As value is ultimately the deciding factor in most procurement decisions, I’m often asked to estimate the amount of money a particular project will save – particularly in these times of austerity. But when you’re working alongside services that cover a broad range of social issues, it’s never a simple calculation.
On one hand, there’s a series of direct savings like replacing other systems and administrative efficiencies, while on the other, there are numerous indirect benefits, such as fewer court cases or an increase in tax revenue. If you only include the direct savings, the figures are too narrow, but if you include them all, you’re into hundreds of millions.
With this in mind, I thought it might help to explain the rationale behind our own calculation of the savings arising from our work with Peterborough City Council’s Pupil Referral Service (PRS).
The main aim of Peterborough’s PRS is to provide a range of specialised multi-agency support to children and families with additional needs. As a direct result of this work, fewer young people are excluded from school due to an overall improvement in behaviour.
Over the last two years, the number of permanent exclusions in Peterborough has dropped dramatically – from around 100 per year to between 22 and 25 per year. This reduction not only brightens the prospects of the children involved, but it also generates a considerable cost saving.
To accurately estimate the scale of this saving, you need to first calculate the associated cost of a single school exclusion. Fortunately, there are two reports that explore this area in detail.
Exclusion from School: The Public Cost
In 1996, a report entitled “Exclusion from School: The Public Cost” by Carl Parsons, Frances Castle, Keith Howlett and Jon Worrall, set out a number of detailed findings relating to the costs of permanent exclusion. The data was gathered following a study into six English local education authorities – two in London, two metropolitan authorities, and two country authorities.
The report unearthed a number of interesting facts:
- Replacement education for excluded pupils costs approximately twice as much as standard mainstream education.
- The total education bill in the three LEAs where the costs of individual cases were calculated is conservatively estimated at around £1,300,000.
- Approximately 20% of permanently excluded pupils use social services, costing on average £1,100, which amounts to only 10% of the costs borne by education.
- Approximately 10% of permanently excluded pupils use health service resources.
- A little over a quarter of permanently excluded pupils incur a cost to the police, on average over £2,000. Costs to the police and criminal justice services form over 70% of the total costs to agencies other than education.
On page 15 of the report, it provides a comprehensive formula for calculating the cost of permanent exclusion. It includes several short-term direct costs along with various longer-term costs. For instance, in the short-term, there are the costs of replacement education to consider as well as the impact on other services. In the longer-term, costs can arise from unemployment, ill-health and crime (“resulting from reduced life chances and alienated social positions”).
Based on the 1994-95 figures, the costs of permanent exclusion in year one are:
- Annual cost of providing an equivalent year of education = £4,336
- Annual cost to other agencies = £2,062 (this is considered to be a conservative estimate, particularly in terms of policing)
Misspent Youth — The costs of truancy and exclusion
In 2007, Martin Brookes, Emilie Goodall and Lucy Heady revisited this subject in their “Misspent Youth” report. It provided a range insight relating to the lifetime financial effects of exclusion across five key areas:
- Cost to the education system = £20,110
- Cost of reduced tax/NI = £6,987
- Cost to the health service = £1,019
- Cost of higher crime = £15,527
- Cost to social services = £6,021
- Total cost to society = £49,664*
*All figures are based on 2005 prices.
When you uprate these to 2016-17 prices, you reach a total of £60,342 per exclusion.
- Cost to the education system = £23,121
- Cost of reduced tax/NI = £8,800
- Cost to the health service = £1,283
- Cost of higher crime = £19,555
- Cost to social services = £7,583
- Total cost to society = £60,342
The report explains its calculations at length and should you wish to know more, you can find a copy here.
By combining the findings from both reports, we can reach a sensible estimate for the cost of an exclusion.
- Annual costs of providing an equivalent year of education = £14,529 (uprated from Misspent Youth)
- Annual costs to other agencies = £3,356 (uprated from Exclusion from School: The Public Cost)
- Minus the regular costs of keeping someone in secondary school per year = £6,300
- Total costs per exclusion per year = £11,585
- Lifetime cost to society (Misspent Youth) = £60,342
So when we apply this to our work with Peterborough City Council, we can estimate the following savings:
- Previous estimated annual exclusions = 100
- Current estimated annual exclusions = Between 22 and 25
- Previous estimated annual cost of exclusions = £1,158,500
- Current estimated annual cost of exclusions = Between £254,870 and £289,625
- Annual savings = Between £868,875 and £903,630
- Previous lifetime costs = £6,034,200
- Current lifetime costs = Between £1,327,524 and £1,508,550
- Lifetime savings = £4,525,650 and £4,706,676
£4.5 million is a considerable sum, but it’s still only part of the story as the lifetime savings above are based on the reduction within a single year. The reality is that this trend has been consistent for the last three years, resulting in an overall reduction of between 225 and 234 exclusions. This increases the total savings to between £13,576,950 and £14,120,028.
If this trend continues for a further seven years, then the savings are likely to exceed £47 million. And when you multiply that figure by twenty cities, you’re getting close to a billion – and that’s a conservative estimate.
To find out more about any of our work, read through the case studies at Empowering Communities.