Select Committee on Education and Skills Minutes of Evidence

Examination of Witness(Questions 480-499)

MARGARET HODGE MBE, a Member of the House of Commons, Minister of State for Lifelong Learning and Higher Education, Department for Education and Skills, was examined.

Wednesday 12 December 2001

  480. Minister, you have written to the Chief Executive of the Learning and Skills Council in the first annual grant letter, you announced an increase in funding of £500 million, you will know that 69 colleges are still in the weakest category of financial health, and you will know that there is a concern about the differential salary structures between staff in further education and the primary and secondary sector. Where is the £500 million going?
  (Margaret Hodge) There were 45 budget lines in last year's budget to the LSC going down into the FE colleges with 79 or something different budget heads. It was absolutely huge. What we have done is reduced it to 9 budget lines, within 4 main headings. If I can just go back to where we were before, two of the budget lines in the previous year's letter accounted for something like two-thirds of the LSC budget; 19 budget lines accounted for one per cent of the budget. So we have got rid of that sort of nonsense. As I recall the actual distribution between the broad heads, there is a greater focus, probably, on growth on the 16-19 than there is on the other, but the growth is spread across the four.

  481. Within the sector, although there have been percentage increases in funding in the last five years—very welcome increases—the unit funding per full-time student has barely changed. In fact, I think we are now back at the position we were in in 1995. Will this £500 million or a proportion of the £500 million increase the unit funding per FE student?
  (Margaret Hodge) We stopped the decline in the year-on-year efficiency saving and FE faced the same constraints that HE faced, if not worse. It depends how you define these things, and I do not know terribly useful definitions. What really matters is how much money goes into a college for them to spend on teaching and learning. Some of that may well go into capital investment or something like that, some will go into the standards fund for quality improvement and some will come out of that into teachers' pay initiatives as well to encourage individual development and reward excellence. What I am really concerned about is the totality of the amount of money a college gets, which will go up. The LSC has a real terms increase of nearly 6 per cent for 02/03. So that will be reflected in the college's budget. If you just define it in that very traditional way, I do not think that is desperately helpful.

  482. There is a half a billion increase to the LSC on a budget of just over £7 billion.
  (Margaret Hodge) It is difficult to say because, remember, they are also getting the other funding, which distorts the figure a little bit this year.

  483. We would assume that given that sizeable percentage increase, there ought to be an increase in the unit funding per student, because if there is not then the money is not going directly to the front line.
  (Margaret Hodge) The money will go directly to the front line. I have not looked at a sort of exemplification of what it does in the traditional way of counting because I have never found that terribly useful. I genuinely think that what matters is the money that college heads get.

  484. You would accept the colleges are concerned about the way in which money has been ring-fenced and the way in which they have been prevented from increasing the unit funding.
  (Margaret Hodge) Quite. I do share that concern, which is why we have reduced the budget lines to nine. In the letter we sent to the LSC we also said that we expect them to reduce the budget lines down into the colleges. This is quite a radical shift for government. It will be interesting, and I hope you will observe it and hold us to account on it, but what we are doing is shifting from input control to giving institutions the flexibility to choose how they spend their money and then we are going to get much tighter on measuring their outcomes. I have to say, right across the LSC/FE sector that means they have got to get better at producing proper, up-to-date data and information, so that we can measure those outcomes properly. I am not 100 per cent certain I have got it completely right year one, but it is a radical change in the way that we are choosing to fund and access colleges.

  485. If we move on to the funding of the LSC itself, you will recall in the establishment of the LSC the Government claimed that there would be a saving of £50 million on the administration of the FEFC and the TECs. Has that saving of £50 million been achieved?
  (Margaret Hodge) Yes.

  486. I understand, also, that the LSC were arguing that there ought to be an increase in the funding for their administrative costs. Has that increase been awarded?
  (Margaret Hodge) Part of it has been awarded.

  487. Can you tell us how much has been awarded?
  (Margaret Hodge) £25 million. Even with that increase in additional admin costs there will still be more than £50 million saved in administration in comparison to the predecessor bodies. Can I say a little bit about the reason for the admin costs and how they are approaching it? It is always difficult to get the baseline right and we have probably got it wrong. What we did not have regard to, for example, was that the LSC has to pay VAT and the TECs did not—something that somebody should have spotted along the line but we did not. The other thing that has happened is that the LSC is going to have increased responsibilities, taking the funding for sixth forms and then, if the Bill that is currently before Parliament becomes law, a much stronger planning role in 16-19 provision. We have had to have regard to that. Most of the money is going down to the local LSCs, it does not sit in the centre, and in the letter that we sent to the LSC we have also made it absolutely clear that we hope this will enable us to get the baseline right and then we expect to bear down on those central administration costs over time.

  488. When the Chair and the Chief Executive of the LSC were before us the other week—
  (Margaret Hodge) They wanted more?

  489. The Chief Executive was quite explicit that he felt there was a surplus of staffing within the local LSCs (this was the legacy of TUPE) and that, in time, this issue would be dealt with. So you will see from the Committee's point of view there is a paradox here that you are awarding an additional £25 million and the Chief Executive is saying to the Committee that is probably over-staffed.
  (Margaret Hodge) I am delighted he said that. I will look at the record of your proceedings to get confirmation of that statement, because that would be extremely helpful to me in the negotiations with him.


  490. You might also read another paragraph in which the Chairman expressed deep unhappiness—which we prised out of him—about the differential payment to A-level students in sixth forms compared to the equivalent student in FE. He went on the record as being very unhappy about that. I hope you will look at that, too.
  (Margaret Hodge) Yes. Let me come back on that. That is why I said we have tried to get the baseline right and then we will bear down. On the issue of the funding gap that exists between funding for 16-19-year-olds in FE and in sixth form colleges, and funding in schools, there is, again, a commitment in the manifesto to ensure that upward funding until we meet convergence, and that is informing, yet again, our thinking around budgets. That is the first thing to say. The second thing to say is that it is actually extremely complicated. I have had a number of Parliamentary questions on this issue, some of which are from Members round the table. The figures I gave in the answer to one PQ was that for sixth forms in schools the funding was £3,230 and in FE it is £3,420. On the face of it, that looks as if FE is better. One of the reasons for that is when you look at the FE figure it incorporates total public funding into FE, whereas if you look at the schools figure it is the delegated funding to schools, so it does not include the LEA funding, some of which will go to support the sixth formers in schools. So we have got to bottom out what the difference is, and we are doing that; we are trying to assess a real valid difference, and then we have got to, over time, see how we can address that, because we want 16-19 year-olds to have access to equally funded provision wherever they experience it, be it in a school, a college or a general FE college.

Mr Chaytor

  491. We were saying, in terms of the budget, that the £188 million in 2001-02 has now been enhanced by the £25 million allocated in the grant letter.
  (Margaret Hodge) Yes.

  492. In terms of the widening responsibilities of the LSCs for 14-19, given the majority of staff in the local LSC were, by definition, inherited from the TECs, are you confident that the level of expertise in the local LSCs is sufficient to deal with its responsibilities for the college sector and for school sixth forms, and for the 14-16 age range?
  (Margaret Hodge) I think we should be happy with what the LSC has achieved so far. They have had a really complicated task. They have had the transfer of 10,000 staff from a variety of bodies from whom they inherited their responsibilities; they have had to get the money out to 417 colleges and to 2000 training providers. On the whole it has not gone with too many hiccoughs. I addressed the LSC's annual conference earlier this week, in which I said we have now really got to the end of the beginning and what we now need to see, as we now move forward, is that they start grasping that very important agenda that we have set around widening participation and enhancing standards—all those areas. I think they have got to, in some areas, build their expertise around some of those issues where it did not exist before. Can I say one thing? One thing that was born in quite controversial circumstances was this OFSTED/ALI—if you remember, the two inspectorates that were created under the new LSC. Coming to it and dealing very closely with both OFSTED and the Adult Learning Inspectorate, I think that is a system which is bedding down really well. There is very good experience coming in there, with putting very much the learner at the heart of the inspection process in a developmental and creative way, so that although they are finding in, perhaps, too many instances, not very satisfactory practice, the process of inspection itself is supporting the development of improvements, particularly in workplace learning and in the inspection of New Deal provision. When they go back there is a massive improvement. So there is expertise coming in at all sorts of angles—that is what I am really saying to you—as well as the LSC. Remember this with the LSC, which I am sure is something you get when you talk to local LSC and FE colleges, the LSC is there to steer not row. The expertise in terms of further education has to be at the principal level and within the institution and the LSC should, as with schools, intervene in inverse proportion to success. We have got to think of a new way of expressing that, but it is the right thing. When institutions are doing well let them get on with it.

  493. Are you confident that the LSCs are intervening in proportion to—
  (Margaret Hodge) I think that is the sort of thing that has to develop. They have settled down, they have set up their organisation, they have got the money out when they had to and they have now set themselves some broad objectives and business plans—the normal sort of stuff—and now is the time to start delivering on those issues.

Mr Shaw

  494. Minister, you have told us that you have given the LSCs £25 million more towards administration costs. Is that the first part of the £50 million we have heard about? Will there be any more money?
  (Margaret Hodge) No.

  495. There will be no more money?
  (Margaret Hodge) Not for administration. That is the settlement.

  496. Do you still think that 3 per cent of turnover represents good value for money?
  (Margaret Hodge) I think the arguments that they put forward on why they needed the extra £25 million were sound.

  497. What were they?
  (Margaret Hodge) They were the arguments I said to you: such as they inherited a liability for VAT that the TECs did not have; that we had actually got the baseline wrong and that the cost of some staff under TUPE was greater than we had assumed in assessing their original budget; that they had got additional responsibilities which we had given to them which were not reflected in the original administration. Equally, I am determined to bear down on administration costs over time. Now we have got the baseline right.

  498. So the baseline is £188 million?
  (Margaret Hodge) Plus the £25 million, so that is £213 million.

  499. What is the figure you expect in terms of percentage of turnover on administrative costs? One per cent? Two per cent?
  (Margaret Hodge) I have not got a view on that and I would not like to give you one. This is a new animal which has been in existence for nine months—

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