Supplementary Memorandum from Margaret
Hodge MBE MP (DfES 17)
I promised to write with more details about
the Learning and Skills Council's administration budget following
my attendance before the Education and Skills Select Committee
on Wednesday 12 December.
When the LSC became operational in April 2001,
it took over many of the functions previously carried out by the
Further Education Funding Council (FEFC) and Training and Enterprise
Councils (TECs). It also took over a number of activities that
had been the responsibility of the Department for Education and
Employment (DfEE) and Government Offices (GOs).
The original 2001-02 administration budget for
the LSC was set in 1999, based on the best information available
at the time about the operating costs of the predecessor arrangements.
We now know that the operating costs of the predecessor organisations
had increased during recent years, and that our original assumptions
were therefore under-estimates.
At the Committee, a figure of £150 million
was quoted for TEC administration costs. This is not correct and
it is difficult from the TEC accounts to establish the actual
spend on a comparable basis to the way the LSC is required to
account for administration. The total shown in the consolidated
TEC accounts for 1999-2000 under the heading "administration"
is £192 million. However, this is misleading in that different
TECs had different definitions of "administration" within
their individual accountssome TECs did not include any
expenditure under this heading at all, so it does not represent
the full extent of TECs' operating costs. To illustrate this,
within the same consolidated TEC accounts, expenditure on staffing
totalled £261 million, and this is just one element (albeit
a significant proportion) of total administrative expenditure.
Of course this staffing figure also includes expenditure on activities
which have not passed to the LSC, so we have undertaken more detailed
analysis to identify the actual operating costs of those functions
which the LSC have taken on.
Our most recent estimate is that the predecessor
organisations spent in total between £270 and £280 million
on administering the functions which are now the responsibility
of the LSC, with the bulk of this (broadly estimated to be upwards
of £240 million) being spent by TECs. Some £16 million
was spent by the FEFC with the remainder (£20 million) being
spent by DFEE and Government Offices.
In addition to the tasks it inherited, the LSC
has also taken on a number of new responsibilities, such as specific
action to raise basic skills; active intervention to raise standards
in the further education and work-based learning sectors; follow-up
of area inspections; and managing a 9 per cent real terms increase
in programme budgets in 2001-02 (compared to 2000-01), including
new initiatives such as Centres of Vocational Excellence. The
LSC takes on significant further responsibilities in 2002-03,
including the funding of school sixth forms and a further real
terms increase in its programme budgets; and it will need the
capacity to take decisions at local level about the allocation
of funds for young people's and adult learning provision.
In the light of these new responsibilities,
more up-to-date information about the cost structure inherited
by the LSC we agreed to a £25 million increase in the administration
budget of the LSC for 2001-02 and 2002-03, to £213 million
and £218 million respectively. This also takes account of
the LSC's VAT status which is less favourable than that which
applied to TECs. TECs were able to recover all of the VAT they
incurred whereas the LSC is only able to recover VAT incurred
on its taxable supplies, which are minimal, so the LSC cannot
provide for as much expenditure from a given administrative budget
as TECs used to.
These arrangements deliver the commitment given
to Parliament during the passage of the Learning and Skills Act
that there would be administrative savings of at least £50
million in cash terms compared to previous arrangements, and provides
good value for money in the delivery of the Government's ambitious
post-16 education and training remit.
Margaret Hodge MBE MP