ACER chief exec’s forum

Politics, funding and finance update

20 October 2014 Julian Gravatt, Assistant Chief Executive, AoC [email protected]

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

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 is prompting discussions on the constitution

Education

Gove removed with Morgan seeking to consolidate reforms DFE oversight of academies & school improvement areas of change New national curriculum, GCSEs, A-levels and tech quals Ofsted consultation on post-2015 single inspection framework AoC manifesto designed to secure helpful but feasible proposals Schools, apprenticeships and university fees all big political issues

Higher education

The issues

Convergence of interest in Level 4 & 5 higher skills National Colleges, New Polytechnics?

A need for “medium skills” & to fill old jobs with new people Alternatives to three-year full-time degree desirable

Challenges

HE student loan system unsustainable & offers wrong incentives HE reform politically toxic HE regulation is a mess Complicated issues about degree awarding & qualifications

Breaking the mould in higher education

AoC paper has attracted some interest Worth considering college opportunity in advanced/ higher ed

Planning the next 12 months

Autumn 2014

Party conferences, 21 September to 8 October 2014 EFA Funding Letter, October 2014 (hopefully) 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)

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

The bigger spending picture

800

Government plans

Various budgets get bigger Pensions, interest, NHS etc Deficit reduction via RDEL cuts 700 600

Unprotected departments

9.1% of GDP (2013-14) 7.8% of GDP (2015-16) 5.4% of GDP (2018-19) NATO 2% target for defence Spending cuts

c30-40%

to come Loans & fees a safe haven?

500 400 300 200 100 0 -100 x Taxes PSCE RAME RDEL Deficit

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

EFA 16-18 funding, 2015-16

Process

16-18 funding letter due shortly Same 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

Issues

EFA needs to fund costs of study programmes (more FT students) If cuts are necessary, EFA has to cut rates, numbers or weightings Usual 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 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?

SFA funding, 2015-16

Process

Skills funding statement due in December 2014 Devolution may start to apply (councils or LEPs) 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)

Financial health

College finances

Deficits in 2012-13 (48% operating deficits, 10% cash based deficit Ofsted-related spending + capital projects = short-term deterioration Staff costs 60-65% of income 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

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

Reminders

AoC conference 18 to 20 November 2014 More information on funding and finance issues here • http://www.aoc.co.uk/term/funding-finance