Source · Select Committees · Public Accounts Committee
Thirty-Eighth Report - Managing colleges’ financial sustainability
Public Accounts Committee
HC 692
Published 27 January 2021
Recommendations
6
The Department’s, the ESFA’s and the Further Education Commissioners approach to intervention takes too long,...
Recommendation
The Department’s, the ESFA’s and the Further Education Commissioners approach to intervention takes too long, costs too much and is not effective in making colleges more sustainable. At February 2020, government was intervening in nearly half of colleges for financial …
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HM Treasury
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Conclusions (28)
2
Conclusion
Rising pension costs are putting significant pressure on college finances. Staff costs, including pension contributions, typically account for around two-thirds of colleges’ running costs, and have been rising in recent years. Employer contributions to the Teachers’ Pension Scheme rose by over 40% in 2019. The government provided colleges with extra …
3
Conclusion
It is clearly iniquitous that sixth-form colleges have to pay VAT while post-16 academies and schools with sixth forms do not. As part of the area reviews of post- 16 education and training provision, sixth-form colleges were given the option of becoming academies and, by 2018/19, 24 sixth-form colleges had …
4
Conclusion
Successful implementation of the new T level qualifications risks being delayed by a lack of work placements. In May 2018, the then Permanent Secretary at the Department requested and was given a ministerial direction, as he had concerns about the feasibility of delivering the new T level technical qualifications in …
5
Conclusion
The Department’s funding decisions are based on previous years’ student numbers, which risks holding back colleges that are growing. Funding for students aged 16 to 19, which makes up around half of college income, is based on the previous year’s learner numbers; other factors, such as retention rates, are based …
7
Conclusion
Students are losing out as colleges cut mental health and other support services in response to financial pressures. The Department’s funding for colleges fell by 20% in real terms over the six years from 2013/14 to 2018/19, and the ESFA rated the financial health of 35% of colleges as ‘inadequate’ …
1
Conclusion
On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Education (the Department) and the Education and Skills Funding Agency (the ESFA) on managing the financial sustainability of colleges.1
8
Conclusion
Financial pressures are affecting provision for students. They have caused some colleges to narrow their curriculum and reduce the length of courses. Some FE colleges have significantly reduced enrichment activities for students, such as careers advice and employability activities, and some are particularly concerned about reduced mental health support for …
9
Conclusion
Staff costs typically account for around two-thirds of colleges’ running costs, and have been rising in recent years. Colleges usually offer the Teachers’ Pension Scheme to their academic staff and the Local Government Pension Scheme to their support staff. Employer contributions to the Teachers’ Pension Scheme rose from 14.1% to …
10
Conclusion
The Local Government Pension Scheme has had a deficit in recent years, and colleges have had to make payments to help cover the deficit, in addition to their standard contributions.16 Committee Members have been told of concerns about the potential impact of the deficit repayments on the balance sheets of …
11
Conclusion
Between September 2015 and March 2017, government oversaw a programme of 37 area reviews of post-16 education and training provision across England. As part of the programme, sixth-form colleges were given the option of becoming academies and, by 2018/19, 24 sixth-form colleges had converted.18 The Department highlighted that there are …
12
Conclusion
The Sixth Form Colleges Association has estimated that the requirement to pay VAT means that the average sixth-form college diverts around 4% of its funding away from frontline provision.20 Based on funding data in colleges’ accounts for 2018/19, this would equate to an average of almost £0.5 million per college, …
13
Conclusion
The Department explained that VAT treatment was a longstanding issue and that VAT registration had a range of implications not just the payment of VAT. It said that it had regularly raised the situation with HM Treasury, but did not believe that the issue was a priority for HM Treasury.22 …
14
Conclusion
T levels are new technical qualifications which follow GCSEs and are equivalent to three A levels.23 In May 2018, the then Permanent Secretary at the Department had concerns about the feasibility of delivering T levels by the target date of 2020. He requested, and was given, a ministerial direction to …
15
Conclusion
T levels combine classroom learning and ‘on-the-job’ experience during a work placement of around 45 days (20% of the overall time) over the two-year course.26 Committee Members have heard from college principals about difficulties in recruiting students, largely because of the challenge of securing enough work placements, and 17 Q …
16
Conclusion
The Department acknowledged that the move to T levels was challenging, particularly delivering work placements which were an important element of the new qualifications.28 The ESFA emphasised the additional funding it had given to colleges to create work placements, and said that it had had positive feedback from colleges and …
17
Conclusion
Most college funding follows the learner, and each college’s funding is largely determined by the funding rates per learner and the number of learners it has. Funding for students aged 16 to 19 was by far the largest funding stream in 2018/19, and represented around half of all college income.31 …
18
Conclusion
While colleges with fewer students than in the previous year, or with worsening retention rates, benefit from the ESFA’s approach, colleges who recruit more students during an academic year than the number they were originally funded for may not receive full funding for those additional students during that academic year. …
19
Conclusion
The ESFA acknowledged that the FE funding system was complicated and said there were a range of reasons for this including the complexity of the college sector itself, with colleges offering very different programmes and catering for very different groups of students. It told us that it was reviewing various …
20
Conclusion
Colleges’ autonomy means that, for example, government does not have the power to appoint or remove college staff. Colleges can borrow commercially, and they may make financial surpluses or deficits.35 We asked the ESFA whether its intervention powers were adequate. The ESFA said that the combined efforts of its teams …
21
Conclusion
The intervention regime for colleges incorporates a number of phases, from prevention work, through early intervention and formal intervention to, in the most serious cases, 31 C&AG’s Report, paras 1.7–1.8 and Figure 1 32 Q 43; C&AG’s Report, para 2.10 33 Qq 43–45; C&AG’s Report, para 2.10 34 Q 64 …
22
Conclusion
At February 2020, seven colleges in early intervention had entered it when the policy was introduced in November 2015; 75 colleges had been in early intervention for two or more separate periods; and seven colleges in formal intervention had been there for more than five years, with two of these …
23
Conclusion
Between November 2014 and March 2019, the ESFA paid £253 million to 36 colleges which had serious cashflow problems. The purpose of this emergency funding was to help the colleges maintain their teaching and other services for learners. At the beginning of this period, government’s intention was that all the …
24
Conclusion
The ESFA told us that some amounts that were originally given as loans then had to be converted to grants because not enough work had been done at the outset to assess whether there was a realistic expectation of repayment. It explained, however, that if a college did not have …
25
Conclusion
In January 2019, the Department introduced an insolvency regime for colleges, which applies aspects of corporate insolvency law and involves a special administration regime known as ‘education administration’. The overriding priority while a college is in education administration is to protect the students. Two colleges in Kent entered education administration …
26
Conclusion
The ESFA confirmed that the administration processes for the two colleges were largely complete, although some statutory duties and administrative tasks remained to be done.46 It estimated that it would have spent more than £60 million on the two cases by the time they were completed. It said that a …
27
Conclusion
In July 2020, the government published an independent review of college financial oversight by Dame Mary Ney. The review made a number of recommendations with a view to improving the support individual colleges and the sector received, and enhancing oversight and intervention arrangements. Dame Mary proposed a new, more nurturing …
28
Conclusion
As mentioned above, between September 2015 and March 2017, government oversaw a programme of 37 area reviews of post-16 education and training provision across England. The area reviews aimed to ensure that there was the right capacity to meet the needs of students and employers in each area, provided by …
29
Conclusion
The Department has not had a clear long-term strategy covering the college sector’s role, structure and funding in an integrated way.56 The Department said that there had been individual elements of long-term strategy, such as giving employers more of a voice about skills and reviewing the number of qualifications on …