Spend, spend, spend? - the mismanagement of the Learning and Skills Council's capital programme in further education colleges - Innovation, Universities, Science and Skills Committee Contents

2  Building Colleges for the Future and the 2009 Foster Review

Building Colleges for the Future

8. In 1993 further education colleges were incorporated, allowing them to take control and ownership of their land, buildings and reserves from local authorities.[17] The National Audit Office (NAO) noted that at the time "much of the physical infrastructure was in poor condition, and many buildings required urgent health and safety-related repairs, were unattractive to potential learners, unsuitable for modern learning, inaccessible to people with disabilities and inefficient to run."[18] A survey of the college estate commissioned in 1992 estimated the repair backlog to be £800 million.[19] Despite this, between 1993 and 1996 capital funding was mainly for projects relating to health and safety issues, and for the following two years only "very limited funding" was available.[20]

9. In 1999, the then Department for Education and Skills (DfES) obtained funding for the Further Education Funding Council (FEFC) to distribute to colleges as grants for capital projects.[21] In 2001 the Learning and Skills Council took over from the FEFC. Colleges were "expected […] to provide the majority of their project costs through disposal of any surplus assets, taking out loans secured on their assets, and use of reserves."[22] Capital funding was also available in the form of private finance or public-private partnerships (PFI/PPP) although "almost all"[23] colleges chose to proceed on a grant-funding basis.

10. Following Sir Andrew Foster's 2005 review of the future role of FE colleges, Realising the Potential,[24] the 2005 Budget announced:

a step change in capital investment in the Further Education (FE) sector [...] Existing plans should enable overall Government support for investment in the FE estate to rise to an estimated £250 million in 2007-08. Budget 2005 announces that an additional £350m of capital investment will be made over 2008-09 to 2009-10 to support the longer-term transformation of the further education sector.[25]

11. The Chart below shows how the programme grew between 2001-02 and 2007-08. Between 2001-02 and 2007-08, projects with a total cost of £4.2 billion were approved and the Council's contribution to these was £1.7 billion:[26]Figure 1: LSC funding of approved capital projects, 2001-02 to 2007-08

Source: National Audit Office analysis of the Learning and Skills Council's project data

Sir Andrew Foster's review

12. Sir Andrew Foster's 2009 Review of the Capital Programme in Further Education is a clear analysis of what went wrong during 2008. He set out his terms of reference as "in essence to assess":

13. Describing the aim of his review as "to put back on track what has generally proved to be an excellent programme of capital investment in the Further Education (FE) sector"[28], Foster set out how it came to be, as he put it, that a "large surge in college proposals […] opened an untenable gap between the resources identified and the cost of projects underway or in the pipeline."[29]

14. The size of this gap was remarkable. As the review continues "[w]hen the LSC completed its review of the project pipeline on 4 March 2009 [...] 79 projects had already received the first stage of approval in principle, with a requirement of £2.7bn from the LSC. A further £3bn would be needed for the 65 colleges that had submitted proposals for approval in principle."[30] To put these figures into context, the National Projects Director recently stated "the current plan [is] for the LSC to approve projects in June 2009 that required £500 million in grant, in the expectation that their total costs would be around £750 million",[31] [our emphasis] referring in June 2009 to "a potential budget of up to £515 million. [32]

Foster's analysis

15. Foster states that "proposals [after the 2005 Budget] at first remained stubbornly behind the curve of the total capital budget"[33] but "by early 2008, powerful drivers were increasing both the amount of grant support required from the LSC, and the speed at which proposals were being brought forward for approval".[34] These drivers were:

  • "The good news about the success of the programme had spread. Colleges that had been sceptical or wary at the outset saw the impact on colleges that had been modernised and renewed";
  • Colleges applying after the "first wave of 'early implementers'" had "relatively less strong balance sheets and narrower financial margins" and needed a higher proportion of LSC grant support;
  • Early successes meant colleges had higher expectations "fuelling increases in both the scale of projects and their cost";
  • "The standards of environmental sustainability were also increasing, with a requirement to meet BREEAM [Building Research Establishment Environmental Assessment Method] 'excellent' criteria introduced in March 2008";
  • "Inflation in construction industry costs";
  • Mindful of "the need to use or lose in-year budgets" the LSC "promoted the programme intensively", according to Foster, "local LSC teams actively solicited projects from colleges and worked with college principals to turn more modest proposals into wholesale upgrading of the entire college estate" (we comment on this in paragraphs 70-77);
  • Nervousness arose on the part of colleges about two aspects of Machinery of Government changes: Foster states that "The budget split between FE and 16-19 capital after the establishment of DIUS and DCSF had increased nervousness that resources thought ring-fenced for colleges might be diverted to schools" and that colleges also "feared the impact that the establishment of the new YPLA and SFA in 2010 might have on their ability to participate and access funds"; and
  • The economic downturn "was having a triple effect. Colleges were finding it harder to realise their private contribution through borrowing and land sales; as the building industry contracted there was increased capacity to take college work more rapidly through development stages; and some foresaw growing pressure on public sector borrowing, making a tight fiscal settlement likely after 2010." [35]

16. Together, these factors led to an exponential increase in applications and approvals, which Foster refers to as becoming "a veritable tsunami".[36] But the LSC and DIUS did not realise that this rapid increase was happening until it was too late. We explore the reasons for this in the following sections of the report.

17. Foster's analysis seems to have been well received. The memorandum from DIUS stated that it "accepts Sir Andrew's conclusions".[37] The Acting Chief Executive of the LSC said "Andrew Foster's report was extremely helpful to me in that respect. It was a clear analysis and it also made some very sensible recommendations."[38] Mark Haysom, the former LSC Chief Executive, told us that:

I agree with an awful lot of his analysis. Where I would disagree would be at the margin, and I could argue about individual, small things, but I cannot see any value in that. I would not choose to express things in quite the way he has on occasions, but, fundamentally, I agree with him.[39]

18. We commend Sir Andrew Foster for his thorough review of the FE capital programme and his perceptive description of events in 2008 and 2009. We have drawn on his work throughout this report.

17   National Audit Office, Renewing the physical infrastructure of English further education colleges, HC (2007-08) 924, July 2008, Summary, para 2 Back

18   As above Back

19   National Audit Office, Renewing the physical infrastructure of English further education colleges, HC (2007-08) 924, July 2008, para 1.8 Back

20   National Audit Office, Renewing the physical infrastructure of English further education colleges, HC (2007-08) 924, July 2008, Summary, para 2 Back

21   As above, para 3 Back

22   As above Back

23   As above Back

24   Department for Education and Skills, Realising the Potential: a review of the future role of Further Education Colleges, Sir Andrew Foster, November 2005 Back

25   HM Treasury, Budget 2005: Investing for our future-fairness and opportunity for Britain's hard-working families, HC (2004-05) 372, paras 6.54-6.55 Back

26   National Audit Office, Renewing the physical infrastructure of English further education colleges, HC (2007-08) 924, July 2008, p 6, Box 5 Back

27   2009 Foster Review, Summary, p 4 Back

28   As above, p 3 Back

29   2009 Foster Review, Summary, p 3 Back

30   As above, p 3 Back

31   LSC, Capital Reference Group minutes, 29 April 2009: "assuming an average grant rate between 65% and 70%" Back

32   LSC, Capital Reference Group minutes, 15 June 2009, para 5.2  Back

33   2009 Foster Review, para 11 Back

34   As above, para 13 Back

35   2009 Foster Review, para 13 Back

36   As above, para 2 Back

37   Ev 33, para 8 Back

38   Q 230 Back

39   Q 3 Back

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Prepared 17 July 2009