Autumn Statement

Submission October 2016

1

Background

The Association of Colleges (AoC) represents and promotes 95% of the 325

colleges in England incorporated under the Further and Higher Education Act

19921.

Colleges provide high quality technical and professional education and training for

young people, adults and employers. They provide over three million students

with employability skills while developing their career opportunities. In doing this,

they strengthen the local, regional and national economy. Colleges are

inspirational places to learn because education and training is delivered by expert

teaching staff in industry-standard facilities.

Colleges offer first rate academic and technical teaching, at levels ranging from

basic skills to postgraduate in a range of professions including engineering,

hospitality, IT, construction and the creative arts.

Sixth form colleges provide high-quality academic education to 16 to 18-year-olds

enabling them to progress to university or higher level technical education.

Introduction

The Government’s current plans for public spending on post-16 education and

training were set out in the 2015 Spending Review. In key decisions, Ministers

decided to fix the funding rate for 16 to 18 education, to protect the adult

education budget and to introduce major changes to the system via the

apprenticeship levy, skills devolution and the extension of student loans. These

decisions introduced some welcome stability and predictability to parts of the

system at a time when radical changes are being made to apprenticeships. At the

very least the Government should honour these spending decisions but it should

also consider doing more.

The decision to leave the European Union (EU) casts a sharper light on the

weaknesses in our society and economy in particular the shortfalls in workforce

skills. Some companies and public services employ significant numbers of staff

from other EU countries. It is likely that Brexit will mean more controls on

movement to the UK for work and therefore more must be done to educate and

train the UK workforce. In the longer term businesses, individuals and families

should take back more responsibility for this. In the short term, the Government

needs to act.

1 Following the latest round of mergers in August 2016, there are 206 further education colleges (FE), 16

specialist colleges, three national colleges, 90 sixth form colleges and 10 special designated institutions.

2

In this paper, AoC suggests some actions. We think it is necessary to increase 16 to

18 funding rates to avert a funding crisis in academic and technical education for

that age group. At the same time, the Department for Education (DfE) needs to

ensure money is used efficiently by tackling the waste that arises in small sixth

forms. The current plan for apprenticeship funding rates and the existing GCSE

funding condition should be reviewed. As well as protecting the budget for adult

skills and UK based European Social Fund (ESF) programmes, there will need to be

a new approach from 2019. Opportunities should be seized by DfE to make the

education system more efficient and the allocation of budgets more logical. Tough

issues related to pensions should be tackled sooner rather than later. We explain

the detail of these proposals in the rest of the paper which covers issues mainly

within DfE’s remit.

Main recommendations

Our two main recommendations are

1. HM Treasury should set a medium term target to increase spending on

education and training to 5% of GDP and direct a share of the additional

funding to post-16 education.

2. The management of education spending should be reformed to improve

efficiency, to allocate funds to areas of greatest need and to provide more

predictability.

Funding issues

3. The national base rate for 16 and 17-year-olds (currently £4,000) should be

increased so that it provides the necessary funds for high-quality education.

4. The recommendations of the Sainsbury Review should be fully implemented

and funded, including additional funding for work placements and for 18-

year-olds.

5. The Adult Education Budget should be sustained at least at £1.5 billion in the

short term and should be used to guarantee a Citizen’s Skills Entitlement.

After 2019, the budget should be used to support a new English Social Fund

(new ESF).

6. The apprenticeship funding rates that take effect in May 2017 should include

a higher factor for 16 to 18-year-olds, should reflect area costs for technical

programmes and should retain a factor for those from low income families.

7. The Government should topslice the apprenticeship levy to create a fund to

use to promote access to apprenticeships and help raise quality.

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8. Financial support for young people should be reviewed to eliminate

unhelpful obstacles to participation, for example the transport costs and

child benefit rules.

9. DfE should reallocate capital budgets so that colleges have funding for

building maintenance and equipment.

10. HM Treasury and DfE should plan for the additional education places that

will be needed when the number of 16-year-olds increases towards the end

of the decade.

11. There should be a 10-year programme to double the supply of maths

teachers across all parts of the education system to reach a goal by 2030

that all 18-year-olds are qualified at the current Level 2 standard and the

majority reach Level 3.

System improvements

12. The Budget rules should be amended to include three-year funding

agreements, virement across the age 19 and more end of year flexibility.

13. DfE should carry out some targeted reviews of post-16 provision in schools2

using the two tests developed in post-16 area reviews of colleges3.

14. DfE should review the English and maths condition of funding and introduce

new English and maths qualifications for professional and technical

students.

15. HM Treasury and DfE need to streamline the process for colleges to apply

for restructuring funds and to double the transition fund grants so that area

review recommendations can be implemented quickly.

16. DfE and the Department for Communities and Local Government (DCLG)

should publish a Skills Devolution Green Paper to help clarify responsibilities

and priorities and encourage debate about the potential benefits and risks.

17. On the day that the UK leaves the EU, VAT should be removed from all

publicly funded education for 16 to 18-year-olds.

2 Post 16 provision in schools includes sixth forms in 11-18 schools and academies, 16 to 19 free schools and

University Technical Colleges which are constituted in law as academies. 3 Financial sustainability and educational quality.

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18. The current student loan system should be converted into a personal

learning account system which includes a lifetime loan allowance and

maintenance loans for all courses at Level 4 and above.

19. HM Treasury, DfE and DCLG should re-open negotiations on the Teacher

Pension Scheme and Local Government Pension Scheme to contain the

costs of the scheme for employers.

20. A DfE review should consider rationalisation of agency responsibilities but

also ways to reduce the costs of assessment and inspection across the

education system.

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The Government’s objectives for the education and training budget

1. The Government’s current plans for public spending were set in November

2015 and slightly revised in the March 2016 Budget. Along with schools and

higher education white papers and a Post-16 Skills Plan, the Government is

embarking on major reforms in the education system including:

Plans to increase the number of places in selective schools, faith

schools and sponsored academies combined with a stronger focus on

the needs of children in struggling families4.

The shift of schools towards academy status and the introduction of a

national schools funding formula.

The introduction of an apprenticeship levy on large employers,

expected to raise £2.6 billion in 2017-18 and associated with the

introduction of an entirely new mechanism for funding training.

The extension of student loans to cover a wider set of higher

education activities as well as further education at Level 3 or above

for those over age 19 (except where they have statutory

entitlements).

A new system of regulation for higher education including the

creation of the Office for Students, introduction of a new statutory

register of providers and the use of the Teaching Excellence

Framework to allow full-time tuition fees to rise above £9,000.

The devolution of adult skills revenue funds in 2018 to nine combined

authorities covering half the population of England.

The completion of a national programme of post-16 area reviews

with the offer of Government loans to support college restructuring.

The completion of a series of reforms to academic qualifications by

2018 and the start of a reform of post-16 technical education

programmes to take effect from 2020.

2. These reforms come on top of a series of changes in recent years and will

require careful management to ensure success. Ministers made two sensible

4 AoC will make a detailed response to the Schools Green Paper which explains the issues for 16 to 18 education.

Although 86% of secondary schools are judged good or outstanding by Ofsted, only 59% of 16-year-olds achieve

five GCSEs at grade C including English and maths and fewer than 35% of those entering FE college at 16 have the

two core GCSEs at that level.

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decisions in the 2015 Spending Review to make the funding between 2016

and 2020 slightly more predictable. The decision was taken to fix the full-

time 16 and 17-year-old funding rate at £4,000 and the adult skills

participation budget at £1.5 billion. This followed six years of austerity

measures between 2009 and 2015 which had taken their toll on post-16

education. In that period, funding for 16 to 18 education had been cut by

about 8% in cash terms and funding for adult skills by more than 40%. Unlike

some public services, there is no option in 16 to 18 education to introduce

fees. If Government reduces public spending on 16 to 19-year-olds or on

courses targeted on poorly paid adults then the direct consequences are

course cuts. This will in turn have a detrimental impact on the Government’s

stated commitment to skills growth.

3. The financial position of colleges is also a continuing concern. Many colleges

reported deficits in 2013-14 and 2014-15. The sector as a whole made a

collective deficit averaging 1% of total income. This resulted in net cash

balances falling from £1.3 billion to £0.9 billion. A major contributory factor

were the substantial cuts in funding which accelerated from 2013 onwards

and which forced colleges to incur substantial redundancy payments. In

2015 the Government started the area review process with the aim of

ensuring that colleges are financially sustainable and in 2016 set a

benchmark that surpluses should be 3% of income. Some colleges already

achieve this target because they wish to set funds aside to invest in the

future and to protect their students from year-on-year funding changes but

it will be a struggle for all colleges to reach this target with the current

funding rates.

4. The decisions made by the Government in the 2015 Spending Review to

stabilise funding will help and need to be reaffirmed. However the process

of rebuilding college finances will not be simple. Colleges faced a 5%

increase in the cost of employing a lecturer in 2015-16 as a result of

increases in contribution to teacher pension scheme and national insurance.

This added an average 2.5% to total costs5. Increases in contributions to the

Local Government Pension Scheme will take effect in April 2017 and are

likely to add at least another 1% to costs. The higher national minimum wage

will add further costs. There may be subscription increases for some central

services like JISC and for the new higher education regulator, the Office for

Students. Some colleges may also lose income (and opportunities to widen

5 In 2014-15, FE colleges spend an average of 46% of their income on teaching staff and 18% of their income on

all other staff. Sixth form colleges spent an average of 53% of their income on teaching staff and 16% on all other

staff.

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the horizons of their students) if tighter immigration controls further reduce

international student numbers and make it harder to recruit specialist staff6.

5. Some colleges will be able to increase their income and surpluses through

expansion and developing new apprenticeships and loan-funded courses.

The majority will only increase their surplus by cost cuts. Higher college

surpluses are a desirable longer term goal but a better short-term priority

might be an increase in collective investment.

Recommendation

HM Treasury should set a medium term target to increase spending on

education and training to 5% of GDP and direct a share of the additional

funding to post-16 education.

6. Public spending on education was 4.5% of GDP in 2015-167 and is forecast to

fall in the next few years8 at a time when pupil numbers are due to rise9. The

squeeze in spending involves flat cash allocations in schools and sixth forms

at a time when total pay costs are rising partly because of labour shortages

and decisions on tax and pensions. The effects of this financial squeeze is

visible in individual schools and colleges but is self-defeating at a time when

the UK needs to compete on the skills and capabilities of its people. Available

funds have understandably been focused on the core school population

which has resulted in budget cuts in the rest of the education system.

7. There is a positive economic case for higher investment in education and

training both for individuals and employers10. Exit from the EU makes this

issue even more critical. If there are new controls on immigration, employer

behaviour will need to change. In some sectors the non-UK EU workforce is

15% of the total11. Government action is needed to ensure that the young

population is properly prepared for the future but also to help train adults to

fill future vacancies. This should imply more spending not less. Therefore a

medium term target to raise the education spending to 5% of GDP would be

a rational objective.

Recommendation

6 There is very little data on EU activity in colleges but a very broad brush AoC estimate is that there are 40,000

non-UK EU students in colleges (2% of the cohort), 4,000 staff (2% of the workforce), and annual income that

fluctuates between £50 million and £100 million in annual income (between 0.8% and 1.5% of the total). 7 Public Spending Statistics 2016 Chapter 4

8 Office for Budget Responsibility Fiscal Sustainability Report, 2015 forecasts education spending will be 4.1% of

GDP in 2019-20, Page 69 9 DFE National Pupil Number Projections July 2016 forecast a rise in the 5 to 15 age group in schools from 6.5

million to 7.0 million. 10 “Estimation of the labour market returns to qualifications gained in English Further Education, December 2014”

Department for Business, Innovation and Skills (BIS), Research Paper 195). 11 Keohane, Broughton and Ketola “Working together: European Workers in the UK”, SMF, June 2016

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The management of education spending should be reformed to improve

efficiency, to allocate funds to areas of greatest need and to provide more

predictability.

8. DfE’s total revenue and capital Departmental spending is around £60 billion

and £6 billion a year respectively. This money is divided up between several

funding agencies who use different systems to allocate it to nurseries,

schools, colleges and universities. There are obvious reasons why funding

works differently in different sectors but some budget allocations make

less sense if looked at afresh. It is not clear, for example, why the

Government acknowledges the existence of inflation in universities12 but

nowhere else or why the pupil premium stops at age 16. Other problems

exist in the management of spending. Many education programmes have

to stick within one-year budgets despite the fact that the teaching and

learning process itself involves a sustained investment of time and effort.

Following the transfer of colleges, skills and universities into DfE, the

Department should reconsider the deployment of funds, to look at how it

supports those with greater needs and to work out how to introduce more

budget stability.

Recommendation

The national base rate for 16 and 17-year-olds (currently £4,000) should be

increased so that it provides the necessary funds for high-quality education.

9. The national base rate for 16 to 18-year-olds has been fixed for the next four

years which provides helpful stability for colleges and schools at a time of

considerable curriculum change. The £4,000 is the minimum that DfE should

provide for full-time students. The decision protects an estimated £4 billion

in the budget. Alongside this, there is a case for DfE to increase the funding

per student over the next few years:

Inflation will erode the value of the rate by an estimated 8% in the

next four years13. This will be on top of a real-terms cut to funding for

16 to 18 year olds of 13.6% in the five years from 2010 to 201514.

There is evidence that colleges have cut A Level subjects in modern

foreign languages and the sciences, because they can no longer

afford to offer them15. Many colleges have narrowed their A Level

programmes to three subjects16. Meanwhile English and maths

requirements are narrowing the teaching time for technical subjects.

12 The Higher Education White Paper promises increase in higher education fees linked to inflation and the

Higher Education and Research Bill creates a mechanism for regular uprating. The 2017-18 fee cap is due to rise

by 2.8% 13 Calculations from GDP deflator figures. 14 Schools Spending, Institute for Fiscal Studies Briefing Note, BN168. 15 http://www.bbc.co.uk/news/education-33847860. 16 AoC analysis of Individual Learner Record date

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Full-time sixth form study in England involves average contact time of

less than 20 hours a week compared to between 25 and 30 hours a

week in higher-performing countries and cities such as Sweden,

Canada, Singapore and Shanghai17.

Modelling on the costs of a broad and balanced curriculum by the

Association of School and College Leaders18 and Sixth Form College

Association shows that the rate should be nearer £5,000 than £4,000.

10. The positive case for higher funding rates are that they will support key

Government objectives including raising the entry rate of disadvantaged

young people into higher education and reducing the numbers who reach

age 18 without English or maths at Level 2. Higher funding levels will also

provide the space for colleges to introduce the new technical education

programmes set out in the Post-16 Skills Plan. DfE plans to introduce a

national school funding formula by 2019-20. Although this stops at 16, a

longer term goal to consider is a single formula. As a first step towards this,

DfE should increase the 16 to 18 rate.

Recommendation

The recommendations of the Sainsbury Review should be fully implemented

and funded, including additional funding for work placements and for 18-

year-olds.

11. The Post-16 Skills Plan sets out an ambitious plan to improve technical

education which may, in the long term, secure savings as a result of

increased specialisation. This, in turn, may increase average class sizes and

allow colleges to support better facilities. In the short term there are two

clear funding needs from the Skills Plan:

There are costs associated with finding and managing work

placements because they involve an individualised service to young

people and employers rather than education to a group. The

Sainsbury Review proposed a payment to providers of around £500 to

set up placements whilst also proposing certification which would add

to costs.

A two-year full-time course would be the standard model under the

plan but with the expectation that some school leavers would need to

take an additional transition year. This implies a full-time three-year

programme. The current 16 to 18 funding system assumes a full two

years and then administers a 17.5% cut in the third year. A sensible

17 SFCA Costing the Sixth Form Curriculum, March 2015, Part 2 for international comparisons. 18 ASCL paper on education funding, May 2015.

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step therefore would be to maintain the full rate for three years for

those students taking the transition year.

Recommendation

The Adult Education Budget should be sustained at least at £1.5 billion in the

short term and should be used to guarantee a Citizen’s Skills Entitlement.

After 2019, the budget should be used to support a new English Social Fund

(new ESF).

12. The decision to fix the adult skills participation budget outside

apprenticeships at £1.5 billion was designed to support employer and

individual investment in education and training at a time of considerable

change. Government needs to provide support courses taken by adults

because apprenticeships are not always suitable and student loans will not

be sufficient. Apprenticeships are focused on an individual’s current job so

are not suitable for those wishing to change career. Apprenticeships are

also confined to those in full-time work. As for student loans, they are only

available for those taking courses at Level 3 There are nevertheless a

number of sectors which require a sufficient number of people with Level 2

skills.

13. Courses funded from the adult education budget help individuals acquire

basic and intermediate skills to get them into work. A key task in the next

12 months will be for colleges to work with Local Enterprise Partnerships,

local government and others to work out the best way to use available

funds. Planning should also start now on supporting workforce

development in disadvantaged areas. Colleges have used the European

Social Fund over the last two decades to help retrain and improve the skills

of hundreds of thousands of people. Exit from the EU requires a fresh look

at the priorities but should not result in any reduction in spending because

this would widen existing social and economic divisions. A better solution

may be creation of an English Social Fund to target additional funds to the

same areas but with a simpler set of rules.

14. The Adult Education Budget should also be used to fund a new programme

of study for adults focused on the core capabilities needed for life and

work in 21st century Britain: literacy, numeracy, digital, financial, citizenship

and health. A new report from the Learning and Work Institute and JRF

explores this issue in greater detail and suggests that an additional

investment of £200 million a year could double the number of people

accessing similar provision and help an additional 280,000 people into

work by 203019.

19 Learning and Work Institute “Skills and Poverty” September 2016

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Recommendation

The apprenticeship funding rates that take effect in May 2017 should include

a higher factor for 16 to 18-year-olds, should reflect area costs for technical

programmes and should retain a factor for those from low income families.

15. The systems for funding apprenticeships are complicated because there are

different rates for the older frameworks and the new standards and because

some transitional arrangements from an earlier reform are still in place. The

current plans for overhauling apprenticeship funding in 2017 involve an

entirely new system for apprentices who start after May 2017. It is sensible

to make a determined effort to simplify the system but the plans set out in a

consultation published in August 2016 go too far. There are four particular

problems:

The funding caps are too low for some frameworks. This will make it

hard for colleges to provide high quality training in the areas affected.

The proposals involve large cuts in the funds available for 16 to 18-

year-olds on the assumption all apprentices in a particular sector

should have the same level of support. College experience of training

younger apprentices is that more support and time is needed with

this cohort which implies higher costs.

The proposals involve the removal of the disadvantage factor and

area cost factor from the apprenticeship funding system. There may

be debate about the sums involved or the way to identify need but

there is definite evidence that apprentices from lower income

families require more support (for example because they lack funds

to buy personal equipment). There is also a case that specialist

training for apprenticeships will be more expensive in higher cost

cities.

The introduction of a compulsory 10% fee for employers who do not

pay the levy will bring a new complexity to the administration of

funding and may also discourage participation.

16. Quick decisions are needed on these points to ensure that the Digital

Apprenticeship Service is ready to go live in May 2017. There is still time for

implementation but a sensible response would be to look for possible ways

in introduce changes in stages and for Government to amend the schedule

of rates. This should involve increases to certain funding caps, a higher 16 to

18 factor, an area cost factor and a fund to meet the costs incurred by

apprentices from disadvantaged backgrounds. We explain a specific

proposal for this access and quality fund in the next couple of paragraphs.

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Recommendation

The Government should topslice the apprenticeship levy to create a fund to

use to promote access to apprenticeships and help raise quality.

17. The apprenticeship levy creates a new independent funding stream for

apprenticeships worth an estimated £2.6 billion a year from 2017-1820. The

official case for introducing the levy21 noted financial benefits for both

individuals22 and employers23. A compulsory system is seen as a means to

reverse a 20 year decline in employer spending on training, to narrow the

20% productivity gap with other G7 countries and to increase the number of

apprentices. A key principle of the levy is that it is a hypothecated tax with

the funds being under the control of employers. There is a risk that the

speed of this reform will undermine the apprenticeship quality and that

young people from disadvantaged backgrounds and struggling families will

find it harder to access good training places.

18. The Government therefore needs to focus relentlessly on improving the

reputation of the programme. This will only happen if the vast majority of

apprentices get high-quality training. If quality is assured, numbers will

follow and other benefits will accrue. Policies focused on quality imply tight

controls on who can access public funds for training, transparency about

how they use it, information on outcomes and effective risk-based

monitoring. The quality and reputation of apprenticeships can also be

improved through skills competitions which reinforce employment skills,

drive curriculum innovation and provide international benchmarks. The

Government should ensure it continues adequate funding to ensure more

apprentices benefit from local, national and international skills competitions

organised by World Skills UK24.

19. Government, employers, colleges and training providers should work

together to tackle issues of access and participation for apprentices from

disadvantaged backgrounds and struggling families. The data collected via

the funding system could be used to identify problem areas and produce

20

HM Government “Apprenticeship spending and expected levy payments” August 2016 estimates that 19,000

employers will pay the levy. 21 HM Government, English apprenticeships: Our 2020 Vision

https://www.gov.uk/government/publications/apprenticeships-in-england-vision-for-2020, Page 3. 22 Completing an apprenticeship brings a return of between £48,000 and £74,000 extra over a working life for a

Level 2 apprenticeship and between £77,000 and £117,000 for Level 3. 23 70% of surveyed employers reported that apprenticeships had improved the quality of their product or service 24

The UK came seventh in the 2015 World Skills competition behind Brazil, Korea, Taiwan, Switzerland, China

and Japan but ahead of many of its European peers, for example France and Germany. The 2017 World Skills

competition is in Abu Dhabi.

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benchmarks. There are long standing issues about segregation by gender25

and ethnic origin26 in access to particular careers which need to be

20. monitored and challenged. DfE’s focus on better information and careers

advice for young people will also help. It is helpful that there will be

legislation to require proper information to be made available to school

pupils but it will also be necessary for employers to get more involved with

schools and colleges on issues of access. Some employers may want to use

their own levy money to widen access and this should be encouraged.

Government should also reserve part of the apprenticeship levy and use this

at national or employer level to support access to, and achievement in,

apprenticeships in a similar way to the widening participation funding that

has been reserved for this purpose in the higher education system.

Recommendation

Financial support for young people should be reviewed to eliminate

unhelpful obstacles to participation, for example the transport costs and

child benefit rules.

21. There is now less money to support students with the incidental costs of

accessing education than there was in the past. Education Maintenance

Allowances were abolished in 2011 and replaced by bursaries, but with a

budget cut of more than 50%. At the same time public transport fares have

risen. A recent survey suggests that many travel costs range from £10-20 a

week which adds up to significant cost for those on limited budgets27.

Transport is a major factor that influences young people’s access to

education or training. In addition, young people in colleges and undertaking

apprenticeships often have to travel further than those that study at school.

22. The legislation governing the transport support that should be available to

16 to 18-year-olds in full-time education has not been properly updated

since the education and training participation age rose to 18 nor does it

reflect the aim to increase apprenticeship participation. The new combined

authorities have an opportunity to tackle the long standing need to provide

affordable and accessible transport to education and training.

23. There are also issues for apprentices. Parents get child benefit for 16 and 17-

year-olds who stay in education but lose this if their child starts an

apprenticeship. Apprentices are paid a lower minimum wage. Anyone who is

unemployed who takes an apprenticeship loses access to free prescriptions

25 Fuller and Unwin “The challenges facing young women in apprenticeships” 2015 available via

www.educationandemployers.org 26 Newton and Williams “Underrepresentation by gender and race in apprenticeships: A research summary”

Unionlearn 2013 27

NUS Pound in your Pocket survey 2012

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or dental treatment. Perhaps some of the grants for employers should be

directed to the apprentice.

Recommendation

DfE should reallocate capital budgets so that colleges have funding for

building maintenance and equipment.

24. Colleges need to continue to have industry standard facilities in order to

provide high quality education for young people, apprentices learning off the

job and adults. Capital grants were available in the past but have been

reduced in recent years which has a direct impact on investment levels. Sixth

form colleges benefit from a small formula grant paid on the same basis as

schools whilst FE colleges receive no funding for equipment unless they have

higher education provision. For reasons which are not entirely clear, there

was a £126 million Higher Education Funding Council for England (HEFCE)

teaching capital fund in 2015-16 but no equivalent equipment fund for

further education.

25. Colleges spend considerable sums on advanced machinery, laboratory

equipment, workshops and vehicles but are under financial pressure to

improve their operating surpluses and conserve cash. This is likely to lead to

cut backs on this spending at a time when the educational need is for

learning and training to take place with up to date facilities. A dedicated

equipment fund is therefore needed for colleges focused in the short term

on preparation for the technical education routes.

Recommendation

HM Treasury and DfE should plan for the additional education places that

will be needed when the number of 16-year-olds increases towards the end

of the decade.

26. In recent years HM Treasury and DfE have grappled with the costs of

providing additional primary and secondary places to deal with a rising

school age population. The National Infrastructure Plan records plans to

spend £23 billion between 2016 and 2021 on school places28 but has no

specific provision for post-16 places apart from via the Local Growth Fund.

Officials report that the indicative skills capital budget in this local enterprise

partnership (LEP)-controlled fund is a total of £0.5 billion over a four year

period. The first priority for many LEPs in the current round (“Growth Deal

3”) is local job creation though a small number are considering projects that

support post-16 area reviews. The only other budget, the Condition

Improvement Fund, has supported a small number of sixth form college

projects but is focused mainly on secondary schools.

28

HM Treasury National Infrastructure Delivery Plan 2016-21, Page 76.

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27. This lack of funding is compounded by reductions in private investment. For

two decades, college capital expenditure has been funded by a combination

of government grants, commercial loans, property sales and retained cash.

Some colleges continue to sustain investment on this basis but banks have

become cautious about new lending and are seeking to reduce total

exposure. There is therefore under investment and yet in a few years the

post-16 population will start to rise. Facilities in schools are unlikely to be

suitable for future demand particularly as there is likely to be a growing

demand for technical education.

28. The case for investment is partly a demographic one but is also economic

and educational. Purpose-built facilities could maximise efficiency because

they are popular with students (even when full), support larger class sizes,

provide specialist facilities and allow combinations of subjects. Efficient use

of space in new buildings allows other space to be released or re-used.

29. The Government could achieve multiple objectives by embarking on a

programme to build a number of new colleges for the 2020s. Recent

experience with 16-19 free schools shows that it is hard to set up a new

institution from scratch. A better option would be the merger of existing

school sixth forms to create a new college as happened in Rochdale in the

early 2000s29. Sixth form closures could release space in schools which could

be used to expand secondary school provision. London exemplifies the

issue. There is a need for more than 30,000 new secondary places in the

next five years30; there are 107,000 places in 371 academy and maintained

school sixth forms in London, 149 (40%) have fewer than 200 students. In

London – and nationally - there is a high level of drop out at age 1731 (ie after

one year of A Levels). A coordinated plan could target the worst performing

small sixth forms for closure to make places available for younger secondary

age pupils while investing in high quality cost-effective college places near

public transport hubs.

Recommendation

There should be a 10-year programme to double the supply of maths

teachers across all parts of the education system to reach a goal by 2030

that all 18-year-olds are qualified at the current Level 2 standard and the

majority reach Level 3.

30. There has been an increase in the number of pupils and students in the

education system, an increase in the number taking maths courses and an

29 Rochdale Sixth Form College was created following a review in the area and was grade outstanding in in most

recent Ofsted inspection. 30

London Councils “Do the Maths 2015” September 2015. 31 DFE data shared with AoC staff, spring 2016

16

increase in teaching time required in secondary schools. At the same time,

there are shortages in the supply of qualified teachers and difficulties

recruiting more. 30% of colleges in AoC’s recent workforce survey32 reported

staff shortages. Average starting salaries for maths graduates appear to

exceed £25,00033. Average teacher pay in colleges for staff of all ages and

experience is £32,00034. The maths bursaries organised by the Education

and Training Foundation (ETF) provide useful incentives but DfE needs to go

further and look at the recruitment and retention picture across its whole

brief. An ambitious but achievable long term goal might help concentrate

minds. The target should be that, by 2030, all 18-year-olds are qualified at

the current Level 2 standard and the majority reach Level 3. Planning should

start now on the teacher supply necessary to make this happen.

Recommendation

The Budget rules should be amended to include three-year funding

agreements, virement across the age 19 and more end of year flexibility.

31. There are effective systems to control public spending in post-16 education

but there are some areas which need attention:

Budgets are set and managed on an annual basis with tight controls

to avoid overspending. Colleges have got used to managing within

fluctuating annual budgets but they shift behaviour towards

temporary staff and transactional sub-contracting.

For the last nine years there has been a division in spending at age

19 which has resulted in unhelpful differences in approach within

the apprenticeship system and where young adults take longer to

achieve minimum standards for adult life by age 19.

32. The machinery of government changes will make it possible for DfE to

reconsider its approach to the age divide at 19, but only if there is Treasury

action to recast budgets. Treasury approval will also be needed to confirm

longer term spending to Departments and to support them in moving

towards three-year funding agreements so that colleges can plan their

provision effectively and seek to meet the needs of their local community

and local employers over the full period.

Recommendation

32

Unpublished AoC survey, 2016. 33

HESA Destination of Leavers in Higher Education data 2013-14 reported by Complete University Guide 34

ONS Labour market data

17

DfE should carry out some targeted reviews of post 16 provision in schools35

using the two tests developed in post-16 area reviews of colleges36.

33. Government policy in recent years has promoted choice and competition

through the creation of new and different types of institution. This has been

unwise at a time when there is contraction in both the population and

budgets. 169 new academy and maintained sixth forms were opened

between 2010 and 201537 but the total numbers of enrolled school students

has been static. Average cohort sizes were already small and have declined

further. Curiously DfE offers little in the way of practical advice to make

school sixth forms work and has not researched the effectiveness of this

reform. In March 2016, Ministers introduced five new tests to ensure that

new sixth forms are viable38 but this is a limited step because it does not

cover the sixth forms that are already open. There is a long tail of small

institutions, with 1,180 school sixth forms enrolling fewer than 100

students39. There is emerging evidence that some of their performance is

sub-standard40. Meanwhile University Technical Colleges (UTCs) have

struggled to achieve viability in a system currently built around exams and

transfer at age 16 and, as a result, four have closed while one did not open

as planned41.

34. A sensible policy from DfE in light of this evidence would be to use its new

tests to existing sixth forms. It may not be appropriate to re-run the post-16

area review process for schools but it would be sensible for Regional Schools

Commissioners and councils to be asked to review sixth forms which are

particularly small or underperforming. There will clearly be cases in very

rural areas where an 11-18 school with a small sixth form is the best option

and there may be tightly focused specialist sixth forms which achieve high

standards with small cohorts. Nevertheless it is time for a fresh look at this

issue. One option would be for DfE to embark on a parallel area review

process for school sixth forms which judges them against the same tests

used in post-16 college area reviews: financial sustainability and educational

relevance.

35 Post-16 provision in schools includes sixth forms in 11-18 schools and academies, 16 to 19 free schools and

University Technical Colleges which are constituted in law as academies. 36 Financial sustainability and educational quality. 37 DfE answer to written question 220526 sixth form education 16 January 2015. 38

DfE guidance “Making changes to an existing academy” says that schools wishing to open a new sixth forms

have a good or outstanding Ofsted grade; that it should be realistic for the new sixth form to offer 15 subjects

and enrol more than 200 students in normal operation; that there should no detrimental financial impact on the

rest of the school and that there should not be a negative impact on high quality schools and college nearby. 39 Statistics on numbers of schools with sixth forms of fewer than 100 pupils supplied by DfE. 40

According to DfE data, the percentage of schools adding more value than expected consistently decreases with

the size of institution, below 400 students. Small sixth forms clearly work successfully in private schools but on

funding levels more than 200% greater than in the state funded system. Research by the Association of School

and College Leaders (ASCL) suggests that 250 students is the minimum efficient number to offer high quality

education at current funding levels. 41 House of Commons Library briefing on UTCs, September 2016

18

Recommendation

DfE should review the English and maths condition of funding and introduce

new English and maths qualifications for professional and technical

students.

35. DfE has introduced compulsory English or maths for all 16 to 18-year-olds

who do not have GCSE English or maths at grade C or above. This means

they must continue to re-sit the exam until they are successful. There are

large numbers of young people involved; the majority of whom end up in

college. 67% of those resitting English and 77% of those resitting maths did

so at a sixth form or FE college42. The condition of funding is a blunt

instrument to achieve this objective because there is no leeway where a

student started midway through the year or refuses to enrol for a course.

The requirement for concurrent English and maths classes for those on two

year courses limits timetable flexibility and is not a decision made on

evidence. In addition, GCSEs also do not necessarily test skills used in the

workplace. A quick review of the funding condition rules and a longer review

of the qualification requirements are both overdue.

Recommendation

HM Treasury and DfE need to streamline the process for colleges to apply for

restructuring funds and to double the transition fund grants so that area

review recommendations can be implemented quickly.

36. The national programme of post-16 area reviews started in September

2015 and will run until summer 2017. The Government has scheduled a

programme of 37 reviews and has finished 13 of them - though the final

reports have not yet been published. In the period since area reviews

started there have been 12 college mergers though many of these were

planned before reviews started. There are likely to be between 20 and 40

more mergers in the next two years which represents a considerable

restructuring of the sector. Several sixth form colleges will convert to

become 16 to 19 academies. Other colleges are taking the chance to

refresh their strategy, for example by developing shared services or joint

apprenticeship companies.

37. The process of restructuring colleges is proving more complicated than it

ought to be because of the regulatory issues that have been known about

for some time. Colleges have found it takes more time than expected to

satisfy their banks, resolve pension issues or to complete due diligence and

consultation. Applications to the Restructuring Fund will take more time

and money because these involve several new documents and forecasts

42 Policy Exchange, Crossing the line: improving success rates among students taking English and maths GCSE,

August 2015.

19

and because there are several layers of sign-off. In these circumstances

there is a risk that colleges are spending six figure sums on professional

advisors which a few may end up writing off. Government has an interest in

helping colleges implement area review recommendations and should

therefore tackle these obstacles. The money available via the transition

grants should be doubled and the Restructuring Fund process simplified.

Recommendation

DfE and the Department for Communities and Local Government (DCLG)

should publish a Skills Devolution Green Paper to help clarify responsibilities

and priorities and encourage debate about the potential benefits and risks.

38. The Government’s ambitious skills devolution plans involve the transfer of

the entire post-19 education and skills budget outside apprenticeships and

higher education to new combined authorities and a corresponding

transfer of powers. The aim is to focus efforts and public funds where they

will have most effect and to align decisions on skills with other activities to

promote economic growth. The target for this reform is 2018 and it will sit

alongside some continuing national systems. Colleges are keen to make

the new arrangements work but there are weaknesses which result from

the way in the overall approach to devolution.

39. The process up to now has been deliberately haphazard. Different areas

have been offered different powers. Some areas have had frequent

revisions to their deals – Greater Manchester has had six. There is a

standard skills devolution menu for nine parts of England but less than two

years ahead of implementation there are many unanswered questions. On

top of this, there are some areas where the devolution deal has unravelled

because of disagreements between councils. Colleges are keen to work

with local government and the new combined authorities on shared

problems but are concerned about the uncertainty and the prospect of

having to re-explain what they do to a new set of people43.

40. The Public Accounts Committee reviewed the overall process in summer

2016 and came up with a sensible range of recommendations including the

need for clear objectives, a menu of options, an achievable timetable,

budget transparency, work to develop local capacity and proper

accountability44.

41. There is a strong case for existing plans to continue but a risk that

mishandled skills devolution will set the system back. There are already

several national agencies overseeing the finance and performance of

43

Ewart Keep “The long term implications of devolution and localism for further education in England” FETL/AoC. 44

Public Accounts Committee “Cities and Local Growth” July 2016.

20

colleges including the Education Funding Agency (EFA), Skills Funding

Agency (SFA), the FE Commissioner and the Transaction Unit. The

devolution deals suggest combined authorities may have a role. There will

be some rationalisation of responsibilities once the area review process

finishes, but the Government needs to ensure there is a clear structure in

future. The skills devolution menu may also change as a result of changes

to the European Social Fund and the proposal to devolve business rates.

Rates are collected by district or borough councils but the local skills

system needs to operate at a county or city region level to secure

economies of scale. There also may be a mismatch between areas with

high property values and places with large numbers of low skilled working

age adults.

42. A good way for government departments to explore and clarify these

issues would be to publish a Skills Devolution Green Paper.

Recommendation

On the day that the UK leaves the EU, VAT should be removed from all

publicly funded education for 16 to 18-year-olds.

43. Colleges, unlike schools and academies, are required to pay VAT on their

purchases. Colleges generally spend between 60-70% of their income on

staff and about 3-4% on VAT. This makes it slightly harder for colleges which

are more efficient in the way they operate. The ability of schools to recover

their equivalent VAT costs means that there is a HMRC subsidy to less

efficient institutions.

44. HM Treasury made the decision in the 2015 Spending Review to tackle this

issue by allowing sixth form colleges to convert to become 16-19 academies

but the process is lengthy and complicated, involves a loss of flexibility45 and

does nothing for students in FE colleges (40% of the age group).

45. One option for the Government would be to loosen the restrictions both on

the conversion process and on the regulation of academies. This would be

helpful for those sixth form colleges wishing to convert but a better solution

is in prospect. VAT is a poorly applied tax when it comes to 16 to 18

education because it discriminates between different categories of

institution for no good reason. The decision to leave the EU presents a

simpler solution because until now the ability of the UK Government to act

has been constrained by the sixth VAT directive which regulates education

exemptions. Greater control of VAT regulation could allow the Government

to make the small but significant decision of bringing further education and

45

The restrictive financial framework in place for academies means that sixth form colleges are being asked to

give up income generation opportunities and decision-making flexibility when they convert. In accounting terms

conversion is a form of nationalization.

21

sixth form college corporations into the VAT refund scheme for their publicly

funded 16 to 18 education courses.

Recommendation

The current student loan system should be converted into a personal

learning account system which includes a lifetime loan allowance and

maintenance loans for all courses at Level 4 and above.

46. Education and training needs to become a more important part of adults’

lives. Increases in life expectancy mean longer working lives. At the same

time, however, job markets are becoming far more volatile and

unpredictable as a result of technological change. There is an important

question here of how the Government should support adults in this

environment and help provide security in a changing world.

47. A longer term goal should be to align education and training for adults in

England whether at university or college and regardless of level. This would

be achieved, in part, by equalising student support arrangements. Extending

maintenance loans for professional and technical education (at Level 4 and

above) reduces up-front costs and reduces the longer-term repayment risks

for people considering this type of course. Combined with other measures

to develop professional and technical education, this will increase the

number of people qualified at this level46. Doing this would help rebalance

incentives away from full-time residential three year degree courses.

48. A further reform would be to introduce a lifetime loan allowance which

would give students a single budget and allow them to make their own

choice about what level of qualifications to take47. This might help the

Student Loans Company merge and rationalise its loan products. A longer-

term aim should be to transform student loans into learning accounts. At a

practical level this would require the ability to make payments into the

scheme which are separate from loan repayments. At a presentational level

it might help move the language off loans towards investment.

Recommendation

HM Treasury, DfE and DCLG should re-open negotiations on the Teacher

Pension Scheme and Local Government Pension Scheme to contain the costs

of the scheme for employers.

46

Overall numbers of Level 4 and 5 students is low. There are 12,000 under-24 Level 4 students supported via

the SFA and 2,500 taking FE loans. In addition there are perhaps 80,000 students taking HNDs and foundation

degrees via the HE loan system. 47

A lifetime loan allowance would remove the need for the Equivalent and Lower Level Qualification rules.

22

49. Pension costs are a major issue for colleges, schools and universities

because all three sectors employ long serving staff with significant

entitlements. Successive government departments have not done enough

to manage the costs of large public sector schemes. Mistakes in the reform

of the Teacher’s Pension Scheme (TPS) mean that employers now pay

16.48% compared to the 12.1% cost ceiling set out in the wake of the

Hutton report48. Combined with the rise in employer’s National Insurance

for public service employers in 2016, this added 5% to the cost of employing

a teacher in 2015-16. There are likely to be further cost increases as a result

of the current Local Government Pension Scheme valuation. This will assess

the state of each fund as at 31 March 2016 and will vary contributions from

April 2017 onwards. The valuations will not be available until November

2016, but might easily involve a rise in the average employer contribution

for colleges from 16% to more than 20%. The next TPS valuation is likely to

cause a smaller but equally significant increase in costs from April 2019.

50. Colleges and the rest of the education sector are locked into schemes which

take a rising share of their budgets for pension costs at the expense of their

ability to pay competitive salaries or employ the right people for their core

tasks. The former Chief Secretary of the Treasury promised in November

2011 that the most recent set of pension reforms will last for 25 years49.

This promise has been enshrined in law 50. If the Government seriously

wishes to contain public spending in the long term, it needs to consider

further reform which reduces the direct costs for colleges, schools and

universities by either making the core schemes cheaper and perhaps by

allowing employees who value pensions more to pay higher contributions

for the benefit.

Recommendation

A DfE review should consider rationalisation of agency responsibilities but

also ways to reduce the costs of assessment and inspection across the

education system.

51. The education and training system serves a diverse society and advanced

economy. The system is unavoidably complicated and Government needs to

spend money on regulation, inspection and monitoring to ensure that it gets

the best value out of tens of billions of pounds in public funds. The costs of

regulation and administration have been cut in recent years which has

reduced the number of officials by thousands51. Nevertheless there is a

48 Colleges, schools and post-1992 universities pay 16.48% in employer contributions from September 2015. This

includes a 0.08% levy to pay for administration. The 12.1% cost ceiling for employer contributions was promised

in the provisional final agreement published by DfE in March 2012. 49 HM Treasury written ministerial statement, 20 November 2011. 50 Sections 21 and 22 of the 2013 Public Service Pension Act. 51 The Learning and Skills Council employed 5,000 people 10 years ago. EFA and SFA employ just under 1,000

each.

23

combined administration and regulation cost of almost £1 billion particularly

if large agencies like Ofsted52 and the Student Loans Company53 are counted

in the cost.

52. The Government continues to take steps to make savings in its own costs

(for example via the recent rationalisation exercise in BIS and the creation of

an EFA/SFA shared service) but there are risks to regulation and capacity.

Government is asking colleges to merge in order to make savings. It might

make sense for DfE to review whether it needs three funding agencies54,

multiple regulators55, a variety of commissioners and four different national

education databases56. DFE oversees an inspection system with direct costs

of £160 million a year57 plus an exam system that requires £200 million in

fees in colleges alone58. The compliance costs in schools and colleges are as

significant and although England has world-leading outcome and

performance data the systems to collect this are expensive and intrusive.

53. AoC recognises there are no simple solutions to reducing the costs of

administration and regulation but we do believe that the DfE review

provides a chance for a rethink. There are some obvious options to merge

funding agencies but reforms to Ofsted should not be out of scope. The

existing inspection system relies very heavily on data. Perhaps it would be

worth cutting out the intermediary and simply publishing the data as a

balance scorecard in a similar form to the Teaching Excellence Framework.

Government should leave no stone unturned in the search for efficiency at a

time of considerable financial pressure on teaching and learning.

Association of Colleges

7 October 2016

52 Ofsted’s resource departmental expenditure limit in 2014-15 was £155 million. 53 SLC operating expenses reported in its 2014-15 financial statements were £134 million of which £115 million

was funded by BIS for English activities. 54 The three funding agencies are EFA, SFA and HEFCE. 55 Financial regulators in future will include the Office for Students, SFA and EFA with Ofsted acting as a shadow

regulator. 56 The four databases are the school census, the individual learner record, the higher education student database

run by the Higher Education Statistics Agency (HESA) and the Student Loans Company system. A review of these

systems was started in 2012 by BIS but was never finished. 57 Ofsted annual financial statements, 2015-16 58 AoC analysis of college finance record data

24