Published on 13 Dec 2010

EMA costs ‘more than recouped’ says IFS

Initially I have to confess that I had presumed that the Educational Maintenance Allowance must be a £30 a week bribe likely to be used to download X factor music for near-feral youths. Probably to play through loudspeakers and annoy me on my local bus.

At least that is the impression of the policy that one would have listening to the ministers of this Government. There has been a whirling mass of countering statistical analyses of how much money is “wasted” on the “Deadweight costs” of supplying the EMA to those that would in any case have stayed on at school.

Alas the Institute for Fiscal Studies will tomorrow fire a flaming bolt through the middle of some rather second rate analysis put out by the Government in favour of scrapping this policy.

Tonight the IFS’ Haroon Chowdry told me that: “The initial outlay of the EMA policy is likely to be more than recouped by the increase in productivity that we expect to result from the 16- and 17-year-olds staying on in education for longer”.

To be clear, that means that in the first instance, this policy pays its way in the economy. It does not necessarily mean that it definitely pays its way to the Exchequer and it could be that the benefits fall entirely in the form of increased future earnings to the EMA’s recipients. But it is a strong piece of evidence, that even if relatively small proportion stay on at school as a direct result of the EMA (and there are arguments about these numbers), it could still be a net benefit to the economy in the long run.

That is indeed the finding of the only peer-reviewed analysis of the EMA, done by the IFS team, but sadly unavailable online as it is an article for the Journal of Human Resources (hat tip to the FT’s Christopher Cook) Tomorrow’s IFS analysis is likely to reaffirm that finding.

However that is not the end of it at all. Remarkably, the media briefing put out by the DfES says that the policy costs £18,500 per each young person. That is a nonsense number because it does not include the considerable benefit of every EMA recipient having to attend basically 100% of lectures.

As the IFS told me tonight: “This cost-benefit calculation does not include other benefits through other routes: for example, increases in educational attainment that might arise for the EMA recipients who would have stayed in education anyway, but now have more time to devote to studying.”

And there are other benefits too, with one study mentioning that the EMA, alongside initiatives helps reduce crime. All-in-all there is peer reviewed evidence that the EMA is good for the economy. The government urgently needs to show how it has calculated that the EMA is bad for the economy.

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16 reader comments

  1. Steve Cooke says:

    Does any of this change the underlying conclusion of the previous study: that it would be much, much less wasteful to simply target resources at the 12% of students for who the EMA makes a difference to the attendance of?S

  2. It doesn't add up... says:

    The “economic value” of EMA will depend on the alternative you assume as your benchmark comparison. If the alternative is assumed to be dole, drugs and crime it may seem beneficial: if the alternative is a good apprenticeship and an opportunity to earn a living it will seem a handicap. Of course, much also depends on the academic standards you expect schools to achieve: If we had older, tougher standards, the waste of extra years in school and university would be more apparent. Equating time in education with knowledge is a folly.

  3. Debsalini says:

    Even if all the benefit of EMA are in the form of higher future earnings to its recipients,that benefits the exchequer all the same, in the form of higher tax revenue, surely.

  4. Ashley Wills says:

    It’s not necessarily the argument that it is bad for the economy that needs to be taken into consideration – the fact remains that for decades young people survived without the EMA and that also, it skewers the incentive to learn for learning’s sake.

    A quick peek at the SaveEMA website demonstrates how for many kids it means that investing in education & knowledge for it’s own purposes is secondary to the immediate value of receiving £30 every week. This is a perverse consequence with the added extra that it also fosters in young students the sclerotic belief that the state is their guarantor, and that if anything bad happens it’s because government is at fault.

    This undermines personal responsibility and results in an unhealthy relationship with the state as their eternal benefactor. It’s this kind of culture of reliance that is much more disabling (and harmful) to the long term prospects of kids than scrapping the scheme will ever be.

    People are not solely automatons that can be shaped and bent to form at the will of some government scheme. This was a poorly thought idea in the 1st place full of unintentional (negative) outcomes. We’re truly better…

  5. Philip Edwards says:

    Faisal,

    A good argument, very well placed. Thank you.

    But after all the intellectual arguments have been made – socioeconomic and moral – I can tell what will happen:

    They will simply be ignored.

    That is the way ultra right politics and capitalism works. Neither of these evil creeds has the slightest interest in an argument that proves them wrong or lying, as your blog does and as does Cathy’s FactCheck elsewhere on this site.

    You can test this in another way – by analysing the amount outstanding from tax fraud and avoidance, the number and location of “tax havens”, how and why tax fraud investigation is kept short of staff, which governments are the worst offenders, which banks are the most secretive, which transnational companies and rich individuals are the biggest beneficients, and then place all of this against the “cuts” (read: theft) being inflicted on our most vulnerable citizens.

    This will be an invaluable media service of inestimable long term value to our society. The truth always is. But you will find that too is ignored. You have to stay strong.

    Good luck.

    1. Ashley Wills says:

      Utter dribble.

      Cuts = Theft!? Jeez, I thought that perhaps theft is ramping up the national debt to unprecedented heights denying future generations the ability to tax and spend as they see fit!?

      Theft is expropriating taxpayers money of the future in favour of taxpayers of today.

      And enough with this ‘evil creed’ nonsense. If you met me and plenty others who do not believe in the all encompassing power of state you’d soon discover that we’re rather nice people who enjoy a good life; being kind, telling jokes and working hard.

  6. Citizen Smith says:

    More smoke and mirrors.

  7. Toni Gunnison says:

    The cited Journal of Human Resources article may be read at:

    http://jhr.uwpress.org/cgi/content/abstract/44/4/827

  8. Dave C says:

    The old New Deal program was something similar. For vast sums of texapyer funds only a small minority of adults actually went got work. It amazes me now to think that so much money was wasted during the Brown era. Of course, we’re all paying the price, even those who got nothing out of the era of “plenty.” The other point. When is the new labour leadership going to finally tell us what they would have cut whilst in office to get things back on track in the economy. And now, what they think should be cut. That should make “interesting” reading, that’s for sure (expect howls of protest). Or are they playing politics again and treating us like idoits?

  9. Bigblogben says:

    I agree with the comment re focussing on the 12% who need it. The point about encouraging students to stay on will become irrelevant anyway in a couple of years as the leaving age is being raised to 18, in 2015. So focus on those who need it and don’t subsidise those who are not in need, and for whom college attendance will soon be compulsory anyway.

  10. Ian Murray says:

    They plan to make staying on to 18 compulsory by the end of this parliament so no need to encourage anybody. Pass the entire burden to the parents.
    The idea that a local discretionary grant is more fair is laughable. Need is relative, schools and colleges do not have access to HMRC data, they are not setup to administer this imposed extra duty. As with unis sixth form institutions will have a vested interest in not taking on those eligible for a grant. Money no lnger being ring-fenced will be taken from other budgets. Also, there is no way that college principals and head can know the situtions of all those applying to study – many from other school snd colleges.
    Sixth form applications will start in early spring. The mechanism isn’t in place. Note how changes to child benefit for the rich won’t kick in until 2014, but for those families with EMA the cuts are in 2011.

  11. David Bouvier says:

    So based on the limited details available it appears they are assuming participation is a good in itself.

    Does anyone have any evidence on the increase in qualifications achieved by those who would not otherwise have attended (with their “100%” attendance, their starting salaries (if they have jobs) compared to someone who has worked for an couple of years, the tax benefits forgone during “participation” etc etc. Let alone considerations of expectations, incentives, cultural and values.

    Peer review all depends on the peers who review. The cost-benefit analysis depends always on what costs you include.

    The world is full of grand plans where spending now will save costs across the wider economy over the next decades. They always seem to disapate like dew in the morning, and anyway are no very useful when you are trying to correct a massive structural defecit.

  12. Lyn Langford says:

    Some things have changed in recent years, which make the value of the (now defunct) EMA even more vuluable. For instance, a young person living in a semi rural/rural area, wanting to go to college and pursue their chosen subject, would probably have 2 bus journeys to get there, and 2 bus journeys back, the total cost will run in to hundreds per year. Even with a subsidised bus pass, still very expensive, especially for those single parent families. Then there is the question of food while out all day, books, materials, etc. Once upon a time i think students got free travel, but in recent years, with local authorities cutting back, the cost of travel is becoming an issue for students. There was also the great incentive to attend college regularly which the EMA provided, meaning these young people got in to the routine of getting up and going to do something purposeful, in my opinion a good starter for the preparations for the world of work. I feel that there will be many students dropping out of education, and many will just not bother.

    1. Steve Cooke says:

      Lyn’s post correctly identifies a huge problem for young students in rural areas – the expense of public transport puts them off study. Buy Lyn has come up with the wrong solution. The solution to some rural young people struggling to get transport to college is not to spend billions on EMA, but to give those students that need it free travel passes.

      When times are hard resources have to be carefully targeted at those who need it most. Labour’s approach has been astonishingly wasteful and racked up massive debt.

  13. jorjun says:

    The idea that educational establishments confer value to students is a left doctrine. It is not something I feel has any objective substance. EMA looks so much like a bribe to young people to keep them off the dole, that I cannot take it seriously. When I was at school, computers were new, and for sure, none of the teachers knew as much about this new area as I did. Sure the same is true of many areas that young people can get involved in, today. EMA goes to middle class teachers and it delays the sentence of young working class people. There is absolutely nothing wrong with low paid labour. And we have to stop humiliating young people that may be working class. What is wrong with being working class? 13 years of damaging political ideology need to be undone.

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