1. AoC conference Funding forum 15 November 2017
Julian Gravatt AoC deputy chief executive

2. What I’ll cover The Autumn budget Public spending on education
College funding
College finances

3. Autumn budget

4. Autumn budget (22 Nov 2017) What’s involved
A budget not simply a statement, will contain tax decisions as well as spending plans
Philip Hammond’s third fiscal event
First since 2017 election
DUP promises support for 2017 & 2018 budgets
An opportunity for the government to shape the domestic agenda, but how?
2015 Spending review set departmental budgets until
A lot depends on the economic forecast

5. Autumn budget (22 Nov 2017)
Spending 39.3%
Receipts 36.7%
Net borrowing 2.7%
GDP 10% up
Spending 38.0%
Receipts 37.3%
Net borrowing 0.7%
Everything in budget depends on the economic forecast which in turn depends on predictions
world events
Brexit
financial stability
migration, productivity assumptions

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. Autumn budget (22 Nov 2017) What to look out for
Changes to GDP forecast (up or down?)
New targets (surplus by 2025? debt as % of GDP?)
New tax measures (on land? on pensions?)
Action on NHS? Tax Credits? Housing?
Anything new on HE fees or student loans
Typical budget combines short-term loosening (eg more spending) with longer-term tightening
Outline for the next spending review?

8. Brexit

9. Brexit in one slide Article 50 timetable: March 2017 to March 2019
First stage
Exit fee
EU citizens
Ireland
Second stage
Trade
Relationship
Transition
Single Market
Four freedoms
Goods
Services
Capital
Movement
Implemented via Treaty & ECJ
Customs Union
eg. Turkey
Single Market
EFTA, Norway
EU Withdrawal Bill
Cuts and pastes EU law into UK law
Free Trade Agreements
Canada, South Korea

10. The negotiations 6 rounds so far (June, July, Aug, Sept, Oct, Nov)
EU Council 19/20 Oct 2017 – not enough progress
PM statement “within touching distance” of a Withdrawal Agreement covering citizen’s rights, Northern Ireland and the exit fee
EU Council 14/15 Dec 2017 – decision on whether to negotiate the future relationship and the “time-limited implementation period” (ie transition)
Exit date: March 2019
Transtion ends: March 2021? December 2020?

11. Public spending and education

12. Key education 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

13. 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

14. 16-18 funding

15. 16-18 funding Well established national student numbers based formula
Total down 10% since 2010 and still falling
Fall in student numbers in : FE -3.2%, Schools -3.6%
Allocations in : -3.5%
Further fall in autumn 2017 enrolments -> budgets
16-18 education
£3,300 mil
Of the total £5.9 bil budget
42% FE
13% SFC
40% Schools

16. 16-19 College Allocations 2017/18

17. English and maths Number of 16-18 GCSE English students
Number of GCSE Maths students

18. Work placements Capacity development fund (CDF)
Allocated for by ESFA using a formula to calculate number on predecessor quals to T-levels
Aim is to increase the number of eligible students on qualifying placements (10% of students in )
Some tricky conditions (placements to last 45+ days)
Colleges (and schools) need to return a plan (23 Nov)

19. 16-18 funding in 2018 and beyond Short term issues (2018-19)
English and maths condition of funding
Adjustments to retention for 2 year courses
Additional funds for work placements
The relentless squeeze on income
Long term issues (early 2020s)
The full Sainsbury package (T-levels, transition year, the place of applied general)
T-levels expected to cover c20% of age group
The sustainability of the system on current funding

20. High needs funding

21. High needs Individually negotiated council allocations
£5 bil budget insufficient for rising numbers with high needs
Full council control since 2013
New formula (Block 1 & 2 via ESFA; Block 3 via Council (>£10k)
DFE moving ahead with new distribution formula to councils
Reduction in ability of councils to top up high needs budget
High needs
£120 mil
Of the total £5 bil budget (age 0 to 25)
2-3% FE

22. High needs in 2018 and beyond
Short term issues ( )
More councils rejecting or cutting post 16 claims
Limit on top up of high needs budget to 0.5% of schools block (will increase pressure)
Implementation of new high needs formula
Long term issues (early 2020s)
More demand, higher costs, no more money
Council capacity given national school funding

23. Adult education budget

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

25. Adult Funding National historic allocations, formula to price students
Of the total £1.3 bil budget
65% FE
20% community learning
15% other (incl unis, private provider)
Adult education
£880 mil
National historic allocations, formula to price students
Budget cut every year for 10 years 2005 to 2015, now fixed
Restricted eligibility rules because of apprenticeships & loans
College underperformance in ; bigger in
Flat funding rates require larger group sizes to ensure viability
Money used elsewhere (SCIF fund, Flexible learning pilots)

26. Skills devolution Mayors with skills deals Greater Manchester
Liverpool City Region
West Midlands
Tees Valley
West of England
Cambridgeshire/Peterborough
Greater London (for )
Sheffield City Region (no mayor)
Policy uncertainty
Deals still stand
Delay from to
Influencing role

27. Adult ed budget, 2018 and beyond
Short term issues ( )
The MCA/College relationship devolution deals
The underspends and the restrictions that cause it
Long term issues (2019 and beyond)
Implementing skills devolution (grant or contract? data requirements? cross border issues?)
The European Social Fund replacement (Shared Prosperity Fund) and relationship to AEB
Revitalising adult education policy

28. Apprenticeships

29. Apprenticeships Major reform underway in 2017
£500 mil
Of the total £1.6 bil budget
30% FE
70% private providers
Major reform underway in 2017
Levy payers expected to pay £2.6 billion in tax in
DFE’s apprenticeship budget now £2 billion
First call on the budget is carry-in learners
Levy payers have 24 months to spend 110% of what they pay
Squeeze on allocations for non levied apprentices and uncertainty about the post-January 2018 procurement

30. Apprenticeships for large employers (c19,000)
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

31. Apprenticeships
Number of apprenticeships in colleges by age and highest level, 2015/16
Achievement
rates

32. Apprenticeships, 2018 and beyond
Short term issues ( )
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

33. Higher education funding

34. Higher Education fee loans
HE & FE loans
£400 mil
£12.4 bil student outlays in
£400 mil HE fees to FE (c4%)
Well established system. New regulations. Uncertain politics
HE full-time fee cap £9,000 (2017), rises to £9,250 (2018)
HE entry rate age 18/19 at record high (approaching 48%%)
Reduction in part-time HE numbers (including in colleges)
Changing set of rules. OFS starts April New framework with effect from August 2019

35. University and college income
Total income for English universities and colleges from annual accounts indexed to

36. The HE tuition fees decision
The old HE tuition fee plan
Fee cap rose to £9,000 (2012) then £9,250 (2016)
Repayments 9% above £21k income
Variable interest rate linked to RPI
Plan to link fee increases to the TEF
The new HE tuition fee plan
Fee cap sticks at £9,250
Repayment threshold £25k (£360/yr for graduates)

37. HE funding implications
Teaching funding
Fixing the fee cap is another real-terms cut
Growing interest in value for money (contact hours? Employment outcomes?)
Full-time HE students will still leave with £50+k debt
Systemic
English full-time residential model is expensive
Low numbers on Level 4/5 and declining part-time enrolments. Not obvious how this will change

38. Capital funding

39. Capital funding Reduction in government spending
Skills capital routed via LEPs since 2015
Original skills capital budget c£300 mil/year
Indicative budget in 3rd Growth deal c£120 mil/year but LEPs overall spending less
Industrial strategy (“£170 mil for IoTs”)
Maintenance and equipment distributed to schools, sixth form colleges and universities not FE colleges
….has resulted in a reduction in college investment

40. Institutes of Technology
Policy statement published in September 2017
Focus is Level 4 and 5, with preference for STEM
Three way partnership (FE, HE, employer)
DFE not prescriptive on how IoTs can be structured but colleges need to take care on this issue
Applications during 2018 for IoT status and capital

41. Capital funding, 2018 and beyond
Short term issues ( )
Colleges self-funding merger-related rationalisation
Possibility of technical education equipment funds
Possibility of formula allocation for FE colleges
Lack of data about college estates
Long term issues (2019 and beyond)
No sign of new bank lending for college projects
Need to anticipate post-16 population growth

42. College finances

43. College Finances: a cocktail of issues
Rising staff costs
College credit crunch
Competition for students
Flat cash funding
Poorly controlled pension system
Funding reform and uncertainty

44. Mergers Between 2013 and 2015 8 college-to-college mergers
52 college-to-college mergers (38 completed)
4 university-to-college mergers planned
22 sixth form college conversions
From 340 (2015) to 280 (2017) to 260 (end 2018)

45. 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
Support staff
Income-related
Contributions %
Income-related
Contributions
7.4 – 11.7%

46. AoC’s Autumn Budget asks (1)
Increased investment in skills
Public spending on education 5% of GDP
Skills to be a big part of the Industrial Strategy with a plan that covers retained European funds, skills devolution and a citizen’s skills entitlement
Fair funding
A £200 uplift on the rates in
Review of funding to ensure costs are covered
Funding for transition year students over three years
Changes to English and maths condition of funding

47. AoC’s Autumn Budget asks (2)
Fair funding (continued…)
Reforms to high needs system
Rebalancing of higher education system
Quality apprenticeships
25% of levy funds used on a targeted basis
A longer-term approach to organisations (in place of short-term procurement)

48. AoC’s Autumn Budget asks (3)
Building strong colleges and institutions
Restructuring fund loans available after March 2019
Capital funding for colleges
Targetted DFE reviews of school sixth forms
Support for people to access education & training
Child benefit for families of young apprentices
Support for transport for those over age of 16

49. The sixth form funding campaign
Joint funding message
£200 extra on rate
Longer term review
Partnership approach more cost effective and higher impact
Necessary for colleges to raise issues locally with MPs, students etc

50. Small but important changes
In the last 6 months
Re-run of the apprenticeship register procurement
Adjustments to retention factor for 2 year courses
Adult ed funding rule change postponed (clause 157)
English and maths tolerance fixed at 5%
Work exp capacity funds paid as a grant in

51. The fiscal and funding timetable
Spending set by Coalition (24% ASB cut)
Spending review (16-18 rate fixed,
Adult education budget fixed)
Apprenticeship levy starts (£2.5 bil tax/year)
A relatively quiet year?
Various changes take effect (Brexit, OFS, Skills devolution, College insolvency)

52. Some big college issues
Immediate challenges
Fewer 16-18s (-3% , -1% )
Fewer apprentices in
Adult education activity below budget
Competition for HE in FE students
Implementing mergers
Challenges for 2019
Impact of further changes (apprenticeships, OFS, skills devolution, Brexit)

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