Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 100 - 119)



  100. One final question, if I may, I understand that there is a difference at present between further education colleges and school sixth forms. Where there is a lower age group attached to the same school the school sixth form does not stand alone, part of the school has a pre-GCSE section in terms of whether the students concerned can join the NUS. Will there be a difference made when we go to the Learning and Skills Council?
  (Professor Melville) I would imagine that would be an issue, perhaps, for the Learning and Skills Council to take up. As a Funding Council we have encouraged the NUS particularly in dealing with student complaints and helping develop facilities for students. With quite a large number of colleges—and I believe it is colleges that are in the group where you do find sixth form colleges you find NUS memberships—I am not sure whether there are any DfEE issues associated with membership of student unions, but I think that the general answer would be the Learning and Skills Council is designed to equalise and harmonise across the whole of the education. I would expect a number of these issues to come together in the future.

Mr Campbell

  101. Professor Melville, some time ago, if I heard you correctly, you said to the Chairman that in your view it is difficult to stop colleges falling into Category C and that really it was your job to help to get them out. Some would say that was quite a limited role for the FEFC. Does that limitation have its roots in legislation, or in the amount of resources that were given to the FEFC, or to the way in which the FEFC has gone about its task under your leadership?
  (Professor Melville) It is chiefly the second. What was behind it was my reference to the overall financial health of the sector. Basically it started from a poor position and was then subject to some swingeing efficiency squeezes. Therefore, there is what you might call a general lack of resilience in the sector. If you compare it with higher education, the net reserves of the sector were negative all through that period as our figure indicates. They went up to 17.7 million in the first year, they were positive. That is not very good for an annual sector budget of three billion pounds. Therefore, I certainly was not, as it were, despairing of stopping colleges going into health Category C, I was just simply indicating that pragmatically you see it happen. We do, however, stop quite a number going in. That is through the regional review process. We start to see colleges deteriorate because they go from Category A to Category B to Category C, and Category C is what we are focusing on now. So yes, we do take a number of steps. The key starting point is what you would call the underlying position. I have to say that that surplus position is improving and the lower efficiency squeezes that we have had under this Government, the very welcome announcement of even further increased funds made yesterday by the Secretary of State, providing an influx of £522 million more next year for further education, will help ease the situation.

  102. Yes, but it is not just about additional resources, is it, it is about the way in which the Funding Council, or whatever it calls itself, goes about its task? I think it is important for the Learning and Skills Councils to reflect to some extent on what has gone before. You spoke rather enviously of the additional resources that will be available to the Learning and Skills Council, and I think, if I am correct, there will be additional powers that they will have. Was that an admission then that the previous regime was really inadequate?
  (Professor Melville) I do not think I would describe it as inadequate. What I am trying to describe is that it was set up for a different purpose and staffed in this particular form. Its overhead, if you like, is a half per cent of what is delivered with round about 450 staff.

  103. It is a fairly common complaint, though, is it not, for both colleges and schools that where checks were placed on their work even in the form of inspections or audits, their job was seen as holding the institutions to account rather than supporting them?
  (Professor Melville) It was a government policy, Mr. Campbell. It was quite clear.

  104. Your own personal role in that was very constrained by that, rather than the decision that you took at the beginning that this is what the FEFC role would be?
  (Professor Melville) I came into the Council seven months before the general election, so I saw the change. One of the first things I introduced was very much a differential approach, what was called "a lighter touch", to most colleges, in order to focus more resources, more of the staff resources, on colleges in difficulty. The process that was introduced then, particularly linked to the regional review process, is an extremely rigorous and regular review process, with all of the additional advice and support to managers and governors, to separate the inspection of grading of the management and governance, for example, to make it clearer, to put audit alongside inspection in order to get a clearer view of what was going on. So yes, we did change.

  105. I think the point I am getting at is also about what the Funding Council saw as its role during the periods between audit and inspection. I think it is an important issue as to to what extent you were able to advise and you were able to support as well as to go in and audit what was going on. I want to go wider, if I may. You talked about spreading best practice. I want to ask you about drawing attention to bad practice. What did you do, perhaps in response to the report which the Public Accounts Committee, amongst others, have produced, to spread information about colleges like Halton and Bilston?
  (Professor Melville) Very significant. I think you will be aware that besides the NAO Report on Halton, I also produced a very detailed report on Halton College. Both of them were sent with strong covering advice to all colleges. They were the subject of a whole series of meetings I and my Chairman, Lord Davies, had with all college governors on a regional basis. We went through some of the issues associated with these reports and provided additional advice on some of the specific things in this report. To give you an example, one of the issues was advice on the expenses on the part of the members of staff, another issue was overseas travel. We issued specific guidance to colleges on those issues. We followed up in great detail. I do not think there is a single college governor in the land who is not aware of the name Halton College. Of course, we have continued to do that through our training materials, and a lot of the outcomes of that have actually determined the content of our advice and our advice to new governors.

  106. So this Committee may have some purpose after all. The report notes the difficulties arising for colleges as a result of the financial problems that they may have had at the time of their incorporation. You were unable, I think, to give the Chairman definitive answers on sorting out the timescale for sorting out some of the messes that currently exist. Will those messes be sorted out by the time the Learning and Skills Council has taken over, or will they inherit the mess?
  (Professor Melville) A number of these issues take some time to resolve. To pick up the latter part of your question, of course many of the issues that are discussed here today relate to overclaiming prior to my time in the Funding Council and prior to 1996. So yes, some things take some time to resolve, and there is a continuous process where these can count as a success for the FEFC. As far as inherited issues were concerned, there is reference to it in paragraph 2.2 at the top of page 15. About 100 colleges at incorporation came in with inherited deficits. Some of them were large. The largest was about £2 million which in the early 1990s was a very significant sum. If you look now, most of those have now been resolved, and only about 11 of the colleges in Category C were in that inherited liabilities range.

  107. I suppose they are perhaps similar to schools or hospital trusts where one wondered where the additional resources were going in the first few weeks, and the difficulty of paying the debts is the answer and helping to create perhaps a more positive economic environment. We are about to see important changes to the funding formula. How do we know that those changes will not make the financial situation in some colleges worse?
  (Professor Melville) I think the major assurance is that there are additional funds available. Obviously I do not want to prejudge what my successor in this process determines in terms of funding, but as far as the first year is concerned, there is a degree of continuity with the funding regime. As I indicated already in terms of the regional review processes, I have seen drafts of the regional review process that take forward all of the major matters, and as I said earlier, there will be more people on the ground to implement them, but also to follow up, as you quite rightly indicate, on a more regular basis between reviews.

  108. What assurances can you give the Committee that the situation for sixth forms in schools has been given particular consideration? Of course, in April 2002 the Learning and Skills Council will be responsible for that. As an advocate of the line that I think as long as schools want to have sixth forms they should be allowed by and large to have them, what special consideration has been given to some of the difficulties that schools might face in the new arrangement?
  (Professor Melville) This was outlined in the Government's White Paper but also in the more recent document about funding arrangements. Schools have been given what might be called a real-terms guarantee—that is, in terms of their funding levels—and providing they maintain the same numbers of students, then their funding will remain the same and will be protected. Secondly, there is a whole issue associated with what might be called the number of sixth forms in existence. As you see from the figures, we have 103 sixth-form colleges, there are something like 1,800 schools with sixth forms. The majority, if you like, are very much in schools. The levers will chiefly be centred around policy rather than finance, in my view. Those have been the issues that have been featured in all of the Government consultation documents. I understand, however—my colleague Geoff Hall will correct me if I get this wrong—that there is a consultation document due in December on precisely the way school sixth forms will be funded in the Learning and Skills Council regime.

  109. I am very pleased with what you say about quality and finance. My last point goes back to the question of competition between schools. Paragraphs 2.10 to 2.12 refer to the correlation, if I read it correctly, between colleges in large towns and the risk, or otherwise, of financial problems. I want to focus, really, on this issue of competition. Does the future suggest that it would be one of merger and rationalisation to overcome some of the difficulties that these colleges face or does it say something about the nature of competition for students?
  (Professor Melville) I think the first issue is in, if you like, cities where you have several colleges. The report notes, and we would agree, that generally they have more difficulty recruiting and there is more competition then, say, a small town where you have a successful college. A number of colleges in small towns also have sustained themselves by distant franchising, so they have been subject to some of the changes. As far as the future is concerned, the important statements that have been made follow on from the changes this Government introduced as compared to the last Government. The last Government had the view that quality would be improved by competition, basically if there were more providers then quality could be improved. The new Government encouraged colleges to work together to improve quality. There will be no exception to that in the future. LEAs will still retain the responsibility for schools. Funding will be through the LEAs and they will be encouraged to work with colleges locally, instigating reviews, which will be called area reviews of quality, area inspections, looking at them and saying how best can we reorganise and how best can we improve quality. There is a new power in the 2000 Learning and Skills Act which gives local authorities the power to create new sixth form centres. If you like, there is more evenness in it, more powers to get the right kind of results that are focused on quality rather than numbers or financing.

  110. My final point is, as someone who for a long time has been concerned at some of the aspects of competition for students, has any assessment being made of the amount of time and money which has gone into marketing and advertising in order to attract numbers?
  (Professor Melville) The NAO looked at some of this in the Managing Growth Report some time ago and we have done a joint study with the NAO on good practice in marketing. I do not believe things were precisely quantified. We have quantified the benefits that come from colleges working together, particularly where there have been mergers. One of the major outcomes of looking at the benefits of a merger has been a reduction in the marketing budget, which comes about from competition. That is one of the major financial gains. One has to say that colleges have taken very positively to the more collaborative regime which has existed over the past three years[11].

Mr Gardiner

  111. Mr Hall, good afternoon.
  (Mr Hall) Good afternoon.

  112. I did not want you to go home without saying anything this afternoon. I will now address my remarks to Professor Melville. Professor, has the FEFC under your leadership since 1996 been a success, in your own judgment?
  (Professor Melville) I believe so, yes.

  113. How many colleges under your period of tenure experienced serious problems of financial control?
  (Professor Melville) We can define it in various ways, but there are roundabout 100—120 that have gone into or stayed in or come out of Category C.

  114. For what percentage of those do you consider the FEFC bears some responsibility?
  (Professor Melville) It is a matter of where you put responsibility in all of this.

  115. I said "some", I do not mean the responsibility for them being in that state, but some responsibility.
  (Professor Melville) I think there are a number of factors that come out in this discussion which, perhaps, make it more difficult for colleges in the way we handle funds, and so on. Very broadly, I think the major responsibility lies in the difficult funding position the colleges find themselves in and also the need to grow while reducing costs.

  116. You have given me some quantification and that is that the major responsibility lies with them. That means that the minor responsibility lies elsewhere, possibly, if you are answering my question, with the FEFC. Can you be a bit more specific and say, answering the question, what percentage of those you consider the FEFC bears some responsibility for?
  (Professor Melville) I do not think I can answer that question very easily. I would put a much larger level of responsibility once we take the funding issues out, and that comes out of this report very effectively, is with the quality of management and governance in colleges. I am not trying to be obtuse but I simply—

  117. You are not an obtuse man, you are a very distinguished academic.
  (Professor Melville) I do not have an answer to the proportion that FEFC—

  118. How many times have you appeared before this Committee?
  (Professor Melville) This is the third time.

  119. When the Committee considered further education in 1996/97 were you part of the team that appeared at that stage?
  (Professor Melville) That was my predecessor.

11   Note by Witness: Since 1998 colleges have been required to provide details of marketing expenditure. In their annual financial statements and their financial forecasts. Back

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