In 1996 a group of Oxford academics produced a book called Options for Britain. It was intended as a thought piece for an incoming (Labour) government. 12 years on, and with less clarity as to the makeup of the next government, we are working on a new volume along the same lines. To that end I have spent the last three days in Oxford at a policy conference.
The concept of pupil premium is was widely supported in the education session. I asked the obvious question: How large must the pupil premium be for the child of Somalian immigrants in Lambeth, compared with a child who is white, living in an affluent suburban area, and with well-educated parents, if we want both to have an equal chance of doing well at school?
No one at the conference knew: because we have never had a pupil premium in Britain we cannot know the answer. But there is some evidence from the United States, contained in Woessmann and Peterson Schools and the Equal Opportunity Policy.
In this book is the authors ask a different but related question: if we hold educational spending for whites constant, how much do we need to spend on the education of blacks for them to have equal educational outcomes? It turns out that the number is very large: spending on black pupils needs to be nine times as high as that on whites.
What does this mean for Liberal Democrats? If we imagine that one in three children received some element of the pupil premium, ranging evenly from almost nothing to nine times the baseline level of funding, then the policy would more than double expenditure on education, and would cost approximately £90 billion.
Of course the final figure could be less. Perhaps the correct figure for Britain will not prove to be nine times, perhaps it will only prove to be four times. Perhaps it will not need to go to one in three students, perhaps only to one in five. But even then the pupil premium would require £24 billion. Whatever the final figure, and we cannot find that out until we try it, it is clear that the £2.5 billion the party says that it will allocate to a pupil premium should be considered a down payment on a work in progress, not a policy completed.
This is not to criticise the party: it has done well to find £2.5 billion has a down payment. Nor should we underestimate the amount of money that a government can find over time. In the first 10 years of the Labour government, government spending rose by more than £140 billion in real terms. A government committed to better educating those who currently do badly in schools could certainly find £24 billion in normal economic circumstances over the duration of one parliament, provided that they made it an absolute priority.
It is worth asking whether such a policy would pass cost benefit analysis. The evidence from America, sadly, is no. In narrow economic terms, taking into account only the additional wages earned, and the greater cost of education, is that spending nine times as much on the education of blacks as whites would yield an investment return of just 1.2%. We could no doubt had a little for reductions in crime obesity and other social ills associated with poor education and resulting poverty. But it would be naive to say that such a policy will pay for itself over the long term.
Of course, there is more to life and economic and investment returns. Liberal Democrats believe that no one should be enslaved by poverty, ignorance or conformity. It says so on our party membership cards. But I think we also believe, well, most of us at least, that people should not be enslaved by the accident of their birth. To that end I think the pupil premium is a right and proper policy for the Liberal Democrats, even if the return is lower than the cost of capital. The challenge for the party is to find a proper sum of money to fund this policy: there is no doubt that we can transform the lives of millions of young people in Britain. But it will take real money to achieve that goal.
Tim Leunig is a lecturer at the London School of Economics, and writes a regular column on economics for Liberal Democrat Voice.