aoc yorkshire and humberside
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AoC Yorkshire and Humberside. College funding and finance issues 19 June 2014 Julian Gravatt, Assistant Chief Executive, AoC [email protected] 02070349900 @ JulianGravatt http://www.aoc.co.uk/term/funding-finance. Twenty years of funding, what we’ve learnt. - PowerPoint PPT PresentationTRANSCRIPT
AoC Yorkshire and Humberside
College funding and finance issues
19 June 2014
Julian Gravatt, Assistant Chief Executive, AoC
02070349900
@JulianGravatt
http://www.aoc.co.uk/term/funding-finance
Lots of activity - agencies, initiatives, acronyms etc
Periodic changes to the funding formula – 2003, 2008, 2013
Incessant fiddling with qualifications, prices and programmes
Funding used to nudge and control
Budgets that change every year despite multi year spending reviews
Desire to squeeze every ounce of value out of every pound spent
Twenty years of funding, what we’ve learnt
College income and expenditure
1993-4
2012-3 %
FEFC, EFA+SFA
2,364 5,627 +138%
Other 1,150 1,943 +68%
Income 3,508 7,570 +115%
Staff 2,390 4,806 +101%
Supplies 1,125 2,822 +151%
Expendit 3,515 7,628 +117%
Surplus (7) (58)
% Diversity 32% 26%
% Staff cost 68% 63%
College accounts
Colleges have increased fully funded student numbers at a time when eligibility has widened. Fees have been harder to secure than external contracts.
Colleges do more sub-contracting and set aside 8% of income on depreciation and interest but spending on staff predominates
Average College income£7 mil in 1993, £22 mil in
2012GDP deflator up 51% in same period
College accounts 2013-14
College finance characteristics
Over the last ten years….
Small operating surpluses
Positive cash generation (surplus + depreciation)
High use of assets with substantial capital investment
Capital finance from mixture of grants, sales, loans and own cash
Loan terms have shortened and interest costs are currently low
Income reliance on government (esp 16-18 increased)
The DFE/BIS split means Colleges have multiple funders
Government funding now on a consistent downward slope
Education remains staff intensive (Schools 79%, FE 63%, HE 55%)
Short government policy horizons creates employment instability
Financial health
College finances
Deficits in 2012-13 (48% of operating deficits, 10% cash based deficit
Staff costs 60-65% of income
Public spending cuts -> 4% fall in EFA+SFA in 2014
Rising costs and falling income
Ofsted-related spending + capital projects = short-term worsening
UK in “Year 4 of a 9-year austerity plan” (IFS)
If colleges get into trouble
No formal lender of last resort but SFA & EFA may act
FE commissioner (or SFC commissioner)
Financial management
Addressing problems
Necessary to face up to difficulties promptly
Plan B needs to address the worst-case scenario
Understanding impact of competition & demography on 16-18 plans
Curriculum & finance need to be closely connected
Finance/analysis skills in senior teams & governing bodies
Governors need several channels of communication
Tackling low class sizes & duplication with other colleges
All parts of the budget need to be managed
Is this list right? Are there other issues?
Revenue funding 2014-15
Outcomes Things to note
EFA 16-18 -1% cash. +1% studentsFPG helps some colleges18 yr old mitigation helps others
Colleges advance funding FT studentsNew Maths/English conditionTighter sub-contracting rulesFree meal scheme in collegesTraineeships (out this week)No clarity on 2015-16 budget
Apprenticeships Recruitment down on 16-18 appsColleges say 19+ apps on targetApprenticeship spending maintained
New apprenticeship trailblazersTesting new rates in 2014-15A new on-line rate in 2015-16Employer routed funding by 2017?
Adult skills 17% ASB cut means a 23% skills cutColleges say ASB on target
No tolerance, no transitional protectionNo clarity on 2015-16 budget
Loans Colleges using c66% of facilitySFA has increased facilities by 27%
SFA’s loan growth plan for 2014-15FE loan development (out this week)
16-18 Funding in 2015-16
EFA faces a 16-18 cash crunch in 2015The size of the 2015-16 budget is unclear1.1% cuts for non-school DFE announced in 2013 Autumn StatementGrowth in 16-18 numbers plus the costs of extra FT students
Risk that there’ll be more cuts to rates or funded numbersAoC working with college and school assocations to protect budgets
SFA also faces a continuing sharp but unclear reduction in budgetHE overspends may affect money available to SFA
Autumn 2014 should be the point where decisions are finalisedEFA and SFA will be confirming allocations in spring 2015
Public spending after the election
Public spending 2015 to 2020
Years 7,8 and 9 of a 9 year plan Treasury plans to close deficit by 2018Lab/Lib Dem target is 2020
After the election, a spending reviewDecisions by December 2015Current plans for 2016-17£10 bil RDEL cut, £5 bil NI rise
For period 2015-16 to 2018-19£34 bil (8%) cut in RDEL Unprotected depts £80-100 bil
Pensions and budgets
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% ?
Cost of employing a teacher to rise by 5% plus any payrise
TPS
Aim is to recover underfunding
Lower discount rate
High pay growth assumption
2015 reforms don’t save enough
Costs Colleges 1% of income
National insurance
DWP simplifying the rules
£5 bil extra NI pays pension costs
Costs Colleges 2% of income
Now By 2016
TPS members (avg) 9.6% 9.6%
NI employee (approx)
10.6% 12%
Pension income and pension tax
Tax limit on savingAnnual (AA) £40kLifetime (LTA) £1.25mil16* salary in DB schemeProtections (IP, FP)
State pensionSPA harmonises (2018)SPA 66 (2020) 67 (2028) Post-2015 service link to SPAState pension £7k/yr after 2016No contracting out Higher NI for colleges
Private pensionsMarch 2014 budgetAnnuities not compulsoryNew transfer restrictionsFuture impact on tax relief?
Defined benefit scheme
Defined benefit scheme
Funding from 2016 onwards
DFE budget between 2015 and 202010% growth in 11-16 pupil numbers (280k extra 11-16s)Costs of promises (eg free meals) and new institutions8% fall in 16-18 population (low point is 2018)83% of 16s in education, 10% in training or work, 7% NEET
EFA Funding from 2016 onwards
Lots of questions but answers unlikely until 2015
Funding allocationsLagged funding introduced in 2010. Are there alternatives?
Funding cuts?Formula Protection Grant ends by 2016-17Maths/English condition takes effect from 2016-17)
Policy changes?New A-levels (impact on retention calculations?)Development of Tech Levels and Substantial Vocational QualsEvolution of study programmes, traineeships, anything else?
SFA Funding from 2016 onwards
BIS budgetSome big cuts likely in BIS spending but this requires HE reform)Any political decision on HE fees will have an impact from 2017 19+ FE/Skills budget might be quicker to cutLEPs/Councils will continue to push for DWP & BIS budgetsExpansion of FE loans likely to take place in 2016
ApprenticeshipsCross-party support for apprenticeships (advanced & higher apps)Employer routed funding for apprenticeships by 2017 ?Issue of employer contributions to match £1.5 bil DFE/BIS spending
PoliciesSome parts of the country recovering; some have high unemploymentAll three parties have talked about under 25 benefit cuts (earn or learn)Opportunity to break the mould in higher education?
Longer-term funding trends
PoliticsThe 2015 vote and Coalition negotiations pretty importantEvents determine post-16 policy as much as ideologyPolitical views of ministers determine planning/market mix
Public spendingPost-2015 spending review may change tax/spending mixDemography underpins student number trends and budgetsThree things working against 16-18 education- Demography (more children now, more older people)- Economics (deficit reduction continues to be a priority)- Politics (future of UK discussions)No appetite to rebuild the size of government Spending likely to dip around 2018
Thinking about funding and finance
At a national levelImportant to stick to the facts and explain the consequencesNecessary to connect with people at an emotional levelBetter to find friends than enemies
For individual collegesPessimism can be contagious. College fortunes vary significantlyQuality countsOpportunities within £65 bil DFE+BIS revenue budgetProductivity improvements from IT only partly realised in education.Some government budgets continue to rise (eg FE and HE loans).Worth thinking about income generationVital to keep staff and governors onside
Known events
Before the summer breakLocal Growth Deals agreed in July 2014 (Parliament rises 22 July)Teachers Pension Consultation, 18 July 2014Financial plan (2013-14, 2014-15, 2015-16), 31 July 2014
AutumnScotland referendum, 18 September 2014Party conferences, 21 September to 8 October 2014PAoC annual conference, 18 - 20 November 2014Autumn statement, early December 2014
SpringBudget, mid March 2015Easter, 7 April 2015General election, 7 May 2015