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AoC London College Finance Directors
General update on funding and finance
6 November 2014
Julian Gravatt, Assistant Chief Executive, AoC
@JulianGravatt
http://www.aoc.co.uk/term/funding-finance
Politics – where we are now
Uncertainty8 months before the 2015 general electionCoalition governing parties in open disagreementUKIP and Greens both doing well enough in polls to secure MPsLabour better able to convert votes into seatsResult currently difficult to callThe Scotland vote has prompted discussions on the constitutionSchools, apprenticeships and university fees all big political issues
Planning the next 12 months
Autumn 2014EFA Funding Letter, 24 October 2014 AoC annual conference, 18 to 20 November 2014Autumn statement, 3 December 2014Skills Funding Statement, December 2014 (hopefully)
Spring & Summer 2015Budget, mid March 20152014-15 allocations, by end of March 2015Easter, 7 April 2015General election, 7 May 2015Coalition negotiations, May 2015 Spending review, June to October 2015 (hopefully)
Politics and funding
Before the electionGeneral avoidance of boat-rockingDecisions on 2015-16 allocations made before the electionDepartmental budgets fixed up 31 March 2016Autumn statement may add to, subtract from or devolve budgets
After the electionPost-election 2015 spending review (budgets from 2016-17 onwards)Demography: More children now + more old people = post-16 squeezeCross-party agreement: closing deficit, cutting taxes & protecting NHSSpending likely to dip around 2018
The DFE budget after 2015
DFE’s cash crunch: too many schools, pupils & promises80% of school income spent on staff; on-costs up 5% in 2015-16UTCs, free schools & studio schools enrol 1% of 16-18s2015 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
Process16-18 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
IssuesIf cuts are necessary, EFA has to cut rates, numbers or weightingsAim is funding stabilityUsual 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 play1: Devolve skills & DWP budgets to local govt or LEPs2: Employer-routed funding for apprenticeships33: Expansion of FE loans to 19 year olds & Level 24: New earn-or-train options for under 21s on benefit5: New SFA funding approach borrowed from EFA?
SFA funding, 2015-16
ProcessSkills funding statement due in December 2014Some asymetric devolution (councils, LEPs or combined authorities)Core SFA funding system continues until a new one is in place
IssuesBIS may need further cuts to SFA and/or HEFCE budget in 2015-16Apprenticeships continue to be the first priorityTrailblazers will be in their second year (well-funded in 2014-15)Traineeship funding approach may be revisedUsual raft of tricky topics (reconciliation, ESOL, 24+ loans etc)
Pensions and budgets
Now By 2016
TPS employer 14.1% 16.48%
NI employer (approx)
10.4% 13.8%
Employer on-costs 26% 33%
Staff cost ratio 63% ?
Cost of employing a teacher to rise by 5% plus any payrise
TPS15 year recovery periodLower discount rateHigh pay growth assumption2015 reforms don’t save
enoughCosts Colleges 1% of income
National insuranceDWP simplifying state pensionRemoval of an NI relief£5 bil extra NI Costs Colleges 2% of income
Now By 2016
TPS members (avg) 9.6% 9.6%
NI employee (approx)
10.6% 12%
Pensions, Colleges and their staff
State pension
State pension
TPS or LGPS
TPS or LGPS
State pensionSPA rises to 67 by 2028New state pension in 2016No contracting out = higher NI
New LGPS & TPSCareer average entitlementNew accrual & indexationPost-reform service link to SPAPre-reform service protectionNew cost-sharing arrangementsLimited college choiceNo escape from LGPS debts
Tax limits on savingAnnual (AA) £40kLifetime (LTA) £1.25mil16* salary in DB schemePension reforms nowTax relief could change
Financial health
College financesDeficits in 2012-13 (48%); more in 2013-14?Ofsted-related spending + capital projects = short-term
deterioration Rising costs & falling income
How Colleges need to respondUnderstand your position, your environment and your risksRelationships with SFA, EFA, Council, MP and your bankCashflow management, risk management & financial analysisGoverning bodies responsible for solvency & viability of collegeUse AoC’s ETF-funded governance support programmeThink about opportunities and what comes next
On a more positive note...
OpportunitiesColleges have friends and alliesEducation and skills matter both to the recovery & to societyGovernment will still be spending £70+ billion on education in 2020Income generation opportunities existQuality countsProductivity improvements from IT only partly realised in educationThere 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
