aoc north west finance directors political, funding and financial issues for colleges 15 october...
TRANSCRIPT
AoC North West Finance Directors
Political, funding and financial issues for colleges
15 October 2015
Julian Gravatt, Assistant Chief Executive, AoC
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
SeptemberDepartmental spending cash figures 2015-16
£ bil2016 to 2020
£bil2019-20
£bil
Protected (NHS, Schools, Defence, DFID) 188 ? ?
Partly protected (Scotland, Wales, NI) 47 ? ?
Post 16, Police, Local Govt, the rest 80 -20 60?
Total RDEL (2015-16) 315 +5 320
s
DFE & BIS budgets
DFE budget £ bil
Schools budget 41.2
16-18 7.0
All other DFE 5.5
DFE RDEL 53.7
BIS budget £ bilScience 4.6
HE 3.3
19+ FE 2.9
All other BIS 2.4
BIS RDEL 13.2Apprenticeships 1.5
Future funding landscape?
16-18 education (from EFA)
ApprenticeshipVouchers
(16+)
FE Loans
Adult skills(partly
devolved)
HE Loans
High needs
Fees, Contracts & International
The EFA 16-18 funding formula
Total Programme
Funding
Band Hours Total
5 540+ £4,000
4 (*) 450+ £3,300
3 360+ £2,700
2 280+ £2,133
1 < 279
Programme
%
Base 0%
Medium 20%
High 30%
Specialist 60%
Land-based 75%
Disadvantage %
1 (GCSE Maths / English) £480 per GCSE
2 (27% most deprived) 8 to 33% extra
Programme Cost
Weighting
Disadvantage Funding
Area Cost
Allowance(up to 20%)
Student Numbers
National Funding Rate per student
Retention Factor
(less than 1)( )
……plus extras (if applicable)
Programme Cost Weighting
DisadvantageFundingStudent Numbers National Funding
Rate per student Retention Factor( ) Area Cost Allowance
Large programme
factor
High Needs Students
Formula Protection
Funding
Total Programme
Funding
Bursaries & Free Meals
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
New VoucherDatabase (SFA)
College or Training Provider
Funding System(SFA)
Registrationto get a Digital voucher
£ (less a discount in some cases)
ILR
£ (the discount)
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
16.48%
Teachers Pension Scheme 2015
Colleges Teachers
Teachers Pension Scheme
7.4% - 11.7%
TPS 2015Career average pensionAccrual at 1/57th (slower)
Option to buy faster 1/45th Revalued CPI+1.6% (faster)“10 year protection”
Final salary linkPre-2015 benefits fixedVary with final salaryPublic sector club remains
EligibilityTeachers employed at a college…but not in subsidiaries
Current LGPS issues6 mega-funds2016 valuations
LGPS 2014
CollegesSupport
staff
89 LGPS funds
LGPS 2014Career average pension1/49th accrual (fast)CPI revaluation (slow)50/50 cheaper option10 year protection Final salary link
IndividualisedContributions15-20%
Income-relatedContributions5.5-12.5%
EligibilityAny college staff…not in another schemeSubsidiary companies…if they are admitted
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