Select Committee on Public Accounts Sixty-Third Report


THE MANAGEMENT OF GROWTH IN THE ENGLISH FURTHER EDUCATION SECTOR

THE MANAGEMENT AND FUNDING OF GROWTH

7. In July 1997 the then Secretary of State wrote to the Funding Council specifying that the key aims of funding for further education were that it should achieve growth in student numbers, expand participation and secure greater efficiency. Emphasis was also placed on securing improvements in student retention and achievement rates. The Secretary of State wished the Funding Council to fund colleges in a way that provided them with a direct incentive to expand participation, by relating colleges' funding to actual student enrolments. He gave an undertaking that the total resources made available to the sector would be in part determined by the actual numbers of students recruited.[5]

8. The Funding Council responded by introducing a revised funding methodology, applicable from academic year 1994-5 onwards and based on funding units. The funding methodology contained three elements: demand-led funds; additional funds; and guaranteed core. The core rate varies between colleges: the sum depends on a college's average level of funding per funding unit in the previous gross allocation. The rate of funding per unit in 1996-97 was: demand-led funds £6.50; additional funds £16.68. The largest element, known as core funding, guaranteed colleges 90 per cent of their previous year's gross allocation from the Funding Council. The other two elements constituted the incentives for growth, wider participation and improved rates of student success. In order to grow or to maintain a stable funding situation, most colleges needed to apply for an additional funding element, not only to cover the 10 per cent reduction in their gross allocation of the previous year, but also to achieve the efficiency gain implicit in Departmental funding for further education since incorporation. The additional funding element was allocated at a rate determined each year by the Funding Council (£16.68 per funding unit in academic year 1996-97).[6]

9. In addition, prior to the changes in funding described in paragraphs 12-13 below, colleges could enrol students over and above their planned numbers and receive a demand-led element of funding. The funds to meet this demand-led element were provided from a non-cash limited Parliamentary Vote. The demand-led element was available for both full-time and part-time students and was funded at a much lower rate per unit of student activity (£6.50 in academic years 1994-95 to 1996-97 inclusive).[7]

10. In 1992 the then Secretary of State set a target for the new sector to achieve 25 per cent accumulative growth in numbers of full-time equivalent students funding by the Funding Council over the three financial years from 1992-93. No particular groups of people or curriculum areas were identified within this target,[8] We asked the Department about the adequacy of the target setting processes. They told us that, in the event, the target of 25 per cent growth by 1995-96 had not been met. Between financial years 1992-93 and 1995-96 growth of 19.6 per cent was achieved, and between academic years 1992-93 and 1995-96 the growth was 22.2 per cent. The Department nevertheless considered that it was a phenomenal achievement for the new further education sector over a three year period to have achieved growth at that level.[9]

11. In November 1995 the Department's updated projections envisaged growth of 25 per cent over the six academic years from 1992-93 to 1998-99. However, growth in academic year 1995-96 is estimated to have been substantially above the projected level.[10] The Department told us that 25 per cent growth was achieved two years early, with overall growth of 26 per cent being achieved in the period 1992-93 to 1996-97 (Figure 1).[11]

Figure 1: Growth in further education (full-time equivalent student basis)


Note: Projections of full-time equivalent student numbers cover all further education provision delivered by sector colleges including specialist designated institutions, by external institutions, and higher education funded by the Funding Council.

12. In February 1997, the Department notified the Funding Council that, whilst they would meet the greater part of the cost of growth concurred up to and including academic year 1996-97, all future expenditure on further education would need to be met within the planned expenditure provision.[12] We put it to the Department and the Funding Council that it could have been expected that the funding mechanism would lead to uncontrolled growth. The Funding Council replied that the funding methodology had been structured to encourage what were regarded as extremely ambitious targets for further education, which had not grown significantly for the previous five years or so. They said that a number of incentives had been put in place to recruit more students and that the expansion had been within the broad Government targets.[13] The Department told us that in the first two years of the demand-led element of funding the growth had been manageable. However, in December 1996 they were facing two years of being £82 million and £84 million above their budget, and had to take action to rein in that spending.[14] The Funding Council told us that whilst colleges would only receive funding for the agreed level of students, there would be no penalty for overshooting. However, if colleges delivered less than their target they would receive less funding.[15]

13. The Department emphasised that they had been able to meet the additional growth from within their Vote and told us that they saw this as a well managed outcome. They did not accept that their action had had a devastating effect on the sector, or that it had come about because of inadequate controls. Colleges had been encouraged by the Funding Council to take account in their financial forecasting of the possibility that demand-led funding would come to an end, and not to enter into long-term commitments based on income derived from demand-led provision.[16]

14. We asked the Department about their system for monitoring and control. They told us that they thought it was improving, though not yet good enough. They said that further education was a difficult sector for forecasting. There were some 17,000 qualifications and a large number of part-time students who entered college at different times in the year, making it harder than in schools or in higher education to make firm projections of student numbers and expenditure. When the Funding Council had been set up the information coming from colleges had been poor, with an estimate of student numbers at one point in the year. The Funding Council had since introduced the Individualised Student Record, providing a clear record for every individual student of his or her enrolment, retention and qualification. The Department had also taken steps with the Funding Council and HM Treasury to monitor funding and forecasting more closely. The Department considered that a great deal had been done to improve forecasting, and commented that the removal of the demand-led element of funding had made it easier. However, they acknowledged that it would be wrong to suggest that they could get it absolutely right each year.[17]

15. Between academic years 1994-95 and 1995-96 the number of funding units claimed by colleges is expected to have increased by 11 per cent, compared with an increase in full-time equivalent student numbers of 8.5 per cent in the same period.[18] We asked the Funding Council whether this suggested that colleges were maximising their income without providing more and better education. The Funding Council emphasised that the funding system was designed to reward colleges first of all in proportion to the amount of study that particular students were involved in. For example a student doing three A levels would have more units than a student with two A levels. Colleges had seen that they should maximise the numbers of qualifications for which students study, for example the addition of a course on computer literacy to a student's A-level programme. For the first time, the funding system recognised students' achievements, with success in examinations attracting around 10 per cent of funding units. This had had a positive effect as many courses did not previously lead to a qualification. The Funding Council said that this represented real activity which had been rewarded with additional funding. Funding units also reflected additional support for students with learning difficulties, and for the provision of childcare.[19]

16. An analysis of the sources of income for further education colleges for 1995-96 is at Figure 2.

Figure 2: Income distribution of further education colleges


Between academic year 1992-93 and 1996-97 the number of students funded from sources other than the Funding Council is forecast to have declined by 21 per cent to some 0.81 million students.[20] The Committee therefore asked the Department what action they had taken to stop this trend. They said that there were a number of reasons why students from other sources had reduced, and that one was the decision by the previous Government to move the further education training grant from Training and Enterprise Councils to the Funding Council.[21] The Funding Council said that colleges had been active in generating outside funding with, in academic year 1995-96, some £670 million worth of funding coming from non-Funding Council sources. Much of that came from sources such as the European Structural Funds, but around £400 million resulted from teaching contracts and what was generally known as trading by colleges. They referred to the extensive training contracts, particularly in the competency routes up to National Vocational Qualification level five. Nevertheless, they recognised that colleges were only at the tip of the iceberg in increasing the amount of funding from the private sector.[22]

17. With the removal of local education authority controls and boundaries, colleges became free to attract students from different and wider catchment areas, in competition with schools, other colleges, and private training providers.[23] We asked the Department about duplication of provision in a local area and the lack of co-ordination between schools and colleges. They said that the Government had made it clear in their consultation document "The Learning Age" that it believed that competition had gone too far and that there needed to be a move back to greater collaboration. The Secretary of State had recently published a paper on accountability within the sector, and one of the proposals was to increase the presence of local education authority members, as well as college staff and students, on college governing bodies. In 1997-98, £16 million was being set aside in the further education Collaboration Fund to encourage collaboration, particularly between colleges and the post-16 schools sector. The Funding Council and the Local Government Association were also working together to look at the problems arising from competition between schools and colleges.[24]

Conclusions

18. The Committee recognise the considerable achievement of colleges in achieving growth in full-time equivalent student numbers of around 26 per cent between academic years 1992-93 and 1996-97. We note that this level of growth was achieved two years ahead of the Department's projection. We recognise that the funding system is intended to reward colleges for providing a better service to students, but are concerned that colleges may have been seeking to maximise their income without necessarily providing more and better education. The number of funding units claimed by colleges has grown faster than the increase in student full-time equivalent numbers. We note that the Department did not set specific targets for growth, and recommend that clear targets be established both nationally and at local level.

19. We observe that the Department's procedures for forecasting growth in student numbers were not sufficiently rigorous, but that steps are now being taken by the Department and the Funding Council to improve their monitoring and forecasting. These steps, which we view as important, include the Funding Council's development of the Individualised Student Record as a means of monitoring the levels of student activity. We recognise that colleges have been active in seeking to generate outside funding from outside the public sector but note that there remains significant untapped potential for developing such sources of income. We urge the sector to exploit this potential to the full.

20. We consider it worrying that competition for students has led to a lack of co-ordination between colleges and the post-16 schools sector and that this may have led to colleges incurring unnecessary expenditure. We welcome the steps now in hand to promote greater collaboration within the further education sector and between further education colleges and schools offering 16-18 provision, and so improve local value for money. We urge the Department and the Funding Council to take forward the agenda for greater collaboration as quickly as possible.


5   C&AG's Report (HC 259 of Session 1997-98), paras 1.2 and 1.5 Back

6   ibid, para 2.9 Back

7   ibid, para 2.9 Back

8   ibid, para 1.3 Back

9   Q48 Back

10   C&AG's Report (HC 259 of Session 1997-98) paras 1.3, 2.3 Back

11  Q90 Back

12   C&AG's Report (HC 259 of Session 1997-98) para 2.18 Back

13   Q37 Back

14   Q41 Back

15   Q44 Back

16   Qs 41-42 Back

17   Qs 7-8 and 90 Back

18   C&AG's Report (HC 259 of Session 1997-98), para 2.14 Back

19   Qs 2-3 Back

20   C&AG's Report (HC 259 of Session 1997-98), para 2.5 Back

21   Q6 Back

22   Qs 33-34 Back

23   C&AG's Report (HC 259 of Session 1997-98), para 1.7 Back

24   Q52 Back


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 1998
Prepared 7 August 1998