1. Funding changes & finance implications
Julian Gravatt, AoC assistant chief executive

2. A cocktail of financial challenges
Costs, funding, pensions, debt, regulation, the levy

3. Rising staff costs Staff cost issues Average teacher salary £33,000
Competition for teachers from schools & HE
Rising on-costs:
- teacher pensions 14% in 2014, over 18% by 2019?
- ER national insurance 10.4% in 2015, 13.8% +0.5% levy
Pressure to improve quality, results & responsiveness could mean more spending on people

4. Flat cash funding Current plans between 2016 and 2020
16 to 18 rates fixed for 4 years (eg £4,000 rate)
Adult education budget fixed at £1.5 bil/year
Apprenticeship and FE loan funding caps
New rates based on old rates
No uprating for 5+ years

5. Competition for students
The 324 colleges operate in a system with:
3,600 EFA funded institutions, 1 mil year olds
200 new sixth forms, free schools, UTCs since 2010
1,020 SFA providers
New apprenticehip register
131 Univs/HEIs

6. College income down in real terms

7. Apprenticeships A new chaotic market
Spending decisions devolved to 20,000 employers
New system, new formula, new rates, new standards
Lots of standards for higher and degree apprentices
Tenders decision in March for post-April 2017 starts
Allocations for continuing apprentices
Difficult to predict now what will happen

8. A poorly controlled pension system
Support staff
Teachers
College
TPS
91 LGPS funds
LGPS Employer
Range 10-25%
Average 15.8%
Rising in 2017
TPS Employer
16.48%
Could rise in 2019
Support staff
Income-related
Contributions %
Income-related
Contributions %

9. A banking retreat How we got to where we are
Capital grants on a £1 grant, £2 self funding model
Programme £2.5 bil grant, £5 bil cost
SFA programme £0.4 bil grant, £0.8 bil cost
Bank lending reached peak of £1.6 bil in 2015
Irish banks exit in 2008
Barclays & Lloyds have 45% of loan book each
Other options (Santander, RBS, councils, others?)

10. College insolvency regime
Due to take effect in second half of 2018
Changes the government/college relationships
Public service insolvency (like energy, housing) instead of ad hoc fixes
Govt appoints special administration who has duty to protect students and creditors
Considered a new risk by banks, LGPS, governors
May be difficult to use in practice

11. Area review timetable 22 reports published
Sept Jan May Sept Jan May 17
Wave 1
Wave 2
Wave 3
22 reports published
75% of colleges through process
Completion by March 2017
Intervention will continue
Wave 4
Wave 5

12. A system of multiple regulators
Special
Administrator
(2018) FE
Commissioner
EFA or SFA
OFS
Transaction
Unit
College
Ofsted
LGPS Fund
External auditor
The College’s bank

13. Intervention after area reviews end
Colleges accountable to various organisations
The bank (who insist on loan covenants)
SFA/EFA (finances are satisfactory or inadequate)
Ofsted (which has a risk-based inspection cycle)
FE Commissioner (referral from SFA or Ofsted)
etc
plus students, employers and communities

14. College finances A cocktail of issues
Flat cash funding at a time when costs are rising
Financial weakness in some colleges (15% “financially inadequate”; 5% in distress)
Serious Issues with banks and pensions
Overlapping teams (SFA/EFA, commissioner, TU)
Austerity to continue until 2022 on current plans

15. What should governing bodies do

16. What governing bodies must do
Mandatory requirements in terms of approvals
Annual financial statements
External & internal audit report
Framework of financial control
Annual budget
Financial plan to funding agencies
Cashflow forecast & cash/credit position
Read reports and ask questions

17. What governing bodies should do
Good and best practice
Measurable & deliverable objectives with key indicators (surplus, contribution, ratios, cash etc)
Longer-term financial plan linked to curriculum, staff and estates plans
Balanced scorecard of indicators including finance
Division of responsibilities within governing bodies
Culture in which questions are asked and answered
Open discussion on strategy and options

18. 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 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, PSC)

19. College economics (what’s in the box?)
Class size
Income
Student taught hours
Positive completion
Staff costs per teaching hour
Student / teacher time / effort /love
Student satisfaction
Costs of running the college

20. In conclusion
The area review objective that all colleges will be financially sustainable will not be met by 2018
Governing bodies have a greater need than ever to attend to financial issues but individuals cannot do it all
Therefore:
Ensure there is a mission and strategy
Be collectively accountable
Ensure there is a financial strategy.& effective control