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Funding changes & finance implications

Julian Gravatt, AoC assistant chief executive. Funding changes & finance implications. Costs, funding, pensions, debt, regulation, the levy. A cocktail of financial challenges. Rising staff costs. Staff cost issues Average teacher salary £33,000 Competition for teachers from schools & HE

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Funding changes & finance implications

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  1. Julian Gravatt, AoC assistant chief executive Funding changes & finance implications

  2. Costs, funding, pensions, debt, regulation, the levy A cocktail of financial challenges

  3. Rising staff costs Staff cost issues • Average teacher salary £33,000 • Competition for teachers from schools & HE • Rising on-costs: - teacher pensions 14% in 2014, over 18% by 2019? - ER national insurance 10.4% in 2015, 13.8% +0.5% levy • Pressure to improve quality, results & responsiveness could mean more spending on people

  4. Flat cash funding Current plans between 2016 and 2020 • 16 to 18 rates fixed for 4 years (eg £4,000 rate) • Adult education budget fixed at £1.5 bil/year • Apprenticeship and FE loan funding caps • New rates based on old rates • No uprating for 5+ years

  5. Competition for students The 324 colleges operate in a system with: • 3,600 EFA funded institutions, 1 mil 16-18 year olds • 200 new sixth forms, free schools, UTCs since 2010 • 1,020 SFA providers • New apprenticehip register • 131 Univs/HEIs

  6. College income down in real terms

  7. Apprenticeships A new chaotic market • Spending decisions devolved to 20,000 employers • New system, new formula, new rates, new standards • Lots of standards for higherand degree apprentices • Tenders decision in March for post-April 2017 starts • Allocations for continuing apprentices • Difficult to predict now what will happen

  8. A poorly controlled pension system Teachers Support staff College TPS 91 LGPS funds LGPS Employer Range 10-25% Average 15.8% Rising in 2017 TPS Employer 16.48% Could rise in 2019 Support staff Income-related Contributions 5.5-12.5% Income-related Contributions 5.5-12.5%

  9. A banking retreat How we got to where we are • Capital grants on a £1 grant, £2 self funding model • Programme 2001-9 £2.5 bil grant, £5 bil cost • SFA programme 2013-5 £0.4 bil grant, £0.8 bil cost • Bank lending reached peak of £1.6 bil in 2015 • Irish banks exit in 2008 • Barclays & Lloyds have 45% of loan book each • Other options (Santander, RBS, councils, others?)

  10. College insolvency regime Due to take effect in second half of 2018 • Changes the government/college relationships • Public service insolvency (like energy, housing) instead of ad hoc fixes • Govt appoints special administration who has duty to protect students and creditors • Considered a new risk by banks, LGPS, governors • May be difficult to use in practice

  11. Area review timetable Sept 15 Jan 16 May 16 Sept 16 Jan 17 May 17 Wave 1 Wave 2 Wave 3 22 reports published 75% of colleges through process Completion by March 2017 Intervention will continue Wave 4 Wave 5

  12. A system of multiple regulators Special Administrator (2018) FE Commissioner EFA or SFA OFS Transaction Unit Ofsted College LGPS Fund External auditor The College’s bank

  13. Intervention after area reviews end Colleges accountable to various organisations • The bank (who insist on loan covenants) • SFA/EFA (finances are satisfactory or inadequate) • Ofsted (which has a risk-based inspection cycle) • FE Commissioner (referral from SFA or Ofsted) etc plus students, employers and communities

  14. College finances A cocktail of issues • Flat cash funding at a time when costs are rising • Financial weakness in some colleges (15% “financially inadequate”; 5% in distress) • Serious Issues with banks and pensions • Overlapping teams (SFA/EFA, commissioner, TU) • Austerity to continue until 2022 on current plans

  15. What should governing bodies do

  16. What governing bodies must do Mandatory requirements in terms of approvals • Annual financial statements • External & internal audit report • Framework of financial control • Annual budget • Financial plan to funding agencies • Cashflow forecast & cash/credit position • Read reports and ask questions

  17. What governing bodies should do Good and best practice • Measurable & deliverable objectives with key indicators (surplus, contribution, ratios, cash etc) • Longer-term financial plan linked to curriculum, staff and estates plans • Balanced scorecard of indicators including finance • Division of responsibilities within governing bodies • Culture in which questions are askedand answered • Open discussion on strategy and options

  18. Set some benchmarks Needs to be decided by the college. Some hints • A-level class sizes in sixth form colleges average 17 • Teaching contact hours often above 800/ year • Average 16-18 student hours: 16 hours/week • Estate costs (from area reviews) average £56/m2 • Space utilisation (area reviews) 33% Etc Average colour of a rainbow is white (Nick Allen, PSC)

  19. College economics (what’s in the box?) Class size Income Student taught hours Positive completion Staff costs per teaching hour Student satisfaction Student / teacher time / effort /love Costs of running the college

  20. In conclusion The area review objective that all colleges will be financially sustainable will not be met by 2018 Governing bodies have a greater need than ever to attend to financial issues but individuals cannot do it all Therefore: • Ensure there is a mission and strategy • Be collectively accountable • Ensure there is a financial strategy.& effective control

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