Autumn 2018 budget submission Julian Gravatt, Deputy CEO

Summary

Background What this presentation is about Autumn budget will be on 29 October 2018 Earlier than normal because of UK/EU negotiations The economic forecasts will contain uncertainties The Treasury will explain how it is funding the four year NHS deal (spending up 3.5% real terms a year) There may be stealth taxes and income from public sector pension increases The Treasury wants to defer spending changes to to the 2019 spending review Treasury asked for proposals by 28 Sept 2018

AoC proposals for spending review Action the government should put in place for 2020 An education spending target (as % of GDP) Higher 16-to-18 funding per student (up 5% a year) A new target for every citizen to be able to reach Level 3 A new higher technical offer A national retraining scheme A new approach to supporting institutions An education workforce strategy

AoC proposals for autumn budget Action to be taken this year (ie before Christmas) 16-18 funding rate £4,050 in 2019-20 by extending Teacher Pay Grant Fund exceptional teacher pension increase Maintain adult education spending by redeploying any underspend Guarantee non-levy apprenticeship budget Set up a higher technical development fund Provide capital grants for technical equipment Standardise ESFA payment profile Extend the restructuring facility for a year

2019 spending review

The big challenges The UK industrial strategy has the right aims The aim is to “boost productivity by backing businesses to create good jobs and increase the earning power of people throughout the UK with investments in skills, industries and infrastructure” .. but the skills policies are insufficient Reform of technical education Initiatives to improve digital and STEM Pilots of National Retraining Scheme

What are the really big challenges UK is falling behind its potential in several ways Productivity is 20-25% below competitors Productivity and growth sluggish since 2008 Public investment in skills is falling (education spending will be less than 4% of GDP by 2020) Spending is front-loaded There are skills shortages in technical occupations Stark divisions in the education system - 15% of 19 year olds have not reached Level 2 - 7% of pupils are in private education but 40% of those in elite roles are privately educated

College finances Ability of colleges held back by their finances Colleges collectively made a 0.1% surplus in 2016-17 16-18: fewer students, fixed rates, smaller budget Adult education: low funding rates, devolution Apprenticeships: fewer new starts, slow payment No funding to cover inflation in any budget Higher costs (CPI 2.4%, higher pension costs) Pay levels in colleges have been squeezed College insolvency regime in 2019

Proposals for 2019 spending review Action the government should put in place for 2020 An education spending target (as % of GDP) Higher 16-to-18 funding per student (up 5% a year) A new target for every citizen to be able to reach Level 3 A new higher technical offer as an alternative to the BA/BSc route A national retraining scheme A new approach to supporting institutions An education workforce strategy

Short-term action

Raising the 16-18 funding rate Pay Median pay in colleges £30,000, in schools £37,000 Big variations around these averages DfE providing a Teacher Pay Grant to support pay rises of 1-3% in schools/academies for two years Increases school sixth form rate to £4,030 in 2018-9 and £4,050 in 2019-20 Funding rate 16-18 funding rate fixed at £4,000 for five years Funding drops by 25% at age 16 Increase the funding rate in stages, starting now

Funding for teacher pensions Teacher pension scheme Employer contribution due to rise from 16.48% to 23.5% (figures are provisional) A £1.5 billion increase (stealth tax) for state-funded education (£140 million for colleges) Will cost colleges an average of 2% of their income Action Treasury should delay the valuation while it resolves some technicalities and anomalies If not, it needs to be provide higher funding to cover the extra costs

Maintaining adult education After years of neglect, some big changes Devolution of c50% of AEB to Greater London, Greater Manchester, West Midlands, Liverpool City Region, West of England, Tees Valley, Cambs in 2019 AEB halved between 2009 and 2015 HMT promised £1.5 billion spending from 2015-20 There have been shortfalls because funding rates are too low and qualification list too restricted DfE should redistribute any year end underspend (on 2017-18) in November 2018 to fund over-delivery

Guaranteeing non-levy apprentices Protecting real apprenticeships Some successes in recent reforms (the levy, the operation of DAS, more employers engaged) Some problems (starts down 30%; too many mid-career management apprentices; underspends) Levy-paying employers have first call on the entire training budget; risk this will squeeze SMEs Treasury should separate the budget in two and guarantee a larger budget for smaller employers

Higher technical education Reforming the system in the 2020s More and more people are taking full-time three year residential degrees and graduating with £50+k student loan debts Despite low unemployment, many graduates in jobs that don’t use/need their skills Post-18 review should put in place measures to develop higher technical education This is a long-term reform. A development fund should be established now

Standardising the payment profile A straightforward but long overdue change Colleges operate on wafer-thin margins Government is the main paymaster (including funds controlled by students and employers) but pays colleges late each spring The shortfall is 6% of annual payments each March DfE makes a standard 1/12th payment to academies each month on 1st day of the month DfE should pay colleges in the same way

Extending the restructuring facility Avoiding an unhelpful rush to the door HMT has authorised c£150 million in loans to colleges from the restructuring facility and expects to commit a total of £300 mil by March 2019 Most of the 51 mergers have been self-funded Government-supported mergers have been prolonged. The process is complex and costly. Rather than have colleges rush to meet an arbitrary deadline, better to complete the job properly by leaving the facility open for another 12 months

More information

www.collegesweek.co.uk

www.aoc.co.uk Check out www.aoc.co.uk/funding-and-finance Ask julian_Gravatt@aoc.co.uk Follow @aoc_info on twitter