ACER chief exec’s forum

Politics, funding and finance update

20 October 2014

Julian Gravatt, Assistant Chief Executive, AoC

Julian_Gravatt@aoc.co.uk

@JulianGravatt

http://www.aoc.co.uk/term/funding-finance

Politics – where we are now

Uncertainty8 months before the 2015 general electionCoalition governing parties in open disagreementUKIP and Greens both doing well enough in polls to secure MPsLabour better able to convert votes into seatsResult currently difficult to callThe Scotland vote is prompting discussions on the constitution

EducationGove removed with Morgan seeking to consolidate reformsDFE oversight of academies & school improvement areas of changeNew national curriculum, GCSEs, A-levels and tech qualsOfsted consultation on post-2015 single inspection frameworkAoC manifesto designed to secure helpful but feasible proposalsSchools, apprenticeships and university fees all big political issues

Higher education

The issuesConvergence of interest in Level 4 & 5 higher skillsNational Colleges, New Polytechnics?A need for “medium skills” & to fill old jobs with new peopleAlternatives to three-year full-time degree desirable

ChallengesHE student loan system unsustainable & offers wrong incentivesHE reform politically toxicHE regulation is a messComplicated issues about degree awarding & qualifications

Breaking the mould in higher educationAoC paper has attracted some interestWorth considering college opportunity in advanced/ higher ed

Planning the next 12 months

Autumn 2014Party conferences, 21 September to 8 October 2014EFA Funding Letter, October 2014 (hopefully)AoC annual conference, 18 to 20 November 2014Autumn statement, 3 December 2014Skills Funding Statement, December 2014 (hopefully)

Spring & Summer 2015Budget, mid March 20152014-15 allocations, by end of March 2015Easter, 7 April 2015General election, 7 May 2015Coalition negotiations, May 2015 Spending review, June to October 2015 (hopefully)

Politics and funding

Before the electionGeneral avoidance of boat-rockingDecisions on 2015-16 allocations made before the electionDepartmental budgets fixed up 31 March 2016Autumn statement may add to, subtract from or devolve budgets

After the electionPost-election 2015 spending review (budgets from 2016-17 onwards)Demography: More children now + more old people = post-16 squeezeCross-party agreement: closing deficit, cutting taxes & protecting NHSSpending likely to dip around 2018

Government plansVarious budgets get biggerPensions, interest, NHS etcDeficit reduction via RDEL cuts

Unprotected departments9.1% of GDP (2013-14)7.8% of GDP (2015-16)5.4% of GDP (2018-19)NATO 2% target for defenceSpending cuts c30-40% to comeLoans & fees a safe haven?

The bigger spending picture

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The DFE budget after 2015

DFE’s cash crunch: too many schools, pupils & promises80% of school income spent on staff; on-costs up 5% in 2015-16UTCs, free schools & studio schools enrol 1% of 16-18s2015 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

EFA 16-18 funding, 2015-16

Process16-18 funding letter due shortlySame systems (rates * lagged numbers * historic funding factors)ILR data vital (R15 in October, R04 in December)EFA will confirm data in January and allocations by March 2015

IssuesEFA needs to fund costs of study programmes (more FT students)If cuts are necessary, EFA has to cut rates, numbers or weightingsUsual raft of tricky topics (GCSE Maths/English, free meals, large programmes, new A-levels, sub-contracting etc)

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 play1: Devolve skills & DWP budgets to local govt or LEPs2: Employer-routed funding for apprenticeships33: Expansion of FE loans to 19 year olds & Level 24: New earn-or-train options for under 21s on benefit5: New SFA funding approach borrowed from EFA?

SFA funding, 2015-16

ProcessSkills funding statement due in December 2014Devolution may start to apply (councils or LEPs)Core SFA funding system continues until a new one is in place

IssuesBIS may need further cuts to SFA and/or HEFCE budget in 2015-16Apprenticeships continue to be the first priorityTrailblazers will be in their second year (well-funded in 2014-15)Traineeship funding approach may be revisedUsual raft of tricky topics (reconciliation, ESOL, 24+ loans etc)

Financial health

College financesDeficits in 2012-13 (48% operating deficits, 10% cash based

deficitOfsted-related spending + capital projects = short-term

deterioration Staff costs 60-65% of incomeRising costs & falling income

How Colleges need to respondUnderstand your position, your environment and your risksRelationships with SFA, EFA, Council, MP and your bankCashflow management, risk management & financial analysisGoverning bodies responsible for solvency & viability of collegeUse AoC’s ETF-funded governance support programmeThink about opportunities and what comes next

On a more positive note...

OpportunitiesColleges have friends and alliesEducation and skills matter both to the recovery & to societyGovernment will still be spending £70+ billion on education in 2020Income generation opportunities existQuality countsProductivity improvements from IT only partly realised in educationThere are some relatively simple things that can still be done

Reminders

AoC conference 18 to 20 November 2014

More information on funding and finance issues here

•http://www.aoc.co.uk/term/funding-finance