Private investors should be able to make money by helping to pay the start-up costs of new free schools, according to a Conservative MP who founded a free school.

The recommendation is made in a report about the future of free schools written by former Commons Education Select Committee member Suella Braverman, and published by the Centre for Policy Studies today.

It calls for the flagship Conservative education policy to return to its original focus of encouraging competition and innovation in the state school sector.

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The report recommends policies to attract more private funding into the sector to “remove some of the financial burden of a truly competitive education system from the taxpayer”.

Ms Braverman, who helped to found the Michaela free school in Wembley, north-west London, suggests that the Department for Education should create social impact bonds to make investing in free schools “that much more financially attractive”.

Private investors for free schools?

The suggestion has been criticised by the NASUWT teaching union, which said parents should be “deeply concerned”.

Social impact bonds involve the government identifying a problem, and private investors then providing money to fix it. Whether they get paid back depends on the success of the project.

According to a government website, there are currently more than 30 social impact bonds in the UK “supporting tens of thousands of beneficiaries in areas like youth unemployment, mental health and homelessness”.

Today’s report says: “It’s easy to see how a social impact bond could work for a free school in an area with poor educational attainment.

“The DfE could set a challenge for a new school that would improve outcomes above a specified level, and then investors would provide start-up funding to get a free school up-and-running.

“If the new school met or exceeded its targets, the investors would receive ‘success payments’ which would generate a return on their investment. But if educational outcomes didn’t improve, the government would pay nothing and the investors would lose their money.”

It says this approach would reduce the up-front costs of free schools to the taxpayer, while also shifting the risk of failure or poor performance to private investors.

NASUWT acting general secretary Chris Keates said: “Parents should be deeply concerned by the idea that their children’s schools should be run for profit.

“The government needs to focus on solving the worst teacher recruitment and retention crisis in our schools and ensuring that all schools have the funding they need to deliver the education entitlements of all pupils.

“A form of payment by results, as suggested in the report, could create perverse incentives for schools, which is unlikely to be in the best interests of pupils, teachers and parents.”

The report also calls for investment in free schools to automatically qualify for social investment tax relief, and for the government to get social venture capital trusts, which it announced in 2015, off the ground to enable “ordinary savers” to invest in free schools.

Tes asked the DfE whether it would take up the suggestion of allowing people to make money from investing in free schools.

A DfE spokesperson said: “The UK boasts a diverse education system and the free schools programme is an important part of this, delivering choice, innovation and higher standards for parents.

“Since 2010, we have opened 446 free schools, with more planned to open this September.

“The government is committed to delivering more free schools as it continues to drive ever higher standards of pupil behaviour and academic achievement in our schools.”