1. AoC London College Finance Directors General update on funding and finance 6 November 2014 Julian Gravatt, Assistant Chief Executive, AoC Julian_Gravatt@aoc.co.uk @JulianGravatt http://www.aoc.co.uk/term/funding-finance

2. Politics – where we are now Uncertainty 8 months before the 2015 general election Coalition governing parties in open disagreement UKIP and Greens both doing well enough in polls to secure MPs Labour better able to convert votes into seats Result currently difficult to call The Scotland vote has prompted discussions on the constitution Schools, apprenticeships and university fees all big political issues

3. Planning the next 12 months Autumn 2014 EFA Funding Letter, 24 October 2014 AoC annual conference, 18 to 20 November 2014 Autumn statement, 3 December 2014 Skills Funding Statement, December 2014 (hopefully) Spring & Summer 2015 Budget, mid March 2015 2014-15 allocations, by end of March 2015 Easter, 7 April 2015 General election, 7 May 2015 Coalition negotiations, May 2015 Spending review, June to October 2015 (hopefully)

4. Politics and funding Before the election General avoidance of boat-rocking Decisions on 2015-16 allocations made before the election Departmental budgets fixed up 31 March 2016 Autumn statement may add to, subtract from or devolve budgets After the election Post-election 2015 spending review (budgets from 2016-17 onwards) Demography: More children now + more old people = post-16 squeeze Cross-party agreement: closing deficit, cutting taxes & protecting NHS Spending likely to dip around 2018

5. The DFE budget after 2015 DFE’s cash crunch: too many schools, pupils & promises 80% of school income spent on staff; on-costs up 5% in 2015-16 UTCs, free schools & studio schools enrol 1% of 16-18s 2015 to 2020: 11-16 pupils +10%, 16-18 population -8% Pressure for devolution (councils, combined authorities or LEPs?) Core 16-18 funding system continues for now

6. EFA 16-18 funding, 2015-16 Process 16-18 funding letter out (12 pages, worth reading every sentence) Same systems (rates * lagged numbers * historic funding factors) ILR data vital (R15 in October, R04 in December) Funding factors in December and allocations by February 2015 Issues If cuts are necessary, EFA has to cut rates, numbers or weightings Aim is funding stability Usual raft of tricky topics (GCSE Maths/English, free meals, large programmes, new A-levels, sub-contracting etc)

7. BIS budget BIS budget in 2015-16 £14 bil Student Loans £13 bil DEL HEFCE + Grants + Science £8 bil 19+ FE/Skills budget £3.5 bil Various contradictory options are in play 1: Devolve skills & DWP budgets to local govt or LEPs 2: Employer-routed funding for apprenticeships3 3: Expansion of FE loans to 19 year olds & Level 2 4: New earn-or-train options for under 21s on benefit 5: New SFA funding approach borrowed from EFA?

8. SFA funding, 2015-16 Process Skills funding statement due in December 2014 Some asymetric devolution (councils, LEPs or combined authorities) Core SFA funding system continues until a new one is in place Issues BIS may need further cuts to SFA and/or HEFCE budget in 2015-16 Apprenticeships continue to be the first priority Trailblazers will be in their second year (well-funded in 2014-15) Traineeship funding approach may be revised Usual raft of tricky topics (reconciliation, ESOL, 24+ loans etc)

9. Pensions and budgets NowBy 2016 TPS employer14.1%16.48% NI employer (approx)10.4%13.8% Employer on-costs26%33% Staff cost ratio63%? Cost of employing a teacher to rise by 5% plus any payrise TPS 15 year recovery period Lower discount rate High pay growth assumption 2015 reforms don’t save enoug h Costs Colleges 1% of income National insurance DWP simplifying state pension Removal of an NI relief £5 bil extra NI Costs Colleges 2% of income NowBy 2016 TPS members (avg)9.6% NI employee (approx)10.6%12%

10. Pensions, Colleges and their staff Individuals State pension TPS or LGPS State pension SPA rises to 67 by 2028 New state pension in 2016 No contracting out = higher NI New LGPS & TPS Career average entitlement New accrual & indexation Post-reform service link to SPA Pre-reform service protection New cost-sharing arrangements Limited college choice No escape from LGPS debts Tax limits on saving Annual (AA) £40k Lifetime (LTA) £1.25mil 16* salary in DB scheme Pension reforms now Tax relief could change

11. Financial health College finances Deficits in 2012-13 (48%); more in 2013-14? Ofsted-related spending + capital projects = short-term deterioration Rising costs & falling income How Colleges need to respond Understand your position, your environment and your risks Relationships with SFA, EFA, Council, MP and your bank Cashflow management, risk management & financial analysis Governing bodies responsible for solvency & viability of college Use AoC’s ETF-funded governance support programme Think about opportunities and what comes next

12. On a more positive note... Opportunities Colleges have friends and allies Education and skills matter both to the recovery & to society Government will still be spending £70+ billion on education in 2020 Income generation opportunities exist Quality counts Productivity improvements from IT only partly realised in education There are some relatively simple things that can still be done Events AoC London Finance conference 4 December 2014 National CFDG meeting, 22 January 2015 National College Finance Conference early June 2015