AoC North West Principals and Chairs Political, funding and financial issues for colleges 15 October 2015 Julian Gravatt, Assistant Chief Executive, AoC

What I’ll cover (briefly) Politics Funding Finance

A majority conservative government National politics Overall majority (12 seats); 5 year term Lots of big issues (eg Migration, EU, UK issues) The manifesto is the programme for govt Education and skills policy Manifesto was short on detail compared to schools & universities 2 million jobs, 3 million apprenticeships in 5 years Devolution is a prominent policy and may cut across initiatives New policies since the election (the levy, Institutes of Technology etc)

Conservative manifesto - Schools Education (“schools”) Protection of school funding (5-16) Moves towards national funding formula Infant free school meals continue English Bacc compulsory Coasting schools to get new leadership 500 new free schools (takes total to 900) = 5% of sector Good and outstanding schools can expand No profit making schools

Conservative programme – HE & FE Higher education (“universities”) Build on successful funding reforms Abolition of cap on student numbers Teaching excellence framework A green paper is now on its way Skills 3 million apprenticeships (now with a levy to help pay for them) A UTC near every city (now also Institutes of Technology) A national programme of area reviews (invented in June 2015)

The public spending context Tax and spending (George Osborne’s 8 July budget) Balanced budget by (one year later than the original plan) Long list of tax cuts, tax rises, tax credit and benefit cuts Some costs:Minimum wage £7.20/hr (2016), £9 (2020) Some savings: End to HE maintenance grants (saves £2.5 bil) Some income: Apprenticeship levy on large companies Departmental spending cuts now £20 billion over 4 years

The spending review (decisions by 25 Nov) “A country that lives within its means” Treasury set spending review objectives on 21 July Departments asked to model 25% & 40% cuts Spending review submissions and 38 Devolution bids by 4 September Departmental spending cash figures £ bil 2016 to 2020 £bil £bil Protected (NHS, Schools, Defence, DFID) 188 ?? Partly protected (Scotland, Wales, NI) 47 ?? Post 16, Police, Local Govt, the rest ? Total RDEL ( )

s DFE & BIS budgets DFE budget£ bil Schools budget All other DFE 5.5 DFE RDEL 53.7 BIS budget £ bil Science 4.6 HE FE 2.9 All other BIS 2.4 BIS RDEL 13.2 Apprenticeships 1.5

Future funding landscape?

Planning for What we know 1.There will be cuts but unclear what. Won’t be 10% in The 19+ future is loans, employers & councils 3.Longer-term reforms mean fewer smaller changes in Shift to outcomes (destinations, progression & employment) 5.Everything that hits you hits the competition

Spending review risks Some of the items on this list may be decided in next 6 months 1.Cuts to funding rates (ie £4,000 for 16/17s; £3,250 for 18s) 2.Smaller cuts (free meals, bursaries, disadvantage, part-time) 3.Apprenticeship spending cuts (because the levy will pay) 4.More cuts to 19+ further education (on top of 24% in 2015) 5.Cuts to HEFCE’s student opportunity fund 6.Further extension of FE loans 7.Changes to capital budgets (currently routed via LEPs) 8.Funding (or none) to implement area reviews 9.Devolution of budgets to councils, combined authorities/LEPs 10.Something else (rise in interest rates?)

AoC’s spending review proposals The ten things AoC put to the Treasury 1.Equalise key stage 5 and key stage 4 funding (at £4,800) 2.Three year funding allocations 3.No school sixth form with fewer than 250 students 4.If government wants mergers, it will need to pay for them 5.Cut costs of VAT and public sector pensions 6.Extend FE loans 7.Simplify 19+ funding via outcome agreements 8.Levy: 0.5% of payroll, all employers with +250 staff 9.Long-term initiative to recruit/retain English and Maths staff 10.2 depts, 3 agencies, 4 databases,10 commissioners. Rationalise?

Reviewing post-16 colleges National programme of area reviews Designed to prevent an increase in financially weak colleges Will cover entire country by 2017 BIS wants some new Institutes of Technology Wave 1 (Birmingham, Greater Manchester, Tees Valley, Solent, Sussex) The reviews themselves Initiated because of a national risk assessment or local initiative Economic analysis plus an option appraisal Colleges only (not always co-terminuous with LEP areas) Once area review starts, college shouldn’t start their own reviews

Implementing area reviews Implementation No money (so far) College self-government remains Mergers can be complicated (AoC information note on its way) Big leadership task, so there needs to be a clear benefit What to do now Lots of data (property, finance, student numbers) – are you ready? Think through options Prepare for moral pressure to be applied e

Mergers College to College merger process Merger process evolved in 1990s Type A: Both colleges dissolve themselves to create a new college Type B: One college dissolves, transfers itself to the other FEFC/LSC pro-merger ; Ministers anti-merger Mergers more complicated than they used to be -higher stakes in terms of inspection, performance etc -creditors (banks, LGPS etc) are much more nervous -there are perhaps 100 policies to harmonise

Financial health of colleges Causes of financial weakness in some colleges 1.Govt spending cuts (down 27% in real terms since 2010) 2. Time taken to cut costs and/or respond to priorities 3.Capital investment decisions & associated borrowing 4.Reductions in student numbers 5.Mistakes (always obvious in retrospect)

How colleges will improve their finances Some or all of the following: 1.Better government policy (funding properly matching the task) 2. Cost reduction (to bring budgets back into balance) 3.Property sales to release cash (only open to some colleges) 4.Relentless focus on student/employer demand and need 5.Outsmarting the competition 6.Strong, positive, realistic leadership

A new context What we know and don’t know Expect the unexpected – what were your New Year predictions? Changes to public spending permanent More scrutiny & expectations where public money is involved Big reforms take time. There may be some transition Fewer people in place to implement decisions – more DIY Keep a focus on the core business & key stakeholders