autumn statement submission - association of colleges · autumn statement submission october 2016 ....
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Autumn Statement
Submission October 2016
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Background
The Association of Colleges (AoC) represents and promotes 95% of the 325
colleges in England incorporated under the Further and Higher Education Act
19921.
Colleges provide high quality technical and professional education and training for
young people, adults and employers. They provide over three million students
with employability skills while developing their career opportunities. In doing this,
they strengthen the local, regional and national economy. Colleges are
inspirational places to learn because education and training is delivered by expert
teaching staff in industry-standard facilities.
Colleges offer first rate academic and technical teaching, at levels ranging from
basic skills to postgraduate in a range of professions including engineering,
hospitality, IT, construction and the creative arts.
Sixth form colleges provide high-quality academic education to 16 to 18-year-olds
enabling them to progress to university or higher level technical education.
Introduction
The Government’s current plans for public spending on post-16 education and
training were set out in the 2015 Spending Review. In key decisions, Ministers
decided to fix the funding rate for 16 to 18 education, to protect the adult
education budget and to introduce major changes to the system via the
apprenticeship levy, skills devolution and the extension of student loans. These
decisions introduced some welcome stability and predictability to parts of the
system at a time when radical changes are being made to apprenticeships. At the
very least the Government should honour these spending decisions but it should
also consider doing more.
The decision to leave the European Union (EU) casts a sharper light on the
weaknesses in our society and economy in particular the shortfalls in workforce
skills. Some companies and public services employ significant numbers of staff
from other EU countries. It is likely that Brexit will mean more controls on
movement to the UK for work and therefore more must be done to educate and
train the UK workforce. In the longer term businesses, individuals and families
should take back more responsibility for this. In the short term, the Government
needs to act.
1 Following the latest round of mergers in August 2016, there are 206 further education colleges (FE), 16
specialist colleges, three national colleges, 90 sixth form colleges and 10 special designated institutions.
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In this paper, AoC suggests some actions. We think it is necessary to increase 16 to
18 funding rates to avert a funding crisis in academic and technical education for
that age group. At the same time, the Department for Education (DfE) needs to
ensure money is used efficiently by tackling the waste that arises in small sixth
forms. The current plan for apprenticeship funding rates and the existing GCSE
funding condition should be reviewed. As well as protecting the budget for adult
skills and UK based European Social Fund (ESF) programmes, there will need to be
a new approach from 2019. Opportunities should be seized by DfE to make the
education system more efficient and the allocation of budgets more logical. Tough
issues related to pensions should be tackled sooner rather than later. We explain
the detail of these proposals in the rest of the paper which covers issues mainly
within DfE’s remit.
Main recommendations
Our two main recommendations are
1. HM Treasury should set a medium term target to increase spending on
education and training to 5% of GDP and direct a share of the additional
funding to post-16 education.
2. The management of education spending should be reformed to improve
efficiency, to allocate funds to areas of greatest need and to provide more
predictability.
Funding issues
3. The national base rate for 16 and 17-year-olds (currently £4,000) should be
increased so that it provides the necessary funds for high-quality education.
4. The recommendations of the Sainsbury Review should be fully implemented
and funded, including additional funding for work placements and for 18-
year-olds.
5. The Adult Education Budget should be sustained at least at £1.5 billion in the
short term and should be used to guarantee a Citizen’s Skills Entitlement.
After 2019, the budget should be used to support a new English Social Fund
(new ESF).
6. The apprenticeship funding rates that take effect in May 2017 should include
a higher factor for 16 to 18-year-olds, should reflect area costs for technical
programmes and should retain a factor for those from low income families.
7. The Government should topslice the apprenticeship levy to create a fund to
use to promote access to apprenticeships and help raise quality.
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8. Financial support for young people should be reviewed to eliminate
unhelpful obstacles to participation, for example the transport costs and
child benefit rules.
9. DfE should reallocate capital budgets so that colleges have funding for
building maintenance and equipment.
10. HM Treasury and DfE should plan for the additional education places that
will be needed when the number of 16-year-olds increases towards the end
of the decade.
11. There should be a 10-year programme to double the supply of maths
teachers across all parts of the education system to reach a goal by 2030
that all 18-year-olds are qualified at the current Level 2 standard and the
majority reach Level 3.
System improvements
12. The Budget rules should be amended to include three-year funding
agreements, virement across the age 19 and more end of year flexibility.
13. DfE should carry out some targeted reviews of post-16 provision in schools2
using the two tests developed in post-16 area reviews of colleges3.
14. DfE should review the English and maths condition of funding and introduce
new English and maths qualifications for professional and technical
students.
15. HM Treasury and DfE need to streamline the process for colleges to apply
for restructuring funds and to double the transition fund grants so that area
review recommendations can be implemented quickly.
16. DfE and the Department for Communities and Local Government (DCLG)
should publish a Skills Devolution Green Paper to help clarify responsibilities
and priorities and encourage debate about the potential benefits and risks.
17. On the day that the UK leaves the EU, VAT should be removed from all
publicly funded education for 16 to 18-year-olds.
2 Post 16 provision in schools includes sixth forms in 11-18 schools and academies, 16 to 19 free schools and
University Technical Colleges which are constituted in law as academies. 3 Financial sustainability and educational quality.
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18. The current student loan system should be converted into a personal
learning account system which includes a lifetime loan allowance and
maintenance loans for all courses at Level 4 and above.
19. HM Treasury, DfE and DCLG should re-open negotiations on the Teacher
Pension Scheme and Local Government Pension Scheme to contain the
costs of the scheme for employers.
20. A DfE review should consider rationalisation of agency responsibilities but
also ways to reduce the costs of assessment and inspection across the
education system.
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The Government’s objectives for the education and training budget
1. The Government’s current plans for public spending were set in November
2015 and slightly revised in the March 2016 Budget. Along with schools and
higher education white papers and a Post-16 Skills Plan, the Government is
embarking on major reforms in the education system including:
Plans to increase the number of places in selective schools, faith
schools and sponsored academies combined with a stronger focus on
the needs of children in struggling families4.
The shift of schools towards academy status and the introduction of a
national schools funding formula.
The introduction of an apprenticeship levy on large employers,
expected to raise £2.6 billion in 2017-18 and associated with the
introduction of an entirely new mechanism for funding training.
The extension of student loans to cover a wider set of higher
education activities as well as further education at Level 3 or above
for those over age 19 (except where they have statutory
entitlements).
A new system of regulation for higher education including the
creation of the Office for Students, introduction of a new statutory
register of providers and the use of the Teaching Excellence
Framework to allow full-time tuition fees to rise above £9,000.
The devolution of adult skills revenue funds in 2018 to nine combined
authorities covering half the population of England.
The completion of a national programme of post-16 area reviews
with the offer of Government loans to support college restructuring.
The completion of a series of reforms to academic qualifications by
2018 and the start of a reform of post-16 technical education
programmes to take effect from 2020.
2. These reforms come on top of a series of changes in recent years and will
require careful management to ensure success. Ministers made two sensible
4 AoC will make a detailed response to the Schools Green Paper which explains the issues for 16 to 18 education.
Although 86% of secondary schools are judged good or outstanding by Ofsted, only 59% of 16-year-olds achieve
five GCSEs at grade C including English and maths and fewer than 35% of those entering FE college at 16 have the
two core GCSEs at that level.
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decisions in the 2015 Spending Review to make the funding between 2016
and 2020 slightly more predictable. The decision was taken to fix the full-
time 16 and 17-year-old funding rate at £4,000 and the adult skills
participation budget at £1.5 billion. This followed six years of austerity
measures between 2009 and 2015 which had taken their toll on post-16
education. In that period, funding for 16 to 18 education had been cut by
about 8% in cash terms and funding for adult skills by more than 40%. Unlike
some public services, there is no option in 16 to 18 education to introduce
fees. If Government reduces public spending on 16 to 19-year-olds or on
courses targeted on poorly paid adults then the direct consequences are
course cuts. This will in turn have a detrimental impact on the Government’s
stated commitment to skills growth.
3. The financial position of colleges is also a continuing concern. Many colleges
reported deficits in 2013-14 and 2014-15. The sector as a whole made a
collective deficit averaging 1% of total income. This resulted in net cash
balances falling from £1.3 billion to £0.9 billion. A major contributory factor
were the substantial cuts in funding which accelerated from 2013 onwards
and which forced colleges to incur substantial redundancy payments. In
2015 the Government started the area review process with the aim of
ensuring that colleges are financially sustainable and in 2016 set a
benchmark that surpluses should be 3% of income. Some colleges already
achieve this target because they wish to set funds aside to invest in the
future and to protect their students from year-on-year funding changes but
it will be a struggle for all colleges to reach this target with the current
funding rates.
4. The decisions made by the Government in the 2015 Spending Review to
stabilise funding will help and need to be reaffirmed. However the process
of rebuilding college finances will not be simple. Colleges faced a 5%
increase in the cost of employing a lecturer in 2015-16 as a result of
increases in contribution to teacher pension scheme and national insurance.
This added an average 2.5% to total costs5. Increases in contributions to the
Local Government Pension Scheme will take effect in April 2017 and are
likely to add at least another 1% to costs. The higher national minimum wage
will add further costs. There may be subscription increases for some central
services like JISC and for the new higher education regulator, the Office for
Students. Some colleges may also lose income (and opportunities to widen
5 In 2014-15, FE colleges spend an average of 46% of their income on teaching staff and 18% of their income on
all other staff. Sixth form colleges spent an average of 53% of their income on teaching staff and 16% on all other
staff.
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the horizons of their students) if tighter immigration controls further reduce
international student numbers and make it harder to recruit specialist staff6.
5. Some colleges will be able to increase their income and surpluses through
expansion and developing new apprenticeships and loan-funded courses.
The majority will only increase their surplus by cost cuts. Higher college
surpluses are a desirable longer term goal but a better short-term priority
might be an increase in collective investment.
Recommendation
HM Treasury should set a medium term target to increase spending on
education and training to 5% of GDP and direct a share of the additional
funding to post-16 education.
6. Public spending on education was 4.5% of GDP in 2015-167 and is forecast to
fall in the next few years8 at a time when pupil numbers are due to rise9. The
squeeze in spending involves flat cash allocations in schools and sixth forms
at a time when total pay costs are rising partly because of labour shortages
and decisions on tax and pensions. The effects of this financial squeeze is
visible in individual schools and colleges but is self-defeating at a time when
the UK needs to compete on the skills and capabilities of its people. Available
funds have understandably been focused on the core school population
which has resulted in budget cuts in the rest of the education system.
7. There is a positive economic case for higher investment in education and
training both for individuals and employers10. Exit from the EU makes this
issue even more critical. If there are new controls on immigration, employer
behaviour will need to change. In some sectors the non-UK EU workforce is
15% of the total11. Government action is needed to ensure that the young
population is properly prepared for the future but also to help train adults to
fill future vacancies. This should imply more spending not less. Therefore a
medium term target to raise the education spending to 5% of GDP would be
a rational objective.
Recommendation
6 There is very little data on EU activity in colleges but a very broad brush AoC estimate is that there are 40,000
non-UK EU students in colleges (2% of the cohort), 4,000 staff (2% of the workforce), and annual income that
fluctuates between £50 million and £100 million in annual income (between 0.8% and 1.5% of the total). 7 Public Spending Statistics 2016 Chapter 4
8 Office for Budget Responsibility Fiscal Sustainability Report, 2015 forecasts education spending will be 4.1% of
GDP in 2019-20, Page 69 9 DFE National Pupil Number Projections July 2016 forecast a rise in the 5 to 15 age group in schools from 6.5
million to 7.0 million. 10 “Estimation of the labour market returns to qualifications gained in English Further Education, December 2014”
Department for Business, Innovation and Skills (BIS), Research Paper 195). 11 Keohane, Broughton and Ketola “Working together: European Workers in the UK”, SMF, June 2016
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The management of education spending should be reformed to improve
efficiency, to allocate funds to areas of greatest need and to provide more
predictability.
8. DfE’s total revenue and capital Departmental spending is around £60 billion
and £6 billion a year respectively. This money is divided up between several
funding agencies who use different systems to allocate it to nurseries,
schools, colleges and universities. There are obvious reasons why funding
works differently in different sectors but some budget allocations make
less sense if looked at afresh. It is not clear, for example, why the
Government acknowledges the existence of inflation in universities12 but
nowhere else or why the pupil premium stops at age 16. Other problems
exist in the management of spending. Many education programmes have
to stick within one-year budgets despite the fact that the teaching and
learning process itself involves a sustained investment of time and effort.
Following the transfer of colleges, skills and universities into DfE, the
Department should reconsider the deployment of funds, to look at how it
supports those with greater needs and to work out how to introduce more
budget stability.
Recommendation
The national base rate for 16 and 17-year-olds (currently £4,000) should be
increased so that it provides the necessary funds for high-quality education.
9. The national base rate for 16 to 18-year-olds has been fixed for the next four
years which provides helpful stability for colleges and schools at a time of
considerable curriculum change. The £4,000 is the minimum that DfE should
provide for full-time students. The decision protects an estimated £4 billion
in the budget. Alongside this, there is a case for DfE to increase the funding
per student over the next few years:
Inflation will erode the value of the rate by an estimated 8% in the
next four years13. This will be on top of a real-terms cut to funding for
16 to 18 year olds of 13.6% in the five years from 2010 to 201514.
There is evidence that colleges have cut A Level subjects in modern
foreign languages and the sciences, because they can no longer
afford to offer them15. Many colleges have narrowed their A Level
programmes to three subjects16. Meanwhile English and maths
requirements are narrowing the teaching time for technical subjects.
12 The Higher Education White Paper promises increase in higher education fees linked to inflation and the
Higher Education and Research Bill creates a mechanism for regular uprating. The 2017-18 fee cap is due to rise
by 2.8% 13 Calculations from GDP deflator figures. 14 Schools Spending, Institute for Fiscal Studies Briefing Note, BN168. 15 http://www.bbc.co.uk/news/education-33847860. 16 AoC analysis of Individual Learner Record date
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Full-time sixth form study in England involves average contact time of
less than 20 hours a week compared to between 25 and 30 hours a
week in higher-performing countries and cities such as Sweden,
Canada, Singapore and Shanghai17.
Modelling on the costs of a broad and balanced curriculum by the
Association of School and College Leaders18 and Sixth Form College
Association shows that the rate should be nearer £5,000 than £4,000.
10. The positive case for higher funding rates are that they will support key
Government objectives including raising the entry rate of disadvantaged
young people into higher education and reducing the numbers who reach
age 18 without English or maths at Level 2. Higher funding levels will also
provide the space for colleges to introduce the new technical education
programmes set out in the Post-16 Skills Plan. DfE plans to introduce a
national school funding formula by 2019-20. Although this stops at 16, a
longer term goal to consider is a single formula. As a first step towards this,
DfE should increase the 16 to 18 rate.
Recommendation
The recommendations of the Sainsbury Review should be fully implemented
and funded, including additional funding for work placements and for 18-
year-olds.
11. The Post-16 Skills Plan sets out an ambitious plan to improve technical
education which may, in the long term, secure savings as a result of
increased specialisation. This, in turn, may increase average class sizes and
allow colleges to support better facilities. In the short term there are two
clear funding needs from the Skills Plan:
There are costs associated with finding and managing work
placements because they involve an individualised service to young
people and employers rather than education to a group. The
Sainsbury Review proposed a payment to providers of around £500 to
set up placements whilst also proposing certification which would add
to costs.
A two-year full-time course would be the standard model under the
plan but with the expectation that some school leavers would need to
take an additional transition year. This implies a full-time three-year
programme. The current 16 to 18 funding system assumes a full two
years and then administers a 17.5% cut in the third year. A sensible
17 SFCA Costing the Sixth Form Curriculum, March 2015, Part 2 for international comparisons. 18 ASCL paper on education funding, May 2015.
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step therefore would be to maintain the full rate for three years for
those students taking the transition year.
Recommendation
The Adult Education Budget should be sustained at least at £1.5 billion in the
short term and should be used to guarantee a Citizen’s Skills Entitlement.
After 2019, the budget should be used to support a new English Social Fund
(new ESF).
12. The decision to fix the adult skills participation budget outside
apprenticeships at £1.5 billion was designed to support employer and
individual investment in education and training at a time of considerable
change. Government needs to provide support courses taken by adults
because apprenticeships are not always suitable and student loans will not
be sufficient. Apprenticeships are focused on an individual’s current job so
are not suitable for those wishing to change career. Apprenticeships are
also confined to those in full-time work. As for student loans, they are only
available for those taking courses at Level 3 There are nevertheless a
number of sectors which require a sufficient number of people with Level 2
skills.
13. Courses funded from the adult education budget help individuals acquire
basic and intermediate skills to get them into work. A key task in the next
12 months will be for colleges to work with Local Enterprise Partnerships,
local government and others to work out the best way to use available
funds. Planning should also start now on supporting workforce
development in disadvantaged areas. Colleges have used the European
Social Fund over the last two decades to help retrain and improve the skills
of hundreds of thousands of people. Exit from the EU requires a fresh look
at the priorities but should not result in any reduction in spending because
this would widen existing social and economic divisions. A better solution
may be creation of an English Social Fund to target additional funds to the
same areas but with a simpler set of rules.
14. The Adult Education Budget should also be used to fund a new programme
of study for adults focused on the core capabilities needed for life and
work in 21st century Britain: literacy, numeracy, digital, financial, citizenship
and health. A new report from the Learning and Work Institute and JRF
explores this issue in greater detail and suggests that an additional
investment of £200 million a year could double the number of people
accessing similar provision and help an additional 280,000 people into
work by 203019.
19 Learning and Work Institute “Skills and Poverty” September 2016
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Recommendation
The apprenticeship funding rates that take effect in May 2017 should include
a higher factor for 16 to 18-year-olds, should reflect area costs for technical
programmes and should retain a factor for those from low income families.
15. The systems for funding apprenticeships are complicated because there are
different rates for the older frameworks and the new standards and because
some transitional arrangements from an earlier reform are still in place. The
current plans for overhauling apprenticeship funding in 2017 involve an
entirely new system for apprentices who start after May 2017. It is sensible
to make a determined effort to simplify the system but the plans set out in a
consultation published in August 2016 go too far. There are four particular
problems:
The funding caps are too low for some frameworks. This will make it
hard for colleges to provide high quality training in the areas affected.
The proposals involve large cuts in the funds available for 16 to 18-
year-olds on the assumption all apprentices in a particular sector
should have the same level of support. College experience of training
younger apprentices is that more support and time is needed with
this cohort which implies higher costs.
The proposals involve the removal of the disadvantage factor and
area cost factor from the apprenticeship funding system. There may
be debate about the sums involved or the way to identify need but
there is definite evidence that apprentices from lower income
families require more support (for example because they lack funds
to buy personal equipment). There is also a case that specialist
training for apprenticeships will be more expensive in higher cost
cities.
The introduction of a compulsory 10% fee for employers who do not
pay the levy will bring a new complexity to the administration of
funding and may also discourage participation.
16. Quick decisions are needed on these points to ensure that the Digital
Apprenticeship Service is ready to go live in May 2017. There is still time for
implementation but a sensible response would be to look for possible ways
in introduce changes in stages and for Government to amend the schedule
of rates. This should involve increases to certain funding caps, a higher 16 to
18 factor, an area cost factor and a fund to meet the costs incurred by
apprentices from disadvantaged backgrounds. We explain a specific
proposal for this access and quality fund in the next couple of paragraphs.
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Recommendation
The Government should topslice the apprenticeship levy to create a fund to
use to promote access to apprenticeships and help raise quality.
17. The apprenticeship levy creates a new independent funding stream for
apprenticeships worth an estimated £2.6 billion a year from 2017-1820. The
official case for introducing the levy21 noted financial benefits for both
individuals22 and employers23. A compulsory system is seen as a means to
reverse a 20 year decline in employer spending on training, to narrow the
20% productivity gap with other G7 countries and to increase the number of
apprentices. A key principle of the levy is that it is a hypothecated tax with
the funds being under the control of employers. There is a risk that the
speed of this reform will undermine the apprenticeship quality and that
young people from disadvantaged backgrounds and struggling families will
find it harder to access good training places.
18. The Government therefore needs to focus relentlessly on improving the
reputation of the programme. This will only happen if the vast majority of
apprentices get high-quality training. If quality is assured, numbers will
follow and other benefits will accrue. Policies focused on quality imply tight
controls on who can access public funds for training, transparency about
how they use it, information on outcomes and effective risk-based
monitoring. The quality and reputation of apprenticeships can also be
improved through skills competitions which reinforce employment skills,
drive curriculum innovation and provide international benchmarks. The
Government should ensure it continues adequate funding to ensure more
apprentices benefit from local, national and international skills competitions
organised by World Skills UK24.
19. Government, employers, colleges and training providers should work
together to tackle issues of access and participation for apprentices from
disadvantaged backgrounds and struggling families. The data collected via
the funding system could be used to identify problem areas and produce
20
HM Government “Apprenticeship spending and expected levy payments” August 2016 estimates that 19,000
employers will pay the levy. 21 HM Government, English apprenticeships: Our 2020 Vision
https://www.gov.uk/government/publications/apprenticeships-in-england-vision-for-2020, Page 3. 22 Completing an apprenticeship brings a return of between £48,000 and £74,000 extra over a working life for a
Level 2 apprenticeship and between £77,000 and £117,000 for Level 3. 23 70% of surveyed employers reported that apprenticeships had improved the quality of their product or service 24
The UK came seventh in the 2015 World Skills competition behind Brazil, Korea, Taiwan, Switzerland, China
and Japan but ahead of many of its European peers, for example France and Germany. The 2017 World Skills
competition is in Abu Dhabi.
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benchmarks. There are long standing issues about segregation by gender25
and ethnic origin26 in access to particular careers which need to be
20. monitored and challenged. DfE’s focus on better information and careers
advice for young people will also help. It is helpful that there will be
legislation to require proper information to be made available to school
pupils but it will also be necessary for employers to get more involved with
schools and colleges on issues of access. Some employers may want to use
their own levy money to widen access and this should be encouraged.
Government should also reserve part of the apprenticeship levy and use this
at national or employer level to support access to, and achievement in,
apprenticeships in a similar way to the widening participation funding that
has been reserved for this purpose in the higher education system.
Recommendation
Financial support for young people should be reviewed to eliminate
unhelpful obstacles to participation, for example the transport costs and
child benefit rules.
21. There is now less money to support students with the incidental costs of
accessing education than there was in the past. Education Maintenance
Allowances were abolished in 2011 and replaced by bursaries, but with a
budget cut of more than 50%. At the same time public transport fares have
risen. A recent survey suggests that many travel costs range from £10-20 a
week which adds up to significant cost for those on limited budgets27.
Transport is a major factor that influences young people’s access to
education or training. In addition, young people in colleges and undertaking
apprenticeships often have to travel further than those that study at school.
22. The legislation governing the transport support that should be available to
16 to 18-year-olds in full-time education has not been properly updated
since the education and training participation age rose to 18 nor does it
reflect the aim to increase apprenticeship participation. The new combined
authorities have an opportunity to tackle the long standing need to provide
affordable and accessible transport to education and training.
23. There are also issues for apprentices. Parents get child benefit for 16 and 17-
year-olds who stay in education but lose this if their child starts an
apprenticeship. Apprentices are paid a lower minimum wage. Anyone who is
unemployed who takes an apprenticeship loses access to free prescriptions
25 Fuller and Unwin “The challenges facing young women in apprenticeships” 2015 available via
www.educationandemployers.org 26 Newton and Williams “Underrepresentation by gender and race in apprenticeships: A research summary”
Unionlearn 2013 27
NUS Pound in your Pocket survey 2012
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or dental treatment. Perhaps some of the grants for employers should be
directed to the apprentice.
Recommendation
DfE should reallocate capital budgets so that colleges have funding for
building maintenance and equipment.
24. Colleges need to continue to have industry standard facilities in order to
provide high quality education for young people, apprentices learning off the
job and adults. Capital grants were available in the past but have been
reduced in recent years which has a direct impact on investment levels. Sixth
form colleges benefit from a small formula grant paid on the same basis as
schools whilst FE colleges receive no funding for equipment unless they have
higher education provision. For reasons which are not entirely clear, there
was a £126 million Higher Education Funding Council for England (HEFCE)
teaching capital fund in 2015-16 but no equivalent equipment fund for
further education.
25. Colleges spend considerable sums on advanced machinery, laboratory
equipment, workshops and vehicles but are under financial pressure to
improve their operating surpluses and conserve cash. This is likely to lead to
cut backs on this spending at a time when the educational need is for
learning and training to take place with up to date facilities. A dedicated
equipment fund is therefore needed for colleges focused in the short term
on preparation for the technical education routes.
Recommendation
HM Treasury and DfE should plan for the additional education places that
will be needed when the number of 16-year-olds increases towards the end
of the decade.
26. In recent years HM Treasury and DfE have grappled with the costs of
providing additional primary and secondary places to deal with a rising
school age population. The National Infrastructure Plan records plans to
spend £23 billion between 2016 and 2021 on school places28 but has no
specific provision for post-16 places apart from via the Local Growth Fund.
Officials report that the indicative skills capital budget in this local enterprise
partnership (LEP)-controlled fund is a total of £0.5 billion over a four year
period. The first priority for many LEPs in the current round (“Growth Deal
3”) is local job creation though a small number are considering projects that
support post-16 area reviews. The only other budget, the Condition
Improvement Fund, has supported a small number of sixth form college
projects but is focused mainly on secondary schools.
28
HM Treasury National Infrastructure Delivery Plan 2016-21, Page 76.
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27. This lack of funding is compounded by reductions in private investment. For
two decades, college capital expenditure has been funded by a combination
of government grants, commercial loans, property sales and retained cash.
Some colleges continue to sustain investment on this basis but banks have
become cautious about new lending and are seeking to reduce total
exposure. There is therefore under investment and yet in a few years the
post-16 population will start to rise. Facilities in schools are unlikely to be
suitable for future demand particularly as there is likely to be a growing
demand for technical education.
28. The case for investment is partly a demographic one but is also economic
and educational. Purpose-built facilities could maximise efficiency because
they are popular with students (even when full), support larger class sizes,
provide specialist facilities and allow combinations of subjects. Efficient use
of space in new buildings allows other space to be released or re-used.
29. The Government could achieve multiple objectives by embarking on a
programme to build a number of new colleges for the 2020s. Recent
experience with 16-19 free schools shows that it is hard to set up a new
institution from scratch. A better option would be the merger of existing
school sixth forms to create a new college as happened in Rochdale in the
early 2000s29. Sixth form closures could release space in schools which could
be used to expand secondary school provision. London exemplifies the
issue. There is a need for more than 30,000 new secondary places in the
next five years30; there are 107,000 places in 371 academy and maintained
school sixth forms in London, 149 (40%) have fewer than 200 students. In
London – and nationally - there is a high level of drop out at age 1731 (ie after
one year of A Levels). A coordinated plan could target the worst performing
small sixth forms for closure to make places available for younger secondary
age pupils while investing in high quality cost-effective college places near
public transport hubs.
Recommendation
There should be a 10-year programme to double the supply of maths
teachers across all parts of the education system to reach a goal by 2030
that all 18-year-olds are qualified at the current Level 2 standard and the
majority reach Level 3.
30. There has been an increase in the number of pupils and students in the
education system, an increase in the number taking maths courses and an
29 Rochdale Sixth Form College was created following a review in the area and was grade outstanding in in most
recent Ofsted inspection. 30
London Councils “Do the Maths 2015” September 2015. 31 DFE data shared with AoC staff, spring 2016
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increase in teaching time required in secondary schools. At the same time,
there are shortages in the supply of qualified teachers and difficulties
recruiting more. 30% of colleges in AoC’s recent workforce survey32 reported
staff shortages. Average starting salaries for maths graduates appear to
exceed £25,00033. Average teacher pay in colleges for staff of all ages and
experience is £32,00034. The maths bursaries organised by the Education
and Training Foundation (ETF) provide useful incentives but DfE needs to go
further and look at the recruitment and retention picture across its whole
brief. An ambitious but achievable long term goal might help concentrate
minds. The target should be that, by 2030, all 18-year-olds are qualified at
the current Level 2 standard and the majority reach Level 3. Planning should
start now on the teacher supply necessary to make this happen.
Recommendation
The Budget rules should be amended to include three-year funding
agreements, virement across the age 19 and more end of year flexibility.
31. There are effective systems to control public spending in post-16 education
but there are some areas which need attention:
Budgets are set and managed on an annual basis with tight controls
to avoid overspending. Colleges have got used to managing within
fluctuating annual budgets but they shift behaviour towards
temporary staff and transactional sub-contracting.
For the last nine years there has been a division in spending at age
19 which has resulted in unhelpful differences in approach within
the apprenticeship system and where young adults take longer to
achieve minimum standards for adult life by age 19.
32. The machinery of government changes will make it possible for DfE to
reconsider its approach to the age divide at 19, but only if there is Treasury
action to recast budgets. Treasury approval will also be needed to confirm
longer term spending to Departments and to support them in moving
towards three-year funding agreements so that colleges can plan their
provision effectively and seek to meet the needs of their local community
and local employers over the full period.
Recommendation
32
Unpublished AoC survey, 2016. 33
HESA Destination of Leavers in Higher Education data 2013-14 reported by Complete University Guide 34
ONS Labour market data
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DfE should carry out some targeted reviews of post 16 provision in schools35
using the two tests developed in post-16 area reviews of colleges36.
33. Government policy in recent years has promoted choice and competition
through the creation of new and different types of institution. This has been
unwise at a time when there is contraction in both the population and
budgets. 169 new academy and maintained sixth forms were opened
between 2010 and 201537 but the total numbers of enrolled school students
has been static. Average cohort sizes were already small and have declined
further. Curiously DfE offers little in the way of practical advice to make
school sixth forms work and has not researched the effectiveness of this
reform. In March 2016, Ministers introduced five new tests to ensure that
new sixth forms are viable38 but this is a limited step because it does not
cover the sixth forms that are already open. There is a long tail of small
institutions, with 1,180 school sixth forms enrolling fewer than 100
students39. There is emerging evidence that some of their performance is
sub-standard40. Meanwhile University Technical Colleges (UTCs) have
struggled to achieve viability in a system currently built around exams and
transfer at age 16 and, as a result, four have closed while one did not open
as planned41.
34. A sensible policy from DfE in light of this evidence would be to use its new
tests to existing sixth forms. It may not be appropriate to re-run the post-16
area review process for schools but it would be sensible for Regional Schools
Commissioners and councils to be asked to review sixth forms which are
particularly small or underperforming. There will clearly be cases in very
rural areas where an 11-18 school with a small sixth form is the best option
and there may be tightly focused specialist sixth forms which achieve high
standards with small cohorts. Nevertheless it is time for a fresh look at this
issue. One option would be for DfE to embark on a parallel area review
process for school sixth forms which judges them against the same tests
used in post-16 college area reviews: financial sustainability and educational
relevance.
35 Post-16 provision in schools includes sixth forms in 11-18 schools and academies, 16 to 19 free schools and
University Technical Colleges which are constituted in law as academies. 36 Financial sustainability and educational quality. 37 DfE answer to written question 220526 sixth form education 16 January 2015. 38
DfE guidance “Making changes to an existing academy” says that schools wishing to open a new sixth forms
have a good or outstanding Ofsted grade; that it should be realistic for the new sixth form to offer 15 subjects
and enrol more than 200 students in normal operation; that there should no detrimental financial impact on the
rest of the school and that there should not be a negative impact on high quality schools and college nearby. 39 Statistics on numbers of schools with sixth forms of fewer than 100 pupils supplied by DfE. 40
According to DfE data, the percentage of schools adding more value than expected consistently decreases with
the size of institution, below 400 students. Small sixth forms clearly work successfully in private schools but on
funding levels more than 200% greater than in the state funded system. Research by the Association of School
and College Leaders (ASCL) suggests that 250 students is the minimum efficient number to offer high quality
education at current funding levels. 41 House of Commons Library briefing on UTCs, September 2016
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Recommendation
DfE should review the English and maths condition of funding and introduce
new English and maths qualifications for professional and technical
students.
35. DfE has introduced compulsory English or maths for all 16 to 18-year-olds
who do not have GCSE English or maths at grade C or above. This means
they must continue to re-sit the exam until they are successful. There are
large numbers of young people involved; the majority of whom end up in
college. 67% of those resitting English and 77% of those resitting maths did
so at a sixth form or FE college42. The condition of funding is a blunt
instrument to achieve this objective because there is no leeway where a
student started midway through the year or refuses to enrol for a course.
The requirement for concurrent English and maths classes for those on two
year courses limits timetable flexibility and is not a decision made on
evidence. In addition, GCSEs also do not necessarily test skills used in the
workplace. A quick review of the funding condition rules and a longer review
of the qualification requirements are both overdue.
Recommendation
HM Treasury and DfE need to streamline the process for colleges to apply for
restructuring funds and to double the transition fund grants so that area
review recommendations can be implemented quickly.
36. The national programme of post-16 area reviews started in September
2015 and will run until summer 2017. The Government has scheduled a
programme of 37 reviews and has finished 13 of them - though the final
reports have not yet been published. In the period since area reviews
started there have been 12 college mergers though many of these were
planned before reviews started. There are likely to be between 20 and 40
more mergers in the next two years which represents a considerable
restructuring of the sector. Several sixth form colleges will convert to
become 16 to 19 academies. Other colleges are taking the chance to
refresh their strategy, for example by developing shared services or joint
apprenticeship companies.
37. The process of restructuring colleges is proving more complicated than it
ought to be because of the regulatory issues that have been known about
for some time. Colleges have found it takes more time than expected to
satisfy their banks, resolve pension issues or to complete due diligence and
consultation. Applications to the Restructuring Fund will take more time
and money because these involve several new documents and forecasts
42 Policy Exchange, Crossing the line: improving success rates among students taking English and maths GCSE,
August 2015.
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and because there are several layers of sign-off. In these circumstances
there is a risk that colleges are spending six figure sums on professional
advisors which a few may end up writing off. Government has an interest in
helping colleges implement area review recommendations and should
therefore tackle these obstacles. The money available via the transition
grants should be doubled and the Restructuring Fund process simplified.
Recommendation
DfE and the Department for Communities and Local Government (DCLG)
should publish a Skills Devolution Green Paper to help clarify responsibilities
and priorities and encourage debate about the potential benefits and risks.
38. The Government’s ambitious skills devolution plans involve the transfer of
the entire post-19 education and skills budget outside apprenticeships and
higher education to new combined authorities and a corresponding
transfer of powers. The aim is to focus efforts and public funds where they
will have most effect and to align decisions on skills with other activities to
promote economic growth. The target for this reform is 2018 and it will sit
alongside some continuing national systems. Colleges are keen to make
the new arrangements work but there are weaknesses which result from
the way in the overall approach to devolution.
39. The process up to now has been deliberately haphazard. Different areas
have been offered different powers. Some areas have had frequent
revisions to their deals – Greater Manchester has had six. There is a
standard skills devolution menu for nine parts of England but less than two
years ahead of implementation there are many unanswered questions. On
top of this, there are some areas where the devolution deal has unravelled
because of disagreements between councils. Colleges are keen to work
with local government and the new combined authorities on shared
problems but are concerned about the uncertainty and the prospect of
having to re-explain what they do to a new set of people43.
40. The Public Accounts Committee reviewed the overall process in summer
2016 and came up with a sensible range of recommendations including the
need for clear objectives, a menu of options, an achievable timetable,
budget transparency, work to develop local capacity and proper
accountability44.
41. There is a strong case for existing plans to continue but a risk that
mishandled skills devolution will set the system back. There are already
several national agencies overseeing the finance and performance of
43
Ewart Keep “The long term implications of devolution and localism for further education in England” FETL/AoC. 44
Public Accounts Committee “Cities and Local Growth” July 2016.
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colleges including the Education Funding Agency (EFA), Skills Funding
Agency (SFA), the FE Commissioner and the Transaction Unit. The
devolution deals suggest combined authorities may have a role. There will
be some rationalisation of responsibilities once the area review process
finishes, but the Government needs to ensure there is a clear structure in
future. The skills devolution menu may also change as a result of changes
to the European Social Fund and the proposal to devolve business rates.
Rates are collected by district or borough councils but the local skills
system needs to operate at a county or city region level to secure
economies of scale. There also may be a mismatch between areas with
high property values and places with large numbers of low skilled working
age adults.
42. A good way for government departments to explore and clarify these
issues would be to publish a Skills Devolution Green Paper.
Recommendation
On the day that the UK leaves the EU, VAT should be removed from all
publicly funded education for 16 to 18-year-olds.
43. Colleges, unlike schools and academies, are required to pay VAT on their
purchases. Colleges generally spend between 60-70% of their income on
staff and about 3-4% on VAT. This makes it slightly harder for colleges which
are more efficient in the way they operate. The ability of schools to recover
their equivalent VAT costs means that there is a HMRC subsidy to less
efficient institutions.
44. HM Treasury made the decision in the 2015 Spending Review to tackle this
issue by allowing sixth form colleges to convert to become 16-19 academies
but the process is lengthy and complicated, involves a loss of flexibility45 and
does nothing for students in FE colleges (40% of the age group).
45. One option for the Government would be to loosen the restrictions both on
the conversion process and on the regulation of academies. This would be
helpful for those sixth form colleges wishing to convert but a better solution
is in prospect. VAT is a poorly applied tax when it comes to 16 to 18
education because it discriminates between different categories of
institution for no good reason. The decision to leave the EU presents a
simpler solution because until now the ability of the UK Government to act
has been constrained by the sixth VAT directive which regulates education
exemptions. Greater control of VAT regulation could allow the Government
to make the small but significant decision of bringing further education and
45
The restrictive financial framework in place for academies means that sixth form colleges are being asked to
give up income generation opportunities and decision-making flexibility when they convert. In accounting terms
conversion is a form of nationalization.
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sixth form college corporations into the VAT refund scheme for their publicly
funded 16 to 18 education courses.
Recommendation
The current student loan system should be converted into a personal
learning account system which includes a lifetime loan allowance and
maintenance loans for all courses at Level 4 and above.
46. Education and training needs to become a more important part of adults’
lives. Increases in life expectancy mean longer working lives. At the same
time, however, job markets are becoming far more volatile and
unpredictable as a result of technological change. There is an important
question here of how the Government should support adults in this
environment and help provide security in a changing world.
47. A longer term goal should be to align education and training for adults in
England whether at university or college and regardless of level. This would
be achieved, in part, by equalising student support arrangements. Extending
maintenance loans for professional and technical education (at Level 4 and
above) reduces up-front costs and reduces the longer-term repayment risks
for people considering this type of course. Combined with other measures
to develop professional and technical education, this will increase the
number of people qualified at this level46. Doing this would help rebalance
incentives away from full-time residential three year degree courses.
48. A further reform would be to introduce a lifetime loan allowance which
would give students a single budget and allow them to make their own
choice about what level of qualifications to take47. This might help the
Student Loans Company merge and rationalise its loan products. A longer-
term aim should be to transform student loans into learning accounts. At a
practical level this would require the ability to make payments into the
scheme which are separate from loan repayments. At a presentational level
it might help move the language off loans towards investment.
Recommendation
HM Treasury, DfE and DCLG should re-open negotiations on the Teacher
Pension Scheme and Local Government Pension Scheme to contain the costs
of the scheme for employers.
46
Overall numbers of Level 4 and 5 students is low. There are 12,000 under-24 Level 4 students supported via
the SFA and 2,500 taking FE loans. In addition there are perhaps 80,000 students taking HNDs and foundation
degrees via the HE loan system. 47
A lifetime loan allowance would remove the need for the Equivalent and Lower Level Qualification rules.
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49. Pension costs are a major issue for colleges, schools and universities
because all three sectors employ long serving staff with significant
entitlements. Successive government departments have not done enough
to manage the costs of large public sector schemes. Mistakes in the reform
of the Teacher’s Pension Scheme (TPS) mean that employers now pay
16.48% compared to the 12.1% cost ceiling set out in the wake of the
Hutton report48. Combined with the rise in employer’s National Insurance
for public service employers in 2016, this added 5% to the cost of employing
a teacher in 2015-16. There are likely to be further cost increases as a result
of the current Local Government Pension Scheme valuation. This will assess
the state of each fund as at 31 March 2016 and will vary contributions from
April 2017 onwards. The valuations will not be available until November
2016, but might easily involve a rise in the average employer contribution
for colleges from 16% to more than 20%. The next TPS valuation is likely to
cause a smaller but equally significant increase in costs from April 2019.
50. Colleges and the rest of the education sector are locked into schemes which
take a rising share of their budgets for pension costs at the expense of their
ability to pay competitive salaries or employ the right people for their core
tasks. The former Chief Secretary of the Treasury promised in November
2011 that the most recent set of pension reforms will last for 25 years49.
This promise has been enshrined in law 50. If the Government seriously
wishes to contain public spending in the long term, it needs to consider
further reform which reduces the direct costs for colleges, schools and
universities by either making the core schemes cheaper and perhaps by
allowing employees who value pensions more to pay higher contributions
for the benefit.
Recommendation
A DfE review should consider rationalisation of agency responsibilities but
also ways to reduce the costs of assessment and inspection across the
education system.
51. The education and training system serves a diverse society and advanced
economy. The system is unavoidably complicated and Government needs to
spend money on regulation, inspection and monitoring to ensure that it gets
the best value out of tens of billions of pounds in public funds. The costs of
regulation and administration have been cut in recent years which has
reduced the number of officials by thousands51. Nevertheless there is a
48 Colleges, schools and post-1992 universities pay 16.48% in employer contributions from September 2015. This
includes a 0.08% levy to pay for administration. The 12.1% cost ceiling for employer contributions was promised
in the provisional final agreement published by DfE in March 2012. 49 HM Treasury written ministerial statement, 20 November 2011. 50 Sections 21 and 22 of the 2013 Public Service Pension Act. 51 The Learning and Skills Council employed 5,000 people 10 years ago. EFA and SFA employ just under 1,000
each.
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combined administration and regulation cost of almost £1 billion particularly
if large agencies like Ofsted52 and the Student Loans Company53 are counted
in the cost.
52. The Government continues to take steps to make savings in its own costs
(for example via the recent rationalisation exercise in BIS and the creation of
an EFA/SFA shared service) but there are risks to regulation and capacity.
Government is asking colleges to merge in order to make savings. It might
make sense for DfE to review whether it needs three funding agencies54,
multiple regulators55, a variety of commissioners and four different national
education databases56. DFE oversees an inspection system with direct costs
of £160 million a year57 plus an exam system that requires £200 million in
fees in colleges alone58. The compliance costs in schools and colleges are as
significant and although England has world-leading outcome and
performance data the systems to collect this are expensive and intrusive.
53. AoC recognises there are no simple solutions to reducing the costs of
administration and regulation but we do believe that the DfE review
provides a chance for a rethink. There are some obvious options to merge
funding agencies but reforms to Ofsted should not be out of scope. The
existing inspection system relies very heavily on data. Perhaps it would be
worth cutting out the intermediary and simply publishing the data as a
balance scorecard in a similar form to the Teaching Excellence Framework.
Government should leave no stone unturned in the search for efficiency at a
time of considerable financial pressure on teaching and learning.
Association of Colleges
7 October 2016
52 Ofsted’s resource departmental expenditure limit in 2014-15 was £155 million. 53 SLC operating expenses reported in its 2014-15 financial statements were £134 million of which £115 million
was funded by BIS for English activities. 54 The three funding agencies are EFA, SFA and HEFCE. 55 Financial regulators in future will include the Office for Students, SFA and EFA with Ofsted acting as a shadow
regulator. 56 The four databases are the school census, the individual learner record, the higher education student database
run by the Higher Education Statistics Agency (HESA) and the Student Loans Company system. A review of these
systems was started in 2012 by BIS but was never finished. 57 Ofsted annual financial statements, 2015-16 58 AoC analysis of college finance record data
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