AoC London College Finance Directors

General update on funding and finance

6 November 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 has prompted discussions on the constitution Schools, apprenticeships and university fees all big political issues

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)

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 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 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)

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 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)

Pensions and budgets

Cost of employing a teacher to rise by 5% plus any payrise

TPS employer NI employer (approx) Employer on-costs Staff cost ratio TPS members (avg) NI employee (approx)

Now

14.1% 10.4% 26% 63%

By 2016

16.48% 13.8% 33% ?

Now

9.6% 10.6%

By 2016

9.6% 12%

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

Pensions, Colleges and their staff

Tax limits on saving

Annual (AA) £40k Lifetime (LTA) £1.25mil

16* salary in DB scheme Pension reforms now Tax relief could change

TPS or LGPS Individuals State pension 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

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

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