College Finance North 15 December 2017 Julian Gravatt AoC deputy chief executive

College finances

Govt income & expenditure Income tax £175 bil VAT £125 bil Pensioners £106 bil NHS £117 bil Other benefits £115 bil Education £61 bil Local taxes £61 bil National Insurance £130 bil Defence £27 mil All other taxes £143 bil Debt interest £44 bil Other services £101 mil Corp Tax £54 bil Local expend £46 mil EU contrib £12 bil

DFE budget – key components . Dedicated school grant Schools, High Needs and Early Years Block (£42 bil by 2020, of which £5 bil is for High Needs DFE introducing a national fair funding formula 16-18 grants £5.9 bil in 2017 Apprenticeships £2.5 bil by 2020 HE (and FE) Student Loans (£20 bil/yr by 2020) Adult Education Budget £1.5 bil by 2020 HE revenue £1.4 il in 2017

College income & expenditure 16-18 £2.6 bil HE £0.5 bil Teachers £2.6 bil Supples and services £1.6 bil FE loans £0.1 bil Debt interest £0.1 bil High Needs £0.2 bil Other staff £1.1 bil ESF £0.1 bil Depreciation £0.4 mil Apprentices £0.6 bil Fees and other £1.1 bil AEB £0.9 bil £6.1 bil Income 83% public or is it 63%? 62% staff cost ratio 1% surplus but higher EBITDA

FE College funding (£ millions)

University and college income Total income for English universities and colleges from annual accounts indexed to 2009-10

Financial Health - FECs Sources: GFE Finance records 2013/14 to 2015/16; Financial plan 2017 for 2016/17 Note: National college figures are excluded

Financial health - components Colleges Rating Solvency 2015/16 EDITDA Borrowing Outstanding 92 28% 42% 39% 66% Good 104 32% 15% 19% 26% Satisfactory 93 18% 5% Inadequate 40 12% 25% 2% 329 100% Solvency EDITDA Borrowing Outstanding >1.6 >8% <20% Good >1.2 >6% <40% Satisfactory >0.8 >4% <60% Inadequate <0.8 <4% >60%

Funding in 2018 and beyond

Key spending decisions The 2015 spending review Tighter schools budget than before but rising Fixed 16-18 rate, fixed AEB, restructuring funds Apprenticeship levy; extension of student loans The decisions since summer 2016 National school formula by 2020 (£1.3 bil extra) Additional technical education funds (from 2018) Freeze on HE fee cap at £9,250

The EFA 16-18 funding formula Programme Cost Weighting Disadvantage Funding Area Cost Allowance (up to 20%) Student Numbers National Funding Rate per student Retention Factor (less than 1) ( ) Band Hours Total 5 540+ £4,000 4 (*) 450+ £3,300 3 360+ £2,700 2 280+ £2,133 1 < 279 Programme % Base 0% Medium 20% High 30% Specialist 60% Land-based 75% Total Programme Funding Disadvantage % 1 (GCSE Maths / English) £480 per GCSE 2 (27% most deprived) 8 to 33% extra

……plus extras (if applicable) Programme Cost Weighting Disadvantage Funding Student Numbers National Funding Rate per student Retention Factor ( ) Area Cost Allowance Total Programme Funding Large programme factor Formula Protection Funding High Needs Students Bursaries & Free Meals

16-19 College Allocations 2017/18

16-18 funding in 2018 and beyond Short term issues (2018-19) No change to the rate despite inflation hitting 3% English and maths condition of funding Adjustments to retention for 2 year courses Additional funds for work placements Counting for the maths bonus Long term issues (early 2020s) The full Sainsbury package (T-levels, transition year, the place of applied general) Funding for a rising 16+ populations The sustainability of the system on current funding

High needs in 2018 and beyond Short term issues (2018-19) More councils rejecting or cutting post 16 claims for element 3 (formula has 3 elements Limit on top up of high needs by councils Implementation of new high needs distribution formula Long term issues (early 2020s) More demand, higher costs, no more money Council capacity given national school funding

College adult education funding College adult education (non apprenticeship) funding in £ millions reported in annual accounts

Skills devolution Skills deals Greater Manchester Liverpool City Region West Midlands Tees Valley West of England Cambridgeshire Greater London Sheffield City Region North of Tyne Policy uncertainty Deals still stand Delay from 2018-19 to 2019-20 Influencing role

Adult ed budget, 2018 and beyond Short term issues (2018-19) The role of MCAs in influencing allocations The underspends and the restrictions that cause it Long term issues (2019 and beyond) Implementing skills devolution in 7 to 9 areas (grant or contract? data requirements? cross border issues?) The European Social Fund replacement (Shared Prosperity Fund) and relationship to AEB Revitalising adult education policy

Apprenticeship levy and spending “Apprenticeship spending will double over the decade” 2015 spending review … via a new hypothecated tax

Employer driven levy funding Large employer HMRC Levy (0.5% of payroll) Employer directs recipient and price Apprentice Digital Apprenticeship Service Registered Training Organisation Skills Funding Agency Payment on confirmation of training (ILR) and employer authorisation

The apprenticeship formila Programme funding 15 funding bands (£1,500 to £27,000) Maximum government investment of 90% 16-18 year olds £1,000 to employer £1,000 to provider plus 20% for frameworks English & Maths £471 to provider for each qualification (L1,L2) Additional learning support Up to £150 per month Disadvantage uplift 10%, 20% uplifts Small employers (<50) No co-financing for 16-18s Or 19-24s with EHCP

Apprenticeships, 2018 and beyond Short term issues (2018-19) Issues associated with the non-levy procurement Likely underspend because levy payers are cautious while co-funding discourages some employers Changes associated with new standards Long term issues (2019 and beyond) The plan to bring all employers into DAS Creating a more sustainable and high quality apprenticeship system focused on Level 3 and above

Higher education, 2018 and beyond Short term issues (2018-19) OFS registration (probably in early summer) Long term issues (2019 and beyond) OFS registration conditions Paying for OFS (subscriptions) and other costs The likely freeze on the fee cap (at £9,250) Review of HE fees/loans (in time for next election?)

Anticipating change 2015-16 Spending set by Coalition (several cuts) 2016-17 2015 Spending review (stabilisation on core budgets, promise of future reform) 2017-18 Apprenticeship levy started 2018-19 Working through of reforms 2019-20 Some big changes (Brexit, OFS, Skills devolution, College insolvency)

Pensions

Colleges and pensions Support staff Teachers College 91 LGPS funds TPS LGPS Employer Range 10-28% Average c17% Deficit contributions TPS Employer 16.48% Could rise in 2019 We’ll know by April 2018 Support staff Income-related Contributions 5.5-12.5% Income-related Contributions 7.4 – 11.7%

Pension regulations and colleges Eligibility Teachers employed in a college eligible for TPS All other college staff eligible for LGPS Subsidiary companies Staff not eligible for TPS (unless seconded in) Staff eligible for LGPS if company is admitted Support staff Teachers

Oversight of colleges

Multiple regulators Special Office for Students FE EFSFA Ofsted Administrator (2018) FE Commissioner EFSFA Office for Students (2018) College Ofsted LGPS Fund External auditor The College’s bank

College accountability Colleges accountable to various organisations The bank (who insist on loan covenants) ESFA (finances are satisfactory or inadequate) Ofsted (which has a risk-based inspection cycle) FE Commissioner (referral from ESFA or Ofsted) plus students, employers and communities College data visible to regulators Finance data (2 key returns a year) Individual Learner Record (14 returns: R01 to R14)

Financial reporting Accounting FRS102 (introduced in 2015-16) FE HE SORP (interprets standards, update every 4 years) ESFA accounts direction (annual update, last one Dec 16) Accounts Direction Handbook (“Casterbridge college”) ESFA finance oversight Financial plan each July: this year, next year, year after Finance record each December: last year

College finance challenges Rising staff costs College credit crunch Competition for students Flat cash funding Poorly controlled pension system Funding reform and uncertainty

Set some benchmarks Needs to be decided by the college. Some hints A-level class sizes in sixth form colleges average 17 Teaching contact hours often above 800/ year Average 16-18 student hours: 16 hours/week Estate costs (from area reviews) average £56/m2 Space utilisation (area reviews) 33% Etc “Average colour of a rainbow is white” (Nick Allen)

Running a successful college . Class size Income and cashflow Student taught hours Positive completion Staff costs per teaching hour Staff and student engagement Student satisfaction Costs of running the college

Julian Gravatt AoC deputy chief executive Any questions? Julian Gravatt AoC deputy chief executive