Transcript College funding and finance issues

AoC Yorkshire and Humberside
College funding and finance issues
19 June 2014
Julian Gravatt, Assistant Chief Executive, AoC
[email protected]
02070349900
@JulianGravatt
http://www.aoc.co.uk/term/funding-finance
Twenty years of funding, what we’ve learnt
Lots of activity - agencies, initiatives, acronyms etc
Periodic changes to the funding formula – 2003, 2008, 2013
Incessant fiddling with qualifications, prices and programmes
Funding used to nudge and control
Budgets that change every year despite multi year spending reviews
Desire to squeeze every ounce of value out of every pound spent
College income and expenditure
College accounts
1993-4
2012-3
FEFC,
2,364
5,627
+138%
Other
1,150
1,943
+68%
Income
3,508
7,570
+115%
Staff
2,390
4,806
+101%
Supplies
1,125
2,822
+151%
Expendit
3,515
7,628
+117%
Surplus
(7)
(58)
% Diversity
32%
26%
% Staff cost
68%
63%
GDP deflator up 51% in same period
%
Colleges have increased fully
funded student numbers at a
time when eligibility has
widened. Fees have been harder
to secure than external
contracts.
Colleges do more subcontracting and set aside 8% of
income on depreciation and
interest but spending on staff
predominates
Average College income
£7 mil in 1993, £22 mil in 2012
College accounts 2013-14
Education (16-18)
High needs
Apprentices (16-18)
Apprentices (19+)
Adult Skills (19+)
Fees (24+L3+) Loans
HE Fees & Grants
Fees Contracts Other
Total
0
1000
2000
3000
0
1000
2000
3000
4000
5000
6000
7000
Pay
Supplies Services
Depreciation
Interest
Total expenditure
Surplus
4000
5000
6000
7000
College finance characteristics
Over the last ten years….
Small operating surpluses
Positive cash generation (surplus + depreciation)
High use of assets with substantial capital investment
Capital finance from mixture of grants, sales, loans and own cash
Loan terms have shortened and interest costs are currently low
Income reliance on government (esp 16-18 increased)
The DFE/BIS split means Colleges have multiple funders
Government funding now on a consistent downward slope
Education remains staff intensive (Schools 79%, FE 63%, HE 55%)
Short government policy horizons creates employment instability
Financial health
College finances
Deficits in 2012-13 (48% of operating deficits, 10% cash based deficit
Staff costs 60-65% of income
Public spending cuts -> 4% fall in EFA+SFA in 2014
Rising costs and falling income
Ofsted-related spending + capital projects = short-term worsening
UK in “Year 4 of a 9-year austerity plan” (IFS)
If colleges get into trouble
No formal lender of last resort but SFA & EFA may act
FE commissioner (or SFC commissioner)
Financial management
Addressing problems
Necessary to face up to difficulties promptly
Plan B needs to address the worst-case scenario
Understanding impact of competition & demography on 16-18 plans
Curriculum & finance need to be closely connected
Finance/analysis skills in senior teams & governing bodies
Governors need several channels of communication
Tackling low class sizes & duplication with other colleges
All parts of the budget need to be managed
Is this list right? Are there other issues?
Revenue funding 2014-15
Outcomes
Things to note
EFA 16-18
-1% cash. +1% students
FPG helps some colleges
18 yr old mitigation helps others
Colleges advance funding FT students
New Maths/English condition
Tighter sub-contracting rules
Free meal scheme in colleges
Traineeships (out this week)
No clarity on 2015-16 budget
Apprenticeships
Recruitment down on 16-18 apps
Colleges say 19+ apps on target
Apprenticeship spending maintained
New apprenticeship trailblazers
Testing new rates in 2014-15
A new on-line rate in 2015-16
Employer routed funding by 2017?
Adult skills
17% ASB cut means a 23% skills cut
Colleges say ASB on target
No tolerance, no transitional protection
No clarity on 2015-16 budget
Loans
Colleges using c66% of facility
SFA has increased facilities by 27%
SFA’s loan growth plan for 2014-15
FE loan development (out this week)
16-18 Funding in 2015-16
EFA faces a 16-18 cash crunch in 2015
The size of the 2015-16 budget is unclear
1.1% cuts for non-school DFE announced in 2013 Autumn Statement
Growth in 16-18 numbers plus the costs of extra FT students
Risk that there’ll be more cuts to rates or funded numbers
AoC working with college and school assocations to protect budgets
SFA also faces a continuing sharp but unclear reduction in budget
HE overspends may affect money available to SFA
Autumn 2014 should be the point where decisions are finalised
EFA and SFA will be confirming allocations in spring 2015
Public spending after the election
Public spending 2015 to 2020
Years 7,8 and 9 of a 9 year plan
Treasury plans to close deficit by 2018
Lab/Lib Dem target is 2020
After the election, a spending review
Decisions by December 2015
Current plans for 2016-17
£10 bil RDEL cut, £5 bil NI rise
800
700
600
500
Taxes
400
PSCE
RAME
300
RDEL
Deficit
For period 2015-16 to 2018-19
£34 bil (8%) cut in RDEL
Unprotected depts £80-100 bil
200
100
0
-100
Pensions and budgets
Cost of employing a teacher to rise by 5% plus any payrise
Now
By 2016
TPS
TPS employer
14.1%
16.48%
Aim is to recover underfunding
NI employer (approx)
10.4%
13.8%
Lower discount rate
Employer on-costs
26%
33%
Staff cost ratio
63%
?
High pay growth assumption
2015 reforms don’t save enough
Costs Colleges 1% of income
Now
By 2016
TPS members (avg)
9.6%
9.6%
National insurance
NI employee (approx)
10.6%
12%
DWP simplifying the rules
£5 bil extra NI pays pension costs
Costs Colleges 2% of income
Pension income and pension tax
Tax limit on saving
Annual (AA) £40k
Lifetime (LTA) £1.25mil
16* salary in DB scheme
Protections (IP, FP)
Defined
benefit
scheme
State pension
SPA harmonises (2018)
SPA 66 (2020) 67 (2028)
Post-2015 service link to SPA
State pension £7k/yr after 2016
No contracting out
Higher NI for colleges
Private pensions
March 2014 budget
Annuities not compulsory
New transfer restrictions
Future impact on tax relief?
Funding from 2016 onwards
DFE budget between 2015 and 2020
10% growth in 11-16 pupil numbers (280k extra 11-16s)
Costs of promises (eg free meals) and new institutions
8% fall in 16-18 population (low point is 2018)
83% of 16s in education, 10% in training or work, 7% NEET
EFA Funding from 2016 onwards
Lots of questions but answers unlikely until 2015
Funding allocations
Lagged funding introduced in 2010. Are there alternatives?
Funding cuts?
Formula Protection Grant ends by 2016-17
Maths/English condition takes effect from 2016-17)
Policy changes?
New A-levels (impact on retention calculations?)
Development of Tech Levels and Substantial Vocational Quals
Evolution of study programmes, traineeships, anything else?
SFA Funding from 2016 onwards
BIS budget
Some big cuts likely in BIS spending but this requires HE reform)
Any political decision on HE fees will have an impact from 2017
19+ FE/Skills budget might be quicker to cut
LEPs/Councils will continue to push for DWP & BIS budgets
Expansion of FE loans likely to take place in 2016
Apprenticeships
Cross-party support for apprenticeships (advanced & higher apps)
Employer routed funding for apprenticeships by 2017 ?
Issue of employer contributions to match £1.5 bil DFE/BIS spending
Policies
Some parts of the country recovering; some have high unemployment
All three parties have talked about under 25 benefit cuts (earn or learn)
Opportunity to break the mould in higher education?
Longer-term funding trends
Politics
The 2015 vote and Coalition negotiations pretty important
Events determine post-16 policy as much as ideology
Political views of ministers determine planning/market mix
Public spending
Post-2015 spending review may change tax/spending mix
Demography underpins student number trends and budgets
Three things working against 16-18 education
Demography (more children now, more older people)
Economics (deficit reduction continues to be a priority)
Politics (future of UK discussions)
No appetite to rebuild the size of government
Spending likely to dip around 2018
Thinking about funding and finance
At a national level
Important to stick to the facts and explain the consequences
Necessary to connect with people at an emotional level
Better to find friends than enemies
For individual colleges
Pessimism can be contagious. College fortunes vary significantly
Quality counts
Opportunities within £65 bil DFE+BIS revenue budget
Productivity improvements from IT only partly realised in education.
Some government budgets continue to rise (eg FE and HE loans).
Worth thinking about income generation
Vital to keep staff and governors onside
Known events
Before the summer break
Local Growth Deals agreed in July 2014 (Parliament rises 22 July)
Teachers Pension Consultation, 18 July 2014
Financial plan (2013-14, 2014-15, 2015-16), 31 July 2014
Autumn
Scotland referendum, 18 September 2014
Party conferences, 21 September to 8 October 2014P
AoC annual conference, 18 - 20 November 2014
Autumn statement, early December 2014
Spring
Budget, mid March 2015
Easter, 7 April 2015
General election, 7 May 2015