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
What I’ll cover (briefly)
Politics
Funding
Finance
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)
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
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
188
?
?
Partly protected (Scotland, Wales, NI)
47
?
?
Post 16, Police, Local Govt, the rest
80
-20
60?
315
+5
320
Protected (NHS, Schools, Defence, DFID)
Total RDEL (2015-16)
DFE & BIS budgets
DFE budget
£ bil
Schools budget
41.2
16-18
7.0
All other DFE
5.5
DFE RDEL
BIS budget
£ bil
Science
4.6
HE
3.3
19+ FE
2.9
All other BIS
2.4
BIS RDEL
53.7
13.2
Apprenticeships
1.5
Future funding landscape?
(
The EFA 16-18 funding formula
Student
Numbers
National
Funding Rate
per student
Total
Programme
Funding
Retention
Factor
(less than 1)
Programme
Cost
Weighting
Disadvantage
Funding
)
Area
Cost
Allowance
(up to 20%)
Band
Hours
Total
5
540+
£4,000
Base
4 (*)
450+
£3,300
Medium
20%
3
360+
£2,700
High
30%
2
280+
£2,133
Specialist
60%
1
< 279
Land-based
75%
Disadvantage
1 (GCSE Maths / English)
2 (27% most deprived)
Programme
%
£480 per GCSE
8 to 33% extra
%
0%
……plus extras (if applicable)
(
Student Numbers
National Funding
Rate per student
Retention Factor
Programme Cost
Weighting
Disadvantage
Funding
)
Total
Programme
Funding
Large
programme
factor
Formula
Protection
Funding
High Needs
Students
Bursaries &
Free Meals
Area Cost
Allowance
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
Apprenticeship Vouchers
Employer
(levy payer/ SME
Registration
to get a Digital voucher
New Voucher
Database (SFA)
£ (less a discount in
some cases)
College or
Training Provider
ILR
£ (the discount)
Funding System
(SFA)
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
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?)
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?
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
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
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
Teachers Pension Scheme 2015
Colleges
16.48%
Eligibility
Teachers employed
at a college
…but not in subsidiaries
Teachers
7.4% - 11.7%
Teachers
Pension
Scheme
TPS 2015
Career average pension
Accrual at 1/57th (slower)
Option to buy faster 1/45th
Revalued CPI+1.6% (faster)
“10 year protection”
Final salary link
Pre-2015 benefits fixed
Vary with final salary
Public sector club remains
LGPS 2014
Colleges
Individualised
Contributions
15-20%
89 LGPS
funds
Support
staff
Income-related
Contributions
5.5-12.5%
Current LGPS issues
6 mega-funds
2016 valuations
Eligibility
Any college staff
…not in another scheme
Subsidiary companies
…if they are admitted
LGPS 2014
Career average pension
1/49th accrual (fast)
CPI revaluation (slow)
50/50 cheaper option
10 year protection
Final salary link
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)
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
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