1 future scenarios: facing up to the challenges craven college jane bracewell, senior account...

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Future Scenarios: Facing up to the challenges

Craven College

Jane Bracewell, Senior Account Director

Linda Ainsworth, Head of Provider Accounts

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Purpose• To clarify the new role of the Skills Funding Agency

• To contribute to the forecasting and planning which colleges and training organisations are already doing

• To exercise our overall stewardship/regulatory role for the sector by providing information on which the sector can make its own decisions and actions

• Recognise that colleges are thinking and acting on this already

• Our hope is that this will help to inform / support that process….

• This is not about telling you how to do it but simply an attempt to share information….and think through the potential implications and challenges

• There is still a lot that is unknown….but the headline figures in the Budget indicate the potential scale of the challenge.

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Coalition Government• Policy commitments set out in The Coalition: Our Programme for

Government (May 2010)……..against a backdrop of reducing public spending: £17 billion reduction in departmental spending by 2014-15

• BIS Secretary of State’s Revised Grant Letter to the Skills Funding Agency (17 June 2010) set out the Government’s key goals and ambitions:

– Supporting progression and strengthening supply of technician level skills, particularly through Level 3 Apprenticeships

– Reducing the number of 18-24 year-olds who are NEET – Opportunities for the unemployed to get the skills needed for work-

readiness and sustainable employment– Inform and empower individuals and employers through independent

careers guidance and Lifelong Learning Accounts whilst giving colleges and training organisations the flexibility to respond.

– Increased participation in adult and community learning

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Coalition Government (2)• To coincide with the issuing of the Revised Grant Letter, John Hayes also

announced a range of freedoms and flexibilities for colleges:

– Removal of the Summary Statement of Activity for post-19 provision

– Single budget for post-19 Adult Learner Responsive and Employer Responsive provision

– No in-year performance management or reconciliation for the activity within the single budget

– No Ofsted inspection for colleges with outstanding performance (in line with the policy announced for schools)

• These arrangements, alongside the refocusing of Train to Gain to support additional Apprenticeships and FE capital investment, will free up colleges to deliver a responsive and flexible offer to learners and employers

• Skills Funding Agency confirmed operational arrangements through Guidance Note 4

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Role of Skills Funding Agency• The policies of the new Government changes both the role of the

Agency and the nature of the relationship:

– Focus on funding and regulation

– Limited intervention – only by exception

• Colleges assume much greater responsibility and autonomy…. for planning, prioritising, managing data queries, quality etc

• Colleges take on more active role in local communities – for example, Local Enterprise Partnerships

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Investment in Further Education and Skills

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Post-19 Skills Investment

• Over the last decade, the sector has benefited from increased investment• Growth mainly as a result of extra investment in Train to Gain and Apprenticeships (volumes and rates)• More recently (2010/11) the scale of this has reduced• The much smaller increase in financial year budgets resulted in a reducing academic year budget…..

……..marking the beginning of slowing investment…..with the expectation of reductions in future years.

Post-19 Skills Investment Budget Trends (Academic Year)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2007/08 2008/09 2009/10 2010/11

Academic Year (£m)Adult Learner Responsive Train to Gain Apprenticeship PfU Adult Safeguarded Learning

Notes:Adult participation includes all Skills Funding Agency funded provision for 19+ learners (exc. Offender Learning and ESF provision)Includes all types of institutions delivering Skills Funding Agency funded provision

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Mix and balance of provision

• Over the last three years total average college funding has increased. • Employer Responsive funding has increased each year but the overall proportion of

Post-19 funding has decreased.• This reflects increasing 16–18 provision and reducing Adult Learner Responsive funding

Mix of Provision Time-series (College Average)

£0

£2,000,000

£4,000,000

£6,000,000

£8,000,000

£10,000,000

£12,000,000

£14,000,000

£16,000,000

£18,000,000

2008/09 College Average 2009/10 College Average 2010/11 College Average

16 - 18 LR Adult Responsive Employer Responsive

61%

24% 23%

62%

18%

67%

15% 15% 16%

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The Financial Health of theCollege Sector • The number of colleges with inadequate financial health is forecast to double in

2010/11 compared to 2009/10.

• This was based on analysis prior to new flexibilities, where colleges with a higher dependency on Adult Learner Responsive saw themselves as more at risk.

• The underlying financial health of the sector is critical in enabling colleges to respond to and absorb changes and reductions to funding

• Until we know the outcomes of Spending Review 2010, all colleges will be undertaking their financial planning, against a range of scenarios

• The following slides illustrate a range of potential impacts….these assume that limited mitigating action is taken by colleges….i.e. we do not expect it to be as bad as this

• Even so, they highlight the scale of the challenge for the sector

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Future Scenarios (1) • Budget announced £17 billion reduction in departmental spending by

2014-15

• The Chancellor announced an average departmental real cut of 25% (the cash reduction could therefore be less but may also be at this level given that 25% is an average)

• Not all departments will face the same level of reduction and we will not know the actual reduction until the outcomes of the Spending Review in October 2010. However, a typical reduction of 10-15% does not seem unlikely given the average position.

• For 16-19 funding, colleges will need to take account of the increased competition for the declining 16-19 cohort and the pressure to reduce funding rates in this area. This could mean a reduction of up to 10% for some providers depending on these factors.

• ESF income could also be under pressure due to changes in exchange rates leading to a potential reduction of up to 5%

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Future Scenarios (2)• HE will also be under pressure and could face similar budget cuts as 19+ FE, leading

to reductions in rates. It is also possible that HE institutions will cut back on the volumes delivered through FE.

• Savings will be expected to be met as far as possible from efficiencies, not frontline services.

• There is a Skills Funding Agency £15m shared service development programme to help realise these efficiencies and we will be undertaking a benchmarking exercise to highlight potential areas of efficiency.

• We are working with the AoC on this to ensure that the sector can direct how this money is invested

• The possible impact on the financial health of colleges is immense with the potential for many colleges to move into inadequate financial health

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Future Scenarios

Notes:Adult participation includes all Skills Funding Agency funded provision for 19+ learners (exc. Offender Learning and ESF provision)10/11 values are based on full year financial information for 08/092010/11 based on actual, remaining years based on scenarios

Adult Funding (Based on the average institution's funding) Funding A/Y (£000s)

2010/11 2011/12 2012/13 2013/14 2014/15

Scenario 1: 10% reduction over 4 years 6,400 6,240 6,080 5,920 5,760




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Impact of Future Scenarioson an ‘average’ college

This is based on an ‘average’ college, with a 19+ income of £6.4m

Impact of funding scenarios on an average institution (19+ funding only)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Scenario 1: 10% reductionover 4 years




£ (0

00s)

2010/11 2011/12 2012/13 2013/14 2014/15

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Impact of scenarios oncollege financial health

0%

20%

40%

60%

80%

100%

2009/10 2010/11 2011/12 2012/13 2013/14

Outstanding

Good

Satisfactory

Inadequate

Scenario 1 (10% reduction) Scenario 4 (25% reduction)

These graphs show our forecast of the proportions of colleges by financial health categories based on Scenario 1 and Scenario 4.

Please note, these assume that limited mitigating action has been taken by every college.

0%

20%

40%

60%

80%

100%

2009/10 2010/11 2011/12 2012/13 2013/14

Outstanding

Good

Satisfactory

Inadequate

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Future opportunities?• Increased opportunities for sub-contracting, collaboration and new

organisational models as the number of providers with direct contracts reduces

• Greater scope to increase co-funding through engagement with business and other partners

• Government ambitions on apprenticeships (only 25% of this funding currently goes to colleges)

• More flexibility to respond to the needs of employers, stakeholders and the community

• Freedoms and flexibilities help colleges manage within tighter budgets

• Challenges are still great…

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What colleges are doing to respond (1)• There is already good practice across the sector where colleges are

taking decisive action to cut costs and improve efficiency.

• We want the sector to share this best practice and learn from each other to deliver greater efficiency.

• Examples of actions governing bodies are either taking or considering include:

• Improve efficiency of delivery– Reduce staffing costs through redundancies, reducing use of

variable hours staff, staff pay.– Improve floor space utilisation– Upgrade facilities– More effective procurement – such as joint procurement, including

for example exam fees– Other delivery options

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What are colleges doingto respond (2)• Other organisational models with colleges and other bodies

– Taking on new sub-contractors– Federations– More shared services– Mergers

• Reposition offer– Grow provision in areas of growth (Apprenticeships)– Increase market share on any or all programmes (and decrease in

others?)– Review curriculum offer in light of market competition– Oversee sub-contracting

• Increase investment from employers and learners

• Use benchmarking data to improve efficiency

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How does your college compare?

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Summary of provision mix - Craven College

Mix of Provision Time-series

£0

£2,000,000

£4,000,000

£6,000,000

£8,000,000

£10,000,000

£12,000,000

£14,000,000

2008/09 College Funding(Funding Return)

2009/10 Initial CollegeAllocation

2010/11 CollegeAllocation

2011/12 CollegeAllocation estimate

(based on Scenario 1)








estimate(based onScenario 4)


estimate(based onScenario 4)

16 - 18 Learner Responsive Adult Learner Responsive Employer Responsive Adult Provision (ALR and ER including 16- 18 Apps))

Estimated ScenariosActual data

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Benchmarking data• The following slides set out some key benchmark data, for small,

medium and large colleges

• Data is from 2009 financial records so refers to the 2008/09 academic year

• All college income is included so the percentages shown do not exactly correlate with previous slides, which only include income for the three main funding streams

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Benchmarks for GFE colleges ‘small’ – less than £15m total incomeIncome Expenditure

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10

20

30

40

50

60

Expenditure type

% of total expenditure

Teaching Admin Premises Depreciation Other

0

10

20

30

40

50

Income type

% of total income

16-18 FE ALR + ER HEFCE

Fees and contracts Other grants Other

Endowments & Investments

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Key Data and Ratios

Small Medium Large Craven College

Total income (£000s) 10,240 21,635 43,154 15,281Total expenditure (£000s) 10,363 21,644 43,573 15,409Staff Costs (£000s) 6,568 14,081 28,303 10,690Premises running costs (£000s) 411 917 1,861 359Cash days 65 59 30 24Current ratio 1.8 1.7 1.3 1.6Borrowing as % of income 18.8 20.8 16.2 0.0%Staff costs as % income (incl contract)

64.5 65.4 65.4 70.6%

Staff costs as % income (excl contract)

63.8 63.9 63.8 70.6%

Admin costs as % expenditure 22.9 19.9 17.8 31.5%

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Concluding remarks

• The challenge is enormous for the public sector

• Colleges have a good track record of responding….

• …. but are already very efficient so the challenge now may be tougher

• Collaboration, shared services, peer support are all essential components……

• ….but the decisions will be tough and the next few years are likely to be painful

QUESTIONS, THOUGHTS, COMMENTS?

1 future scenarios: facing up to the challenges craven college jane bracewell, senior account...

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