What an incredible statistic: independent school tuition fees have been rising at over 3% faster rates than inflation and even over 1.25% above property price growth over the long run, i.e. for at least 20 years.
Let’s look at the cost of private school in the last 20 years since 1995.
Let us take 1995 as a benchmark and say that this year is our benchmark for the value of money, for cost of school fees and property prices. I.e. We set them all to 100.
In 2015, CPI inflation has grown that notional 100 to 217 (at an annual average growth rate (“CAGR”) of 3.9%). This is a little above what I had assumed, but we must run with the data from the ONS.
Property prices (Cambridgeshire as a proxy, approximately at or slightly above national average) have risen to 310 (CAGR of 5.85%). Quite a clip.
Staff wages have risen above inflation, but more slowly over the same period of time. Food prices have risen at slightly below inflation levels with competitive pressure high.
But school fees have beaten not just inflation, but even property prices and stand in 2015 at 400 (CAGR 7.15%), a factor of 4 times our 1995 level, and nearly double the result of CPI inflation.
Your 2 children’s schooling now cost you that of almost 4 children from 1995! That’s grim!
Said another way still, each and every year for the last 20 years, school fees have risen at a rate 3.2% higher than inflation.
Yet the statement from school governors when they increase them again in 2015 by say 3.8%, with inflation at just 0.3% or lower, is that they cannot increase them by anything less because of increasing costs. How can that be the case for such a long time? And why are local schools all increasing at exactly the same rate to exactly the same prices?
UK Independent Schools offer a highly valuable service to parents. Was it Aristotle who said that “the educated differ from the uneducated as the living from the dead”. An exaggeration by the philosopher, no doubt, but we get the point.
Of course there should be a good fall-back, the best possible state system should exist. So should many different types of independent school and also homeschooling. These schools or “homes” should offer all forms of education ideally at a wide range of prices to suit all budgets and children’s needs and interests.
But the current situation appears to be that the schools do not “compete”. Anecdotal research showed that the cost of three local independent prep schools was to all intents and purposes identical. Literally a few pounds difference in totals of over £4,500 a term. They will argue that they all have the same requirements. But businesses often cannot do this. (They must genuinely compete with each other. The smartest way, though, is not by competing on price, and in the long run, killing margins.) Given the massive 3.2% average long run increase in fees, why is there still little variation in fees across schools in a given locale?
Surely it would be a better hypothesis that schools are knowingly raising their fees annually on the long run at the same rate as their customer’s (the richest 5-10% of households) wealth is increasing. They are spending some of the extra money in an “assets arms race”, such as new halls, swimming pools, etc, and further monies may be passed to increase the annual return to their overarching Foundations (e.g. another educational institution). That top few percent, if they have a balance of wealth between property, shares and increasing work income, might well track the “inflation plus 3.2%” rate that the schools have stuck to. If schools didn’t track this wealth, then they might find over time that there would be more applicants and they would have to be more selective. Perhaps they do have a degree of such selection even at this long run rate of fee increase.
The private schools look at the value delivered, its cost, and the ability & willingness of parents to pay. That is the real 3-dimensional equation. The schools have understood this. Services businesses which haven’t understood this may be able to improve outcomes by adapting their pricing strategy in this way.
Such schools are powerful and some stakeholders may not want to put their heads over the parapet. Parents, for example, could at best try to argue for all stakeholder needs to be considered and basically those struggling to keep up with the blistering pace of increase might plead for clemency (with data) at PTA meetings going into the future. The schools are excellent, however, and it is unlikely that for the next 20 years we will observe fees rising at below inflation to compensate for the previous 20-year trend.
But it is nevertheless a tad inaccurate for governors to write letters saying one thing when the other is apparently the truth. This is no place for euphemism: anxiety levels among parents are at an all-time high.
School governors increase their fees so to track the wealth of their customers not just to cover their basic costs.
Of course the actual fee paid is mitigated somewhat by a certain number of reduced-cost possibilities, which the ISC states covers around a third of all places in 2014, under the general banner of “bursaries”.
Parents placing their children in independent school must make an allowance for this rapid growth in costs. If the children attend from age 5 through to 18, then assuming the previous trends carry on in this way, they must factor in that the costs will be a massive 55% higher in real terms when their children reach 18 compared to 5.