1. Julian Gravatt AoC deputy chief executive
South West FDs 5 March 2018
Julian Gravatt AoC deputy chief executive

2. Introduction
“The Association of Colleges (AoC) is the national voice for colleges and exists to promote and support their interests. Everything AoC does is aimed at helping colleges deliver their purpose and to make an impact”
What this presentation will cover
National politics
Government’s budget
College finances
Four big funding areas (16-18, adult education, apprenticeships, HE)
Some college strategies

3. Public spending

4. Autumn budget (22 Nov 2017) Big picture
One budget a year, each November
Low growth = low pay growth = less tax
Chancellor boxed in by Brexit, economic uncertainty and the government’s small majority
Autumn budget involved a net “giveaway” (with no tax rises)
Short-term politics determines the priorities (NHS, housing, Brexit preparations, universal credit, transport capital, freezing fuel and alcohol duty

5. What we gained in last 2 budgets
Spring budget – spending increases each year until 2022
c£400 million/year for technical education
Autumn budget –initiatives for and
£20 million for T-level capacity development
£48.5 million for GCSE resit teacher training and pilots to test bonuses
£80 million (or more or less) for £600 Maths bonuses
£12 mil for mayoral combined authority capacity (which will help them handle AEB devolution)
Some teacher workforce initiatives in schools

6. 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

7. Key recent spending decisions
The 2015 spending review
Tighter schools budget than before but rising
Fixed 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

8. 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

9. Public spending – what next?
Difficult spending decisions deferred
Treasury has cancelled plans to ask for departmental spending cuts in
DFE and other budgets fixed until March 2020
Spending review completed in months time
Brexit date in March 2019
Some momentum for the national 16 to 18 funding campaign but more work needs to persuade the public and therefore politicians

10. Post 18 education and funding review

11. Post 18 education & funding review
Process
One year review, until spring 2019
In time to influence 2019 spending review and budgets
Reports to PM, ChEx and Education Secretary
Advice from a panel of 5 chaired by Philip Augar
Opportunity for AoC/ Colleges to make a case

12. Post 18 education & funding review
Constraints
Students continue to pay with system being progressive and income contingent
Continue with FE and technical reforms
No cap on number of students who can benefit from post 18 education
Support the industrial strategy
Recommendations consistent with fiscal policies to reduce deficit and have debt falling as % of GDP

13. Post 18 education & funding review
Opportunities?
Alternatives to three year full time degree
Rebalance choices between academic, technical and vocational at 18 (reverse the 17.5% cut at 18?)
More higher level apprenticeships
Maintenance support
Changes to level, terms and duration of student and graduate contribution (changes to FE loans?)
More transparency on funding

14. 16-18 education

15. The EFA 16-18 funding formula
Programme
Cost Weighting
Dis-advantage
Area
Costs
(up to 20%)
Student Numbers
National Funding Rate per student
Retention Factor ( )
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

16. ……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
Advanced Maths Premium
High Needs Students
Bursaries & Free Meals

17. The Advanced Maths Premium
Why?
Smith maths review identified low 16+ take up of Maths even from those who achieve GCSE, grade C
Smith identified funding as an obstacle
People like simple policies, even wrong-headed ones
Treasury dislike “deadweight”
How?
£600 for additional A-level or Core Maths enrolments
Two subjects = two bonuses)
Introduction in a complex and underfunded market
Counting starts in September 2018

18. 16-19 College Allocations – numbers rule

19. The overall T Level plan
Two choices in future: academic or technical option
Academic study programmes (incl applied general)
Technical (T levels or apprenticeships)
Digital, construction, education/childcare (2020)
All 18 pathways by 2022
T levels set at Level 3
Some complicated grading proposals
Proposals on transition year in development
Qualifications under exclusive licensing
T level panels

20. 16-18 funding in 2018 and beyond Short term issues (2018-19)
No change to the rate despite inflation being over 2%
English and maths condition of funding 5% tolerance
Adjustments to retention for 2 year courses
Additional funds for work placements (£55 mil)
The Level 3 maths bonus starts (for Level 3 Maths)
Long term issues (early 2020s)
Funding earmarked to support new T-level
Is there funding for a rising population? Or other courses?
The sustainability of the system on current funding

21. Adult education

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

23. Skills devolution Skills deal implementation in 2019
Greater Manchester
Liverpool City Region
West Midlands
Tees Valley
West of England
Cambridgeshire
Greater London
Not ready
Sheffield City Region, North of Tyne

24. Adult education budget 2018-19
Underspends in last three years
No guarantee of funding for over delivery in either or
Very little change to rules because of skills devolution
Mayoral combined authorities get legal responsibility but freedom over allocations, within existing data collection requirements and presumably with same funding rules to start with
Review of LEP skills capital (local growth fund)
Little change to or news on ESF until Brexit sorted

25. Apprenticeships

26. The great apprenticeship reform
Everything changes
New standards
The levy (a tax on larger employers) with spending decisions rest with 20,000 employers
Digital Apprenticeship Service (cost £12 mil)
New funding formula with new rates
Register of Apprenticeship Training Providers
Procurement used to decide who trains apprentices in smaller employers (non levied)

27. 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

28. Where are we now Significant financial issue for colleges
Delay in availability of standards
Levy payers using money for mid-career managers, procuring without using or doing nothing at all
ESFA allocated £485 mil in non-levy contracts but colleges expect to deliver average £285k at risk
9% fall in college starts in
50% of funding in related to carry-ins
Forecast college income in <
System effectively extends payment to c90 days
AoC Apprenticeship and College Finance survey

29. Higher education

30. The higher education market
Some market trends
Rising % of 18 year olds going to HE
Falling number of over 21s and part-time learners
Falling population and growth by lower end of higher tariff universities has squeezed other institutions
More unconditional offers (1/3rd univs to 17% of apps)
Great interest in degree apprenticeships but increase is from a very low base
More emphasis on consumer rights of students

31. The college response College response
Many colleges report falling FT numbers but few catastrophic reductions
Competition from post-1992 universities problematic
Many colleges have strong local, employment focused HE provision
Following 40 mergers since start of 2016, there are more colleges with large HE cohorts
Several colleges pursing degree awarding powers
Institutes of Technology current point of interest
OfS regulation will be a challenge in 2018

32. Institutes of Technology
Policy in development
Focus is Level 4 and 5, with preference for STEM
Three way partnership (FE, HE, 2 employers)
Two stage applications for IoT status and capital
DfE had 100 expressions of interest and expect to allocate licences plus £170 mil in capital to c10 IoTs
DFE not prescriptive on how IoTs can be structured but colleges have limited choice on structures
Applications require considerable detail, pledges of cash from all parties and promise that IoTs will grow

33. Office for students A bureaucratic mountain to climb
OfS replaces HEFCE on 1 April 2018
Applications for new register start - apply by 23 May 2018 if charging fees above £6,165
Initial registration requires work on consumer law compliance, student protection plan, governance etc
TEF compulsory for providers with 500+ students
OfS registration fees payable in
AoC pushing for OfS reliance on ESFA and for recognition of role of colleges

34. College finances

35. 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

36. FE College funding (£ millions)

37. The college insolvency regime
A new factor – but don’t panic
Government reluctant to bail out colleges
Risk of disorderly insolvency if law unclear
Special administrator duty to protect learners as well as creditors
Technical and Further Education Act 2017
Implementation by end of 2018
Risk for governors in financially weak colleges but only if there is clear negligence
DfE plan to introduce new pre-statutory Independent Business Review process

38. 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

39. Intervention – where are we now
After 37 area reviews, 42 college-to-college mergers and 18 SFC conversions….
35 colleges have financial notices to improve
7 colleges are rated inadequate by Ofsted
The colleges in the intervention category have plans to turn things around
The restructuring fund deadline is September
The FE commissioner has a larger remit
Colleges will continue to get into trouble but the current system penalises every mistake

40. Pensions

41. College staff and pensions
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

42. Colleges part of national systems
Support staff
Teachers
College
TPS
91 LGPS funds
LGPS Employer
Range 11-30%
Average 17%
Next change 2020
TPS Employer
16.48%
Could rise in 2019
News by April 2018
Support staff
Income-related
Contributions %
Income-related
Contributions %

43. Do colleges have an alternative?
TPS
1 million teachers in TPS
High on-costs (16.48%) but no employer liability
Subsidiary company staff cannot access TPS apart from via rarely used designation procedure
LGPS
Rising costs and liabilities. Exit very expensive
Subsidiary companies can be inside or outside
Colleges able to offer an alternative scheme but must be very careful over implementation

44. Implementing an alternative?
Some tips
Employ new support staff via subsidiary company on different terms with access to a DC scheme
Company needs to be part of VAT group with college and with 2 way service level agreement
Staff/recognised unions need to be informed and consulted
Main aim will be to reduce future liabilities but annual savings may be possible (>1% of income within 2 years)
Needs careful handling given rules on advice

45. Planning

46. Anticipating change 2015-16 Spending set by Coalition (several cuts)
Spending review (stabilisation on core budgets, promise of future reform)
Apprenticeship levy started
Working through of reforms. A hard year
Some big changes (Brexit, new HE regime, Skills
devolution, College insolvency regime)
Budgets shift following next spending review

47. AoC Policy Groups Teaching Learning Assessment Higher Education
Curriculum Reform
AoC Board
Quality and Accountability
Academic & SFC
Devolution & Responsiveness
Governors Council
Finance & Sustainability
English and Maths
Colleges Directors Finance
AoC Group Boards
Employment
Apprenticeships
Technology
SEND
World Skills
International
Mental Health
Sector Vision

48. Into the 2020s Brexit (2019), then a transition, then what?
This government in power until 2022 unless it falls
Post 18 review + next spending review ->
UK needs to compete and improve productivity
Desire to develop alternatives to 3 year FT degree
Rising population of year olds in 2020s
New technical education system from 2020 onwards
New direction for apprenticeships. More planning?
Lots of opportunities for those who can survive

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