Politics, Funding, and Finance Update - October 2014

1. ACER chief exec’s forum • Politics, funding and finance update • 20 October 2014 • Julian Gravatt, Assistant Chief Executive, AoC • Julian_Gravatt@aoc.co.uk • @JulianGravatt • http://www.aoc.co.uk/term/funding-finance

2. 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

3. 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

4. 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)

5. 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

6. The bigger spending picture Government plans Various budgets get bigger Pensions, interest, NHS etc Deficit reduction via RDEL cuts 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? x

7. 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

8. 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)

9. 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?

10. 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)

11. 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

12. 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