Longer term funding issues

Julian Gravatt, 18 June 2014

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 (all types)

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 (FE & SFC)

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

Fewer colleges, different students

1993 2014 Change

FECs 302 218 -84

SFCs 120 93 -27

AHCs 37 15 -21

ADC 13 3 -10

SDIs 16 10 -6

Total 488 339 -149Colleges

Merger waves (eg 1998 to 2002)

Some transfers to HE sector

A few new SFCs

16-18 year olds

Colleges have held share of students

16-18All sectors

1994 2012 Change

Full-time 926 1,327

+43%

WBL 179 110 -45%

Other 162 197 +19%

Sub-total 1,266

1,635

+29%

Work 219 149 -32%

NEET 136 190 +39%

Total 1,624

1,973

+21%

Adults in Colleges

1996 2004 2013

Numbers 2,585 3,091 1,879

Adult learning

The decline of the evening class?

Sixth form college finances now

Sixth Form College Finances (2012-13 accounts)

£9 mil income on average (£4 to £20 mil range)Overall surplus £13 mil on £873 mil income (1.5%)Several deficits in 2012-13 (19 reported deficits, 9 cash based deficit)

Staff costs 69% of income (62% in FE colleges)

89% income from EFA

Debt repayment (20% of income in 2011 -> 12% by 2013)

Only 1 SFC assessed to have inadequate financial health in Jan 2014

Some big concerns about the immediate future

Revenue funding 2014-15

Outcomes Things to note

EFA 16-18 FPG helps some colleges18 y/o mitigation helps others

Colleges advance funding Full-timersNew Maths/English conditionTighter sub-contracting rules

Apprenticeshipsand Adult Skills

16-18 recruitment down19+ ASB and apps on targetApprenticeships expectation17% ASB cut (23% on 19+ skills)No tolerance or transition

New apprenticeship trailblazersNew traineeship plans Employer routed funding by 2017?

Loans Colleges using c66% of facility2014-15 facilities up 27%

SFA Loan growth plans nowExtension of loans in 2016?

Sixth form colleges in 2014-15

Sixth Form College Funding 2014-15

A series of cuts to full-time student funding 2011 and 2015Action to limit year-on-year change but end-point is lower £/student

New EFA funding formula introduced in 2013-14Funding designed to support study programmes, English and MathsNo money for inflation

Many SFCs have policy to expand to maintain incomeStudent numbers forecast to rise by c3.5% in 2013-14 (+60 per SFC)

EFA allocations for 2014-15 up by an average +0.5% in 2014-15Cash funding per 16-18 student falls by c3% in 2014-15

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 , ASCL and SFCA working with others to protect budget

SFA also faces a continuing sharp but unclear reduction in budget

EFA and SFA will be confirming allocations in spring 2015Important to confirm 2015-16 allocations before election

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 10.4% 13.8%

Employer on-costs 26% 33%

Staff cost ratio 67% ?

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 SFC 1% of income

National insurance

DWP simplifying the rules

£5 bil extra NI pays pension costs

Costs SFC 2% of income

Now By 2016

TPS members (avg) 9.6% 9.6%

NI employee 10.6% 12%

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

Funding from 2016 onwards

16-18 issuesLots of questions but answers unlikely until 2015Formula Protection Grant ends (2015-16 is the final year)Maths/English condition takes effect (from 2016-17)New A-levels in place and New Tech Levels promoted EFA may need adjustments to 16-18 formulaWill these be designed to cut funding?

BIS issuesSome big cuts likely in BIS spending (requires HE reform)Any political decision on HE fees will have an impact from 2017 Employer routed funding for apprenticeships by 2017 ?Expansion of FE loans likely to take place in 2016

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