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Annual conference Funding forum

Join the annual conference featuring Julian Gravatt, focusing on college finances, public spending, and future predictions post-2020. Explore the Autumn budget, student loans, and critical proposals for education spending review.

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Annual conference Funding forum

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  1. Annual conferenceFunding forum Julian Gravatt– deputy chief executive

  2. College funding forum What I’ll cover • The wider context • The Autumn budget • Funding issues in 2019-20 • College finances • Public spending after 2020 • Student loans and teacher pensions • What I suggest you need to do

  3. The wider context

  4. The last four years (2015,16,17 & 18) What did you predict? • Conservatives: victory in ’15, very divided now • Labour: 30% vote in ‘15, 40% in ‘17 under Corbyn • UK out of EU in ‘19 on a 17 million vote • UK slow growing economy but low unemployment • A levy used to fund apprenticeships from ’17 • Asymetric adult education devolution from ‘19 • The T-level plan • New A-levels & GCSEs landed with few problems • Loss of confidence in universities

  5. What’s next? What we know or can guess • Brexit ‘19 but transition until start of 2021 • End of free movement, end of EU home fee status • Public finances will be tight • Skills devolution will mean changes • Ministers will tinker with apprenticeships • T-levels will start slowly • ONS likely to partly reclassify student loans • Post-18 review will recommend change

  6. Autumn budget

  7. The Autumn budget (29 Oct 2018) What happened • A fiscal windfall • Unlike GDP, public finances better than expected • No net tax rise needed to fund 5-year NHS deal • Public sector pension discount rate reduced • Additional spending on roads (potholes) and schools capital (including sixth form colleges) • 2019-20 budgets barely changed but now fixed • Funding now fairly predictable for next 12 months

  8. AoC proposals for spending review For 2020 and beyond • An education spending target (as % of GDP) • Higher 16-to-18 funding per student (up 5% a year) • A new all-age Level 3 entitlement • A new higher technical offer • A national retraining scheme • Grants not procurement in allocating funding • An education workforce strategy

  9. AoC short-term budget proposals Turned down • 16-18 funding rate £4,050 in 2019-20 • Guarantee non-levy apprenticeship budget Promised • Fund exceptional teacher pension increase • Capital grants for technical equipment (Yes) Let’s see • Redeploy adult education underpend on AEB • Set up a higher technical development fund • Standardise ESFA payment profile • Extend the restructuring facility for a year

  10. 16-18, apprenticeships, adult education etc for 2019-20

  11. 16-to-18 education in 2019-20 What changes • T-levels take effect in 2020-21 (c50 pilot institutions) • More industry placement capacity development funds available in 2019-20 (based on R04) • Extra Teacher Pension Scheme grant What doesn’t change • Same formula for revenue funding • Same rates (despite CPI running at 2%) • 16-to-18 population down 2% in 2019

  12. Apprenticeships in 2019-20 What changes • Co-financing rate 5% • Transfer of 25% of levy funds • Unused levy start to expire from May 2019 • IFA continuing to adjust/reduce framework rates • Smaller employers due to get accounts in 2020 What doesn’t change • The new system put in place between 2015 and 2017 • Budget run on 12-month April to March cycle

  13. Adult education budget in 2019-20 What changes • Devolution of c50% of adult education budget to Greater London and six Mayoral Combined Authorities (Greater Manchester etc) in 2019 • Procurement for contracted and out-of-area AEB • More monitoring by devolved authorities (more staff) • Postcodes now matter What doesn’t • Non-devolved AEB • ILR, funding entitlements, eligibility rules

  14. Adult education budget (£ mils, est) Non devolved 651 GLA 310 WM 105 GM 90 LCR 55 WE 17 TV 24 CP 12

  15. College finances

  16. College finances £6.7 bil Income 83% public (46% 16-18) 63% staff cost ratio 0.1% surplus Higher EBITDA 16-18 £3.1 bil HE £0.5 bil Teachers £2.4 bil Supples and services £1.9 bil FE loans £0.1 bil Debt interest £0.1 bil High Needs £0.2 bil Other staff £1.8 bil Fees £0.3 bil Depreciation £0.5 mil Apprentices £0.6 bil Catering etc £0.5 bil AEB £0.8 bil Grants (incl ESF) £0.5 bil

  17. Staff/income ratio vs benchmark

  18. Low surpluses– 4/5ths below benchmark

  19. Income and expenditure 2019 will be more difficult than ever • Fewer 16-to-18 students • Fewer apprentices • Adult education budget partly devolved • HE intense competition for fewer students • No increases to funding rates • Rising staff costs (staff turnover 17%) • Higher teacher pension contributions • Extra duties (funding admin, careers, OfS subs)

  20. Capital financing and spending Time for a rethink • Capital spending down by a factor of 3 in 4 years • Banks lending down. 2:1 model does not work • Grants dependent on LEPs. DfE prioritises schools • College cashflow still positive (EBITDA 4-5%)

  21. The college insolvency regime DFE ESFA Bank (s) Other creditor LGPS Fund Administrator Special Administrator DfE intend to use a pre-statutory Independent Business Review Bank, LGPS and creditors likely to be better off if they do not initiate the statutory procedure 14 day window College Duty to protect learners as well as creditors

  22. The next 13 months 2018/9 • December 2018 – governors approve 2017-18 accounts • January – start of the college insolvency regime • March – typical cashflow low point • April – a difficult month if there’s no Brexit deal • July – governors set 2019-20 budgets 2019/20 • July – governors set 2019-20 budgets • September – TPS contributions rise • November – Spending review published (TBC) • December - governors approve 2018-19 accounts

  23. Funding in the 2020s

  24. The 2019 spending review What we know • Won’t start before March 2019, must end by November • UK/EU negotiations on post-Dec 2020 deal • Current plan narrows the deficit up until 2023-4 • 5 year NHS deal: budget up 3.4%/year in real terms • Protection for pensions, NHS, defence, int’l aid • Figures imply small real-terms cut to unprotected budgets between 2019-20 and 2023-4 (IFS) • Big pressures in local govt, social care, policing, prisons • Education biggest unprotected spending budget

  25. Education spending issues The recent record • Funding per pupil (age 5-16) protected 2010 to 2020 • Rising pupil numbers • Expansion in early years • 24% drop in funding per student at age 16 • Student loans used to protect higher education Some immediate issues in early 2020s • 11% rise in secondary pupil numbers 2019 to 2024 • 8% rise in 16-to-18 (if participation % constant) • Student loan accounting may change

  26. 16-to-18 education early 2020s A £6.6 billion revenue budget • Widespread agreement that 16-to-18 underfunded • 266 colleges, 2,200 sixth forms (many small) • T-level numbers due to rise each year; with promise of more hours and funding per student • Work on transition year • Applied general review • DfE may find it politically hard to act even if it works out what needs to happen

  27. Student loan accounting Big uncertainty in post-18 education • ONS reviewing student loan accounting (17 December) • Are student loans loans? Is accrued interest income? • Could increased reported education spending • Might necessitate controls on loan outlays, eg lower fees or more planning

  28. Post-18 education early 2020s Even more complicated • Post-18 review may change fee & loan arrangements for higher education (including some lower fee caps?) • Desire for more Level 4 & 5 courses • Devolution means DfE no longer has a single FE system • Desire for a National Retraining Scheme • Shared Prosperity Fund seems likely to merge ESF into Local Growth Funds, under LEP control • Immigration plans are to end EU free movement and introduce skills-based controls • Further apprenticeship reform likely after 2020

  29. Teacher pensions

  30. TPS employer contribution (%)

  31. Current public sector valuations New ER rate Improved benefits because of the cost cap floor breach ER rate (no cost cap) Within cost cap Current ER rate The lower discount rate (CPI+2.4% not CPI+3%) Mortality Lower payrises Other adjustments Adapted from a LCP presentation

  32. TPS contribution rate change A 40+% rise in costs Notes: The 2018 TPS valuation is provisional and confidential which is why detailed figures are not included in this table

  33. The impact on budgets Teacher £30,000 salary Impact for a teacher earning £30,000 On-costs rise by £2,105 (7% of their salary) to £11,450 (38%) College £20 mil budget Variety of impacts Extra costs of £400,000 in 2019-20 DfE Teacher Pay Grant in 2019-20 Uncertainty on 2020 funding until Nov 2019 Pressure on staff costs, pay and jobs An issue when colleges bid for funds

  34. College staff and pensions Support staff Teachers Eligibility TPS – Employed teachers LGPS - All other college staff Subsidiary company staff Not eligible for TPS Only eligible for LGPS if company is admitted Regulations TPS and LGPS regulations College Subsidiary Company

  35. Concluding thoughts

  36. Lots of organisations try to tell colleges what to do…. Ofsted Office for Students FE Commissioner Home Office College Local government Education & Skills funding agency Awarding bodies External auditor The College’s bank

  37. Assess, act, reassess, act again.. Colleges need to chart their own course • Everyone expects more • New agents (eg levy payers, metro mayors) • ESFA less powerful, more rule-based • Westminster also less powerful • A bigger national focus on skills for work • Intervention best avoided • Solvency pre-condition for everything else

  38. What governing bodies should do Some suggestions • Future strategy • Quality • Finances (including sufficient cashflow) • Partnerships • Relationships – key civic, local, regional • Reputation of the college

  39. What college leaders should do Campaign for better but play the cards you have • Act on what students & employers want & need • Higher group sizes • Invest in course development • Protect staff pay – prioritise over jobs & pensions • Technology to support administration of learning • A more commercial approach to use of space • Efficiency – and savings – in administration • Aim to take your staff with you • Explain, listen and explain

  40. Any questions? Julian Gravatt AoC deputy chief executive

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