Memorandum submitted by the Association
of Colleges (AoC)
SUMMARY
1. It remains the view of AoC that overall
the Spending Review 2002 settlement provides the best funding
framework the FE has yet seen.
2. However, as will be evident from the
following paragraphs, assessment of the overall impact of the
settlement in 2003-04 is complicated because of the simultaneous
introduction of:
— performance related funding (under
Success for All);
— the transfer of responsibility for
teachers pension increase, the consolidation of monies for TPI
and the staff development element of the Standards Fund;
— the further increases in employer
contributions for teachers pensions (arising from the review by
the Government Actuary's Department), increases in local government
pension contributions, and the rise in employers national insurance
contributions, and other cost rises.
3. Notwithstanding these complications it
is reasonably clear that for 2003-04, many colleges are seeing
little or no improvement in their funding positions in real terms,
and a significant number face a real terms decrease.
4. While, there is the prospect of an improving
position in 2004-05 and 2005-06, in real terms for most colleges
the gain will be only some 5% by the end of that period. Further
the linkage of these improvements to delivery of demanding targets,
and the uncertainties surrounding the consolidation of this funding,
necessitate considerable caution. This is imposing real constraints
on the ability of the sector to address in particular the erosion
in pay relativities which has taken place over recent years.
5. Although adoption of the trust approach
recommended by the Bureaucracy Task Force will over time bring
welcome reductions in the bureaucratic burden on colleges, as
noted above the arrangements for implementation of Success
for All now being introduced through LSC circular 03/09 are
likely to introduce further complications and uncertainties for
colleges.
6. At the same time the sector is facing
the prospect of yet further changes to both the policy framework
and to funding mechanisms arising from the Skills Strategy and
the Review of Funding of Adult learning, the detailed implications
of which cannot yet be foreseen. While many of these changes may
be welcome in their own terms, others may have wider ramifications,
and it will be important to ensure that they are introduced in
ways which do not lead to greater complexity or destabilisation
for the sector.
INTRODUCTION
7. The Association of Colleges is the representative
body for further education colleges, established by colleges themselves
to provide a voice for the FE sector at national level. The membership
includes colleges of all types—general further education,
sixth form, agricultural and horticultural, art design and performing
arts, and other specialist colleges. Membership covers colleges
in England, Wales (through affiliation arrangements with Fforwm)
and Northern Ireland (through the Association of Northern Ireland
Colleges). Some 98% of colleges in the three countries are in
membership.
8. The expenditure plans set out in the
DfES Departmental Report 2003 embody the outcome of the
Spending Review 2002, for which the main outlines—in relation
to the allocations for Education and Skills as a whole are concerned—were
announced last summer. As far as the further education sector
is concerned, the Secretary of State set out more details of the
settlement at the AoC annual conference in November 2002. For
2003-04 the FE sector allocations were then included in the LSC
grant letter issued in December 2002.
9. The Association is pleased to have an
opportunity to assist the Committee in this annual review. The
evidence which follows seeks to:
— identify the key features of the
settlement as far as the FE sector is concerned;
— describe and comment on the way in
which the settlement has been translated by LSC into funding arrangements
for 2003-04;
— analyse the implications for colleges;
— comment on other developments which
impact on funding for the FE sector;
— identify the key issues which now
face the sector over the period to 2005-06.
FURTHER EDUCATION
ALLOCATIONS TO
2005-06
10. Enclosed at Annex A is a copy of a briefing
document (17/02) on the Spending Review settlement to 2005-06,
and on the LSC grant letter for 2003-04, issued to member colleges
shortly after the Secretary of State's announcement last autumn.[9]
It provides a summary of the key features of the settlement, together
with an initial analysis of the implications and some comparisons
with the settlement for schools.
11. In relation to the conclusions drawn
in that analysis, the further information published in the DfES
Departmental Report 2003 has confirmed in particular:
— the bulk of the increase in participation
for 16-19 year olds is expected to be delivered through colleges,
with a more modest increase in the proportion of young people
entering work-based training, and an essentially unchanged participation
rate in schools;
— and that the increasing size of the
16-19 cohort will mean that overall participation rates will rise
only slowly;
— real resources per pupil in schools
will rise at a substantially faster rate than for students in
FE or HE (by some 15% over the period 2002-03 to 2005-06 for the
revenue component alone, compared with a rise of 8% and 7% respectively
in total resources per students in the latter).
12. Subsequent to the issue of briefing
17/02, DfES published details of the funding allocations for higher
education in the White Paper The Future of Higher Education.
Analysis of those allocations shows that overall increases in
institutional funding for higher education (i.e. excluding student
support) are a little higher than for the FE sector (31% in cash
terms as compared with 26%), but that is largely due to a more
favourable settlement for research funding. Funding for teaching
in higher education will rise by some 19%, but assumes a projected
growth in enrolments somewhat lower than in FE (some 5% over the
period 2002-03 to 2005-06, as compared with 11% for FE), so that
the increase in resources per student is similar—as comparison
of tables 3.7 and 3.8 of the DfES Departmental Report 2003
demonstrates.
13. That analysis confirmed also the initial
conclusion set out in briefing 17/02 that there has been little
overall shift in DfES priorities, but that as noted above the
allowance for significant growth in the settlements for both FE
and HE will mean that improvements in resources per learner in
schools will outstrip those in post-16 learning. The likely result
is that by 2005-06 overall resources per pupil in schools will
be only marginally below the parallel figure for FE students.
LSC FUNDING FOR
2003-04
14. Enclosed also at Annex B is a further
briefing document (2/03) issued to AoC member colleges in February,
which provides a more detailed analysis of the actual funding
position likely to face colleges in 2003-04,[10]
in the light of the decisions announced at the beginning of the
year by LSC on funding rates for 2003-04.
15. As will be seen, that analysis demonstrated
that:
— while the provision for the transfer
for teachers pension increase was likely to be broadly neutral
at sector level, the effect would vary considerably from college
to college;
— the method chosen for consolidation
of TPI/CPI/PSP and the staff development element of the Standards
Fund would result in a reduction in funding at sector level of
about 1% in 2003-04, but the impact would also vary considerably
at college level;
— this loss would however be offset
for some colleges by increases in area cost allowances and widening
participation premium (again with variations consequent upon the
introduction of a new index of deprivation, and some changes in
the classification of a few areas for area cost purposes);
— the net effect of these changes would
be that for most colleges, the real rise in funding rates would
amount to about 1%, rather than the 2% envisaged in Success
for All;
— but that the additional costs arising
from the rise in employers national insurance contributions, the
further increase in employer contributions to the Teachers Pension
Scheme arising from the Government Actuary's review, and in employer
contributions to local government pension schemes, would reduce
this by a further 1%;
— leaving the sector overall with an
increase in resources in 2003-04 roughly equal to the inflation
allowance of 2.5%, before any consideration is given to pay and
other price rises;
— but with considerable variations
between colleges.
16. The analysis further demonstrated that
the position was likely to be somewhat more favourable in 2004-05
and 2005-06, with a cumulative increase in funding levels of some
5% above inflation by the latter year (excluding provision for
growth in enrolments). In the view of AoC the latter figure effectively
sets the parameters within which improvements in services—including
enhancements to pay levels—will need to be contained.
SUBSEQUENT DEVELOPMENTS
17. Since February LSC has been undertaking
the allocation of funds for 2003-04, which resulted in the overwhelming
majority of colleges being notified of allocations at the beginning
of May—considerably earlier than in previous years. The
overall picture is as yet unclear but reports reaching the Association:
— indicate that allocations for 2003-04
meet all projected growth in enrolments for 16-19 year olds and
for adult basic skills, but that as predicted in briefing 17/02
resources for other adult growth have been curtailed;
— confirm the expectation of the analysis
set out in briefing 2/03 that for many colleges the additional
cash resources available, after taking account of the transfers
and additional costs described there, are well below the 4.5%
envisaged in Success for All, and for some colleges are
below even the assumed inflation level of 2.5%;
— suggest that many colleges have not
been given the detailed explanation of the calculations underpinning
their allocations for 2003-04 envisaged in briefing 2/03, making
it difficult for colleges to compare with actual funding levels
in 2002-03;
— suggest also that for many colleges,
the rises in employer contributions to the Teachers Pension Scheme
are substantially above the assumed 2% allowed for in 2003-04
funding rates;
— and similarly that the rise in employers
national insurance contributions, employer contributions to local
government pension schemes, and other cost increases (most recently
the rise in fees for Criminal Records Bureau searches) are running
at a level at least as great as predicted in briefing 2/03.
18. In addition, with vacancies in colleges
running at twice the level of schools, staff recruitment and retention
represents a considerable challenge for colleges. There is in
consequence an urgent need to modernise pay arrangements to address
these problems. Having reached agreement on the outstanding claims
for 2002-03, AoC has been exploring with the recognised unions
the scope for modernising pay structures in general FE colleges
over the coming years. In formulating its approach, AoC has had
regard both to the need to ensure delivery of the new requirements
laid down in Success for All, and to the affordability
of changes, having regard to the constraints described above.
Following extensive consultations with member colleges, negotiations
are continuing. In parallel, the Sixth Form Colleges Employers
Forum has reached agreement with its recognised unions, on a new
pay structure for sixth form colleges.
SUCCESS FOR
ALL—LSC CIRCULAR
03/09
19. In addition, LSC undertook in January
(through circular 03/01) a consultation on implementation of the
policy framework announced in Success for All: final decisions
on the approach proposed there have now been issued in circular
03/09.
20. While in a number of important respects
clarifying the operation of the new framework set out in Success
for All, the proposals have confirmed that there will be further
funding issues to be faced by colleges over the coming period.
In particular:
— while the introduction of three year
development plans, and the moves to build a new set of operational
relationships built on the recommendations contained in the report
of the Bureaucracy Task Force Trust in the Future (including
in particular the abolition of reconciliation and clawback), has
been welcomed, it is as yet unclear to what extent the processes
of annual performance review will erode the stability these measures
are designed to bring;
— the introduction of headline improvement
targets in respect of enrolments, employer engagement, success
rates and teacher qualifications, will add to the multiplicity
of targets against which FE sector performance is already judged;
— it is as yet unclear how effective
the provider performance review process adopted by LSC will be
in ensuring consistency and equity in the judgements of college
performance which will trigger additional real terms funding in
2004-05 and 2005-06;
— and in avoiding the reintroduction
of multiple, divergent funding levels, which would make it increasingly
difficult to ensure equality of provision for learners;
— there is also room for concern that
the proposals to deliver performance related funding as a supplementary
allocation not consolidated into core funding will make it difficult
for colleges to give forward commitments against such allocations
(for example, in respect of pay);
— there remains a need to develop more
consistent success measures to underpin the judgements about performance
and the allocation of additional funding.
SKILLS STRATEGY—REVIEW
OF FUNDING
OF ADULT
LEARNING
21. As the Committee will also be aware,
as a contribution to the process of developing the Government's
planned Skills Strategy, DfES published in March 2003 two initial
documents Developing a National Skills Strategy and Delivery
Plan: Underlying Evidence and Progress Report. In parallel,
LSC published Funding Adult Learning: Technical Document
which set out a range of initial ideas for possible reform of
the funding system, as a contribution to the Review of the Funding
of Adult Learning also launched in Spending Review 2002.
22. Although much of the detail of Government
policy in these areas will not emerge until the publication of
the White Paper (now expected in July), it is evident that many
of the suggestions envisaged carry major implications for the
policy and funding framework within which colleges operate. Examples
might include,
— while there would be widespread support
for the need to give priority in public funding to adults lacking
adequate basic skills or level 2 qualifications, if the consequence
were a withdrawal of support for other groups, or a dismantling
of the infrastructure for other areas of learning need, there
would be major ramifications for the overall pattern of learning
provision and the character of colleges;
— changes in the funding incentives
for colleges and providers might also have a significant impact
on patterns of provision;
— while there would be widespread support
for unitisation of adult qualifications, the funding implications
have yet to be worked out in detail;
— while there may be scope for channelling
some funds through individuals (perhaps through a new form of
Individual Learning Account) or through employers (such as in
the Employer Training Pilots), major shifts in these directions
could result in serious destabilisation of the sector;
— while the need for better planning
to take account of regional, sectoral and national as well as
purely local needs is recognised, any strengthening of planning
mechanisms needs to recognise the importance of allowing colleges
and providers to respond to changing demands;
— while a more differentiated approach
to fees policy would be justified, regard needs to be paid in
applying changes to the impact on demand and access to learning
provision;
— in supporting moves towards simplification
of the funding system, the sector will undoubtedly wish to ensure
that the system remains sensitive to the wide variety of learning
needs for which colleges provide.
CONCLUSION
23. The Association will be happy to expand
on these issues in oral session if that would be helpful to the
Committee.
June 2003
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