1. AoC CPD session for staff College funding Julian Gravatt, AoC Assistant Chief Executive 21 April 2015 @julian_gravatt Julian_Gravatt@aoc.co.uk

2. What you need to know Three areas 1.Where colleges get the money from government 2. Key issues, main trends, what might happen next 3.How AoC makes a difference

3. What you learnt last time From CPD session in 2012 Colleges get funding to keep education and training free or low cost We’ve had national funding formulae for 22 years Governments use funding to influence behaviour (eg right students taking the right courses at lowest cost) It’s all about people. Who students are and what they do affects income Vast data collection system makes it work

4. Sources: GFE Finance records 2008/09 to 2013/14 (adjusted); Financial plans 2014/15 to 2015/16 College Forecast

5. College Forecasts

6. Financial health assessment College financial health (EFA/ SFA assessment) Cash based profitability Net current assets Levels of borrowing Purpose of financial health assessment Judgement by the regulator (EFA/SFA) on strength/vulnerability Used to determine which colleges need external intervention Sometimes used to assess % capital grant Use to restrict access to apprenticeships, traineeships, 14-16 etc 20 year old system, last updated in 2008

7. Issues Colleges with no borrowing can’t always get an overdraft Deteriorating financial results since 2012 Wide range between different colleges Financial health scores Approx numbersRatioBorrowingSolvencyOperations “Outstanding” 601408560 “Good” 65 4045 “Satisfactory” 751545 “Inadequate” 30106080 Scoring for 2013-14 from financial plans (FE colleges only

8. 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

9. College income Colleges SFA FE College income 2014-15 (£ millions) 233 Colleges EFA 2,823 (44%) SFA 1,734 (28%) Other 1,756 (28%) Total 6,396 Surplus 34 Sixth form colleges 2014-15 (£ millions) 93 Colleges EFA 822 (95%) Other 42 (5%) Total 864 Surplus 20 EFA

10. DfE funds 4.3 mil primary and 2.7 mil secondary pupils via EFA and local authorities. Money based on pupil numbers & characteristics EFA funds 1.3 mil 16-18 year olds via a national formula. £4,000 for a full-time student; less for a part-timer; more for some courses (10%); extra for two types of disadvantage (English/Maths + postcode); a deduction for withdrawals; extra for large programmes s DFE’s funding for 16-18 year olds £ bil Schools budget 41.2 16-18 7.0 All other DFE 5.5 DFE RDEL 53.7

11. Alison Wolf on college funding “The current funding regime for 16-19 year olds (and indeed post-19) is unique to this country in tying funding overwhelmingly to qualifications rather than to the individuals who take them. The system is completely opaque to the vast majority of the people working within the system, let along to the public at large. It imposes very large administrative costs on institutions and, as basic economic and management theory tells us, opaque systems are intrinsically inefficient and subject to extensive gaming. There are a number of good (and some less good) reasons why the system has evolved as it has….It is hard to believe that we alone need to maintain a system of such complexity that senior college staff need to attend annual fee-bearing courses so that they can understand – partially – how they are being funded and how they can game the system” (Wolf review, 2011, page 120)

12. The EFA 16-18 funding formula Total Programme Funding BandHoursTotal 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) ()

13. ……plus extras (if applicable) Programme Cost Weighting Disadvantage Funding Student 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

14. 16-18 students and funding (2014-15) StudentsInstit 16,1718 FTPTH/Needs TotalAverage Colleges332519116105187552,274 Schools2,09941119233457218 Special Schools5523--141730 Comm & Charit28231936277273 Total3,265964141164371,306400 £ millionsProg Of which Disadv H/N Bursary Free Meals Total Colleges3,3724201101353,616 Schools2,05711020432,121 Special Schools1311372152 Comm & Charit2914814516305 Total5,7215772751966,193

15. BIS funding for 19+ FE/Skills £ bil HE & Science 7.9 19+ FE 2.9 All other BIS 2.4 BIS RDEL 13.2 BIS funds 1 million undergraduates via the HE student loan scheme (£40,000+ in student debt with a forecast 45% impairment) Student loan outlays £14 billion a year and rising SFA funds 2 million adults over 19 and 0.8 million apprentices via a several different national formulae. /

16. SFA funding – where does it go? £ millionsTotal 19+ Apprenticeships755 16-18 Apprenticeships732 Apprenticeship grants for employers 131 Apprenticeships1,487 £ millionsTotal 19+ further education1,328 ESF funding via SFA461 Community learning210 Offender learning128 19+ financial support127 Employer ownership (est)70 ESOL mandation50 Other SFA, 2014-15 A/Year2,374 Colleges in 2014-15Total% 19+ FE97173 19+ Apps28438 16-18 Apps27736

17. The SFA 19+ funding formula Band (£)ABCDE Certif (13+), GCSE 7248119411,1591,246 Certif (25+) 1,2651,4171,6452,0252,176 Diploma (37+) A-level 1,9872,2252,5823,1793,417 Diploma (49+) 2,5732,8823,3454,1174,425 Access course 3,0223,3843,9264,8255,197 Diploma (73+) 4,1704,6705,4216,6717,172 Diploma (133+) ND 6,6027,3958,58310,56411,356 Apprenticeship adjustments % 16-18 +7% Over 24 -20% Large employer -25% For each learning aim Disadvantage Funding (8 to 33%) Area Cost Allowance (up to 20%) Weighted funding rate Fee assumption (less 50%) Traineeships 100+ hours £500 200+ £700 500+ £900 Achievement element (20% at end)

18. Apprenticeship trailblazers Band (£)54321 Maximum govt contrib 2,0003,0006,0008,00018,000 Employer contribution 1,0001,5003,0004,0009,000 Completion element 500 9001,2002,700 16-18 element 6009001,8002,4005,400 Small business element 500 9001,2002,700 BIS has approved 130 new trailblazers, some at Level 3, mainly at Level 4 + c300 trailblazers likely to be ready by summer 2015 Funding via different set of rates and rules but recorded on ILR

19. Apprenticeship Vouchers Employer New Employer Database (SFA) College or Training Provider Funding System (SFA) Registration To get a Discount Code £ less a discount ILR £ The Discount

20. Strong push for local control of skills LEPs have ESF & skills capital funding #DevoManc 6 Metro areas + London (40% popul) The 39 LEPs? 152 Counties, Unitaries & Boroughs Scope of devolution unclear All 16+ FE? 19+FE less Apprentices? Could happen in stages http://www.aoc.co.uk/news/devolution-skills-policy- and-budgets-some-practical-issues Devolution

21. Funding update – where are we right now? EFA (16-18 education) Little change but English and Maths are major issues Average funding down by c3% (because student numbers down) Apprenticeships Budget ring-fenced but major reform programme underway SFA (19+ further education) 24% cut in “other Adult Skills Budget”, slightly moderated Significant impact in London because of position of colleges Loan supported education 24+ advanced learning loans - money available to grow No student number controls in higher education

22. What policies are on offer? Education (“schools”) Various promises on the DFE budget Curriculum changes in next few years Maths/English to 18, Tech Bacc (Lab) 500 more free schools (Cons) RSCs –vs- Directors of school standards Higher education (“universities”) Labour promise a fee reduction to £6,000 Skills (“apprenticeships”) Conservatives: 3 million apprentices. Labour: a guarantee at 18 Devolution Conservatives: more devolution. Labour: an English Devolution Act

23. Government finances Deficit to be closed this decade … via tax income.. plus spending cuts Offsetting extra spending on … pensions, debt interest (AME) ….NHS (protected DEL) Politics & events have an influence Depending on who gets in.. Unprotected DEL cuts after 2015 The bigger spending picture Public finances (in £ billions, constant cash)

24. The 2015 spending review £60 billion deficit & £90 bil public sector borrowing in 2015-16 Economic growth will narrow deficit Chancellor estimates £30 bil in savings (£12 bil welfare, £5 bil interest) Labour promises imply much smaller spending cuts Conservatives and Labour now boxed in on Income tax, VAT and NI The budget £ bil2016 to 2019 Protected (NHS, Schools, DFID) 160+5? Too difficult to cut (Defence,rUK) 700 Post 16, Police, Local Govt, the rest 76-30? Departmental spending plans (worst case!)

25. Funding changes after the election AreaMy best guess 16-18 fundingContinuing slices from the budget SFA fundingMore cuts, apprentices & talk about devolution Apprenticeships300 new qualifications, work on vouchers FE loansFE loan extension but possibly not until 2017 HEDepends on the election. £6k fees under Labour CapitalLEP skills capital, possibly a re-capitalisation fund

26. What next? Summer 2015 Election result (8 May 2015) Formation of new government Parliament returns (18 May 2015) Queens speech (27 May 2015) Budget (June/July 2015) First legislation (eg a Labour bill on £6,000 fees) Autumn 2015 HE recruitment with no student number controls Spending review (by early December 2015 at the latest) Ministerial decisions on big issues Changes in agencies? Ofsted? FE commissioner? College responses to the new climate/new funding

27. AoC approach to funding & finance Representing and promoting colleges AoC will get best deal by talking about what colleges do & could do Money will follow if the public & policy-makers are inspired Evidence-based arguments linked to national objectives Papers, blogs, articles (http://www.aoc.co.uk/term/funding-finance) Services to members Aim for marginal gains (eg capital, mitigation, rule-changes etc) Funding briefing every 2 weeks 1-to-1 advice Support for College Finance Directors Group (CFDG) Funding issues part of Policy, Regions, Comms etc work

28. What it’s useful to remember Financial £7 billion income Down c5% in 2015-16 FE college £27 mil income (average) Sixth form college £9 mil College share of main funding streams varies The future Public spending squeezed for a generation Colleges are resilient and part of the solution Young people, employers, future workforce all 16-18s, Apprenticeships and Loans (for fees) are all in the mix AoC active in all main areas to maximise opportunities