Is it wise for DfE to be investing in a “bad bank”?

  • Price mechanism – either paying a greater unit price to a service provider for these elements of the market, or accepting a lower bid for a service that covers these areas in contracts that are designed this way. This is effectively how a lot of the health service operates via different pricing for different patients and procedures.
  • Regulation – compelling providers, in some way, to take on the less attractive elements of the market. For example, there’s something called a universal service obligation in sectors including telephony, postal services, and some utilities, which means in short that these companies have to service rural and isolated communities within the same price (more or less) that they do for serving Islington. If they don’t want to do that, they can’t have a contract.
  • Isolation – effectively only operating a quasi market for some bits of the service and keeping others in house – either for political reasons, or because the market won’t take it up (for example when probation was outsourced, the higher risk elements were kept in house. Child protection is also often not outsourced because the risk to providers is too high.)

The case for

  • I like the principle of regulation – essentially telling MATs if they want a large, high performing secondary they have to take on a different school with a bunch of challenges alongside it – but I worried that we didn’t have enough providers in the system (ie enough MATs) to make it work, and that ultimately if too many of them declined to expand on this regulated basis, the government would be stuck.
  • For the same reason – excess power of limited suppliers against large demand – I was cautious of a price mechanism, because I worried that would in some senses put the government over a barrel – if only a few large providers are interested in taking a challenging school, the “clearing point” of the market (ie what the government would have to pay) could be very high indeed.
  • So, I reasoned, the easiest thing to do is to create a different trust of some sort, held entirely by government, and facing different incentives, with a duty to take on the more challenging schools.

The case against

  • Are we going to spread talent too thin? The whole premise of MATs, after all, is one of pooling talent to address problems at scale. If DfE starts to create a number of these bad bank trusts on a national or regional basis, is this going to suck in a number of people from other MATs because of moral purpose, or salary, or anything else – and hence weaken other, sustainable MATs?
  • Can a bad bank actually be run? One of the strengths of a MAT is that you can more or less control your pipeline of schools. You only expand when you’re ready to do so (or maybe well after you think you’re ready) But a bad bank won’t have that luxury. New schools could come in potentially very frequently, and at short notice. This makes planning for where you allocate your finances and the time of your improvement team very challenging. A lack of stability could really hamper a reform programme.
  • Where is the biting point? If you don’t loosen the restrictions on what this trust can do, then even with all the money in the world, it will be hard going. But if you loosen all restrictions too far – if you give in to the soft bigotry of low expectations and have a tacit acceptance that the schools in the band bank MAT won’t ever really improve – then that’s a terrible outcome. Judging where to loosen incentives and to what level is almost impossible, because trial and error doesn’t work – there won’t be a large number of competing bad banks out there to allow DfE watch how the sector responds and tweak the incentives over time. I have low confidence that government could place the regulatory hurdles at the right level.
  • What does this mean for nudging growth of existing MATs? I think this is my biggest concern now about a bad bank. What is the incentive on an RSC now to have a number of difficult conversations with MATs in their patch about how they can collectively improve standards and take on challenging schools? Indeed, it’s now in everyone’s interests – the RSCs, the local MAT, the LA, the other schools – to “throw the school over the wall” into the bad bank, and let someone else deal with it under a looser regulatory regime. Similarly, any prospect of using methods 1 and 2 to grow MATs – financial incentives and regulatory nudging – get much worse. An element of deal making is a crucial part of government “making the market” here – to eliminate debt, to allow a good school to be rebrokered if a challenging one is too. If the MAT can stay strong and resist taking this school, knowing that ultimately the bad bank will step in, it’s harder for them to be compelled to take a deal, and to be pushed to grow in a way which the system needs.



Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store