financing and managing state schools in England. The Block Grant system, dating from the 1980 Rate Support Grant settlement, introduced the concept of the payment of grant in relation to the number of clients rather than, as previously, actual expenditures. Within that framework, adjustments are made to compensate for certain unavoidable, non-discretionary factors which serve to increase unit costs in particular authorities. This paper is concerned with the problems caused by 'sparsity', a term used to refer to the sparse nature of population distribution. Several pieces of research have identified sparsity as a cause of increased unit costs of provision: by necessitating schools of smaller size (in which overhead costs cause diseconomies) and/or higher costs for the transportation of pupils. The way in which these factors operate was found to differ between the primary and secondary sectors. A method was devised which sought to evaluate the additional costs attributable to sparsity, independently of local authority policy preferences and the other factors affecting variation in unit costs. A 'standardised unit cost' was derived which related costs to the 'norm' of the average national unit cost. The cost measure was then regressed against a measure of the incidence of sparsity to derive a 'fitted' unit cost, such that compensation would only be paid where actual sparsity was observed. The resulting Grants Related Expenditure Assessment (GREA) has been subjected to continuing refinement and adjustment via a process of negotiation with the local authority associations; the paper describes some of the resulting changes.