AoC London College Finance Directors
General update on funding and finance
6 November 2014
Julian Gravatt, Assistant Chief Executive, AoC
Julian_Gravatt@aoc.co.uk
@JulianGravatt
http://www.aoc.co.uk/term/funding-finance
Politics – where we are now
Uncertainty
8 months before the 2015 general election
Coalition governing parties in open disagreement
UKIP and Greens both doing well enough in polls to secure MPs
Labour better able to convert votes into seats
Result currently difficult to call
The Scotland vote has prompted discussions on the constitution
Schools, apprenticeships and university fees all big political issues
Planning the next 12 months
Autumn 2014
EFA Funding Letter, 24 October 2014
AoC annual conference, 18 to 20 November 2014
Autumn statement, 3 December 2014
Skills Funding Statement, December 2014 (hopefully)
Spring & Summer 2015
Budget, mid March 2015
2014-15 allocations, by end of March 2015
Easter, 7 April 2015
General election, 7 May 2015
Coalition negotiations, May 2015
Spending review, June to October 2015 (hopefully)
Politics and funding
Before the election
General avoidance of boat-rocking
Decisions on 2015-16 allocations made before the election
Departmental budgets fixed up 31 March 2016
Autumn statement may add to, subtract from or devolve budgets
After the election
Post-election 2015 spending review (budgets from 2016-17 onwards)
Demography: More children now + more old people = post-16 squeeze
Cross-party agreement: closing deficit, cutting taxes & protecting NHS
Spending likely to dip around 2018
The DFE budget after 2015
DFE’s cash crunch: too many schools, pupils & promises
80% of school income spent on staff; on-costs up 5% in 2015-16
UTCs, free schools & studio schools enrol 1% of 16-18s
2015 to 2020: 11-16 pupils +10%, 16-18 population -8%
Pressure for devolution (councils, combined authorities or LEPs?)
Core 16-18 funding system continues for now
EFA 16-18 funding, 2015-16
Process
16-18 funding letter out (12 pages, worth reading every sentence)
Same systems (rates * lagged numbers * historic funding factors)
ILR data vital (R15 in October, R04 in December)
Funding factors in December and allocations by February 2015
Issues
If cuts are necessary, EFA has to cut rates, numbers or weightings
Aim is funding stability
Usual raft of tricky topics (GCSE Maths/English, free meals, large
programmes, new A-levels, sub-contracting etc)
BIS budget
BIS budget in 2015-16
£14 bil Student Loans
£13 bil DEL
HEFCE + Grants + Science
£8 bil
19+ FE/Skills budget
£3.5 bil
Various contradictory options are in play
1: Devolve skills & DWP budgets to local govt or LEPs
2: Employer-routed funding for apprenticeships3
3: Expansion of FE loans to 19 year olds & Level 2
4: New earn-or-train options for under 21s on benefit
5: New SFA funding approach borrowed from EFA?
SFA funding, 2015-16
Process
Skills funding statement due in December 2014
Some asymetric devolution (councils, LEPs or combined authorities)
Core SFA funding system continues until a new one is in place
Issues
BIS may need further cuts to SFA and/or HEFCE budget in 2015-16
Apprenticeships continue to be the first priority
Trailblazers will be in their second year (well-funded in 2014-15)
Traineeship funding approach may be revised
Usual raft of tricky topics (reconciliation, ESOL, 24+ loans etc)
Pensions and budgets
Cost of employing a teacher to rise by 5% plus any payrise
Now
By 2016
TPS employer
14.1%
16.48%
NI employer (approx)
10.4%
13.8%
Employer on-costs
26%
33%
Staff cost ratio
63%
?
Now
By 2016
TPS members (avg)
9.6%
9.6%
NI employee (approx)
10.6%
12%
TPS
15 year recovery period
Lower discount rate
High pay growth assumption
2015 reforms don’t save enough
Costs Colleges 1% of income
National insurance
DWP simplifying state pension
Removal of an NI relief
£5 bil extra NI
Costs Colleges 2% of income
Pensions, Colleges and their staff
Tax limits on saving
Annual (AA) £40k
Lifetime (LTA) £1.25mil
16* salary in DB scheme
Pension reforms now
Tax relief could change
TPS or
LGPS
Individuals
State
pension
State pension
SPA rises to 67 by 2028
New state pension in 2016
No contracting out = higher NI
New LGPS & TPS
Career average entitlement
New accrual & indexation
Post-reform service link to SPA
Pre-reform service protection
New cost-sharing arrangements
Limited college choice
No escape from LGPS debts
Financial health
College finances
Deficits in 2012-13 (48%); more in 2013-14?
Ofsted-related spending + capital projects = short-term deterioration
Rising costs & falling income
How Colleges need to respond
Understand your position, your environment and your risks
Relationships with SFA, EFA, Council, MP and your bank
Cashflow management, risk management & financial analysis
Governing bodies responsible for solvency & viability of college
Use AoC’s ETF-funded governance support programme
Think about opportunities and what comes next
On a more positive note...
Opportunities
Colleges have friends and allies
Education and skills matter both to the recovery & to society
Government will still be spending £70+ billion on education in 2020
Income generation opportunities exist
Quality counts
Productivity improvements from IT only partly realised in education
There are some relatively simple things that can still be done
Events
AoC London Finance conference 4 December 2014
National CFDG meeting, 22 January 2015
National College Finance Conference early June 2015