1. AoC North West Finance Directors Political, funding and financial issues for colleges 15 October 2015 Julian Gravatt, Assistant Chief Executive, AoC Julian_Gravatt@aoc.co.uk twitter: @JulianGravatt

2. What I’ll cover (briefly) Politics Funding Finance

3. 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)

4. The public spending context Tax and spending (George Osborne’s 8 July budget) Balanced budget by 2019-20 (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

5. 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 2015-16 £ bil 2016 to 2020 £bil 2019-20 £bil Protected (NHS, Schools, Defence, DFID) 188 ?? Partly protected (Scotland, Wales, NI) 47 ?? Post 16, Police, Local Govt, the rest 80-2060? Total RDEL (2015-16) 315+5320

6. s DFE & BIS budgets DFE budget£ bil Schools budget 41.2 16-18 7.0 All other DFE 5.5 DFE RDEL 53.7 BIS budget £ bil Science 4.6 HE 3.3 19+ FE 2.9 All other BIS 2.4 BIS RDEL 13.2 Apprenticeships 1.5

7. Future funding landscape?

8. The EFA 16-18 funding formula Total Programme Funding BandHoursTotal 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% Disadvantage% 1 (GCSE Maths / English) £480 per GCSE 2 (27% most deprived) 8 to 33% extra Programme Cost Weighting Disadvantage Funding Area Cost Allowance (up to 20%) Student Numbers National Funding Rate per student Retention Factor (less than 1) ()

9. ……plus extras (if applicable) Programme Cost Weighting Disadvantage Funding Student Numbers National Funding Rate per student Retention Factor ( ) Area Cost Allowance Large programme factor High Needs Students Formula Protection Funding Total Programme Funding Bursaries & Free Meals

10. What’s happening on skills devolution The asks & the promises LGA has asked for full devolution of all post-16 FE budgets 38 devolution requests were returned by 4 September Decisions in the Autumn statement (25 November) on budgets Productivity plan promises local commissioning of skills budgets Progress in three areas Greater Manchester deal agreed in 2014. Work in progress for 2017. Sheffield City Region deal has some specific funding promises London has been promised skills devolution. No deal yet

11. Apprenticeship Vouchers Employer (levy payer/ SME New Voucher Database (SFA) College or Training Provider Funding System (SFA) Registration to get a Digital voucher £ (less a discount in some cases) ILR £ (the discount)

12. Planning for 2016-17 What we know 1.There will be 16-18 cuts but unclear what. Won’t be 10% in 2016 2.The 19+ future is loans, employers & councils 3.Longer-term reforms mean fewer smaller changes in 2016-17 4.Shift to outcomes (destinations, progression & employment) 5.Everything that hits you hits the competition

13. Spending review risks Some of the items on this list may be decided in next 6 months 1.Cuts to 16-18 funding rates (ie £4,000 for 16/17s; £3,250 for 18s) 2.Smaller 16-18 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?)

14. 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?

15. 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

16. 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

17. 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 1997-2007; Ministers anti-merger 2007-2014 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

18. 16.48% Teachers Pension Scheme 2015 Colleges Teachers Teachers Pension Scheme 7.4% - 11.7% TPS 2015 Career average pension Accrual at 1/57 th (slower) Option to buy faster 1/45 th Revalued CPI+1.6% (faster) “10 year protection” Final salary link Pre-2015 benefits fixed Vary with final salary Public sector club remains Eligibility Teachers employed at a college …but not in subsidiaries

19. Current LGPS issues 6 mega-funds 2016 valuations LGPS 2014 Colleges Support staff 89 LGPS funds LGPS 2014 Career average pension 1/49 th accrual (fast) CPI revaluation (slow) 50/50 cheaper option 10 year protection Final salary link Individualised Contributions 15-20% Income-related Contributions 5.5-12.5% Eligibility Any college staff …not in another scheme Subsidiary companies …if they are admitted

20. 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)

21. 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

22. 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