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.