Appendix 3: Draft Further Education Bodies (Insolvency) Regulations 2018
Additional information from the Department for Education
Introduction
After consultation on policy proposals during 2016, it was announced in October of that year that the Government would bring forward legislation to introduce a further education insolvency regime. This was part of a wider programme of initiatives aimed at underpinning the long-term health of the FE sector by supporting effective decision making and the financial resilience of further education institutions and sixth form colleges.
The main legislation setting out the purpose and objectives of the regime is included in the Technical and Further Education Act 2017 (‘the Act’). It provides for the application of insolvency law to FE and sixth form college corporations as if they were companies, and also protects learners through the introduction of a special administration regime, which has the objective of minimising or avoiding disruption to the studies of existing students at colleges that enter into insolvency. It also reflects the interests of creditors and taxpayers by removing uncertainty about the legal position on insolvency in the FE sector and ensures that in future financially failing colleges are not indefinitely propped up by Government.
The Statutory Instruments that are being brought forward this Autumn complete the legislative package needed to bring the FE insolvency regime into force. This meets a commitment to have the regime in place to coincide with the completion of the restructuring programme that followed Area Reviews of FE provision across England and the end of the Restructuring Facility that supported the implementation of that programme.
The insolvency regime is the final part of the financial resilience jigsaw and is there to manage the future risk of a college becoming insolvent when all else has failed. It provides assurance that there will be an orderly procedure and student protection in the unlikely event that a FE or sixth form college becomes insolvent. In exceptional cases that do occur, students can be protected and the Government will be able to maintain provision where it is needed. The interests of students will be put ahead of creditors.
Potential outcomes of an Education Administration
The Committee have expressed an interest in the possible outcomes for an individual FE or Sixth Form College in the rare event that such a college becomes insolvent and enters into Education Administration; including the implications for existing students at the college.
The purpose of a special administration regime, of any type, is to ensure continuity of provision for a particular user group, should the provider become insolvent (e.g. customers of energy suppliers do not experience a disruption in energy supply if their supplier becomes insolvent and goes into an energy special administration).
Education Administration is a new special administration regime for the FE sector, where the special objective is designed to protect learner provision for existing students at an insolvent college. Unlike in an ordinary administration, where the administrator’s duty, in seeking to rescue the company, is to act in the best interests of the creditors as a whole, the priority objective of the education administration is to avoid or minimise disruption to the studies of existing students of the college as a whole.
The primary legislation for the FE insolvency regime includes a summary of the possible outcomes of an Education Administration, which include complete closure of the college and a takeover of the college. Section 16 of the Act sets out the special objective of an Education Administration and how that might be achieved.
It is clear from subsection (1) of this objective that the needs of the existing students of the affected FE body are paramount. Subsection (2) sets out that the Education Administrator has a number of ways in which he or she could meet those needs. The method chosen will depend on the exact situation of the individual college, but we would expect an Education Administrator to first consider whether it was possible for the insolvent FE body to be rescued as a going concern. This would be most likely through restructuring the college; either through a merger with, or takeover by, another FE body or FE college group; or by internal restructuring perhaps through a change of leadership and management and adoption of a new business model. A takeover or merger arrangement would result in a new FE college or the insolvent college becoming part of a wider college group to strengthen its overall financial position and rescue it from closure. The existing students would continue their studies within the new arrangement, and in practice would be unlikely to notice much practical difference so long as the process was well managed.
If this was not possible, for example if local market conditions indicated oversupply in the area and the individual insolvent college did not have a viable future, then the most likely outcome would be closure of the college–but the legislation ensures that the college does not close until the needs of the existing student body have been provided for. Again, the exact outcome would vary from case to case, including the point in the academic year at which the insolvency occurred; so we would expect the Education Administrator to, for example, allow existing students to complete examinations rather than disrupt an exam timetable to better manage restructuring of the college. The Education Administrator would have the flexibility to explore agreeing a transfer of existing students to another institution to continue their studies or undertake a similar course. Alternatively, the college could be kept open long enough to ‘teach out’ existing students before being closed down. The actual outcome depends on the specifics of the individual case but the primary objective is to manage the situation with the least disruption to existing learners.
The Act also provides a flexible funding power to the Secretary of State to ensure that an Education Administration is properly funded in order to achieve the special objective of learner protection–either through grant or loan as is appropriate to the individual case.
These provisions are all already set out in the primary legislation. The secondary legislation that is being introduced through the FE Bodies (Insolvency) Regulations 2018, together with a bespoke set of insolvency rules which will govern how an Education Administration will operate, provides for detailed application of existing insolvency legislation in order to make the new FE insolvency regime work effectively.
Institute for Fiscal Studies (IFS) report on education spending 17/09/2018
16 to 19 funding
The Committee have also expressed an interest in the IFS’s report on funding for 16-18 year olds in further education and asked about DfE’s policy on 16-18 education funding.
Overall, the Government plans to invest nearly £7 billion this academic year (2018/19), to ensure there is a place in education or training for every 16 to 19-year old who wants one (including apprenticeships).
The national base rate for 16-19 funding–which applies to school sixth forms and colleges–has been protected at existing rates until 2020. The Government continues to provide extra funding in addition to this base rate e.g. disadvantage funding (around £500m per year in total), and the uplift for large academic programmes.
The Government has announced extra support for key priorities and will provide additional funding to support institutions to grow participation in level 3 maths - an extra £600 for every additional student–with two payments of £600 if for example they are studying a maths A level over two years. This will first be paid next year, 2019/20.
Since the academic year 2013/14 all types of providers have been funded for 600 planned hours per year per full-time student. There is enough funding for study programmes covering 3 A levels or a substantial technical qualification plus further hours for other things like an AS level or, if required, the continued study of English or maths.
The Government’s commitment to the 16 to 19 sector has contributed to the current record high proportion of 16 to 17-year olds who are participating in education or apprenticeships, the highest since consistent records began. While performance must be kept under close review, this is not a sector which is failing.
The Government is also transforming technical education in this country through the introduction of new T Levels. As the Chancellor announced last year, there will be an extra half a billion pounds a year invested in England’s technical education system once T Levels are fully rolled out. This extra funding is already flowing to colleges–and other providers too - with nearly £60 million already allocated to them to invest in their capacity to organise extended industry placements for young people. These placements will be a key element of T Levels.
Adult funding
The Department for Education was allocated £1.5 billion for the Adult Education Budget (AEB) for each year of the Spending Review period, as set out in the 2015 Spending Review.
The principal purpose of the AEB is to engage adults and provide the skills and learning they need to equip them for work, an apprenticeship or further learning. It enables more tailored programmes of learning to be made available, which do not need to include a qualification, to help those furthest from learning and in the workplace. The AEB also funds colleges and training providers to help adult learners to overcome barriers which prevent them from taking part in learning. This includes Learner Support to support learners with a specific financial hardship and Learning Support to meet the additional needs of learners with learning difficulties and/or disabilities.
For the 2018/19 academic year, we will be supporting those in work on low incomes to access the AEB through the introduction of a new one-year pilot which will allow providers to fully fund those on low wages. This will directly support social mobility by enabling those that have been motivated to move out of unemployment and are low paid/skilled, to further progress.
We are also giving colleges the opportunity to earn an additional 3% on top of their AEB allocation in 2018 to 19 for over-delivery to support growth in adult skills participation.
From 2019/20 academic year, approximately 50% of the AEB will be devolved to 6 Mayoral Combined Authorities (MCAs) (Tees Valley, Liverpool City Region, West Midlands, Greater Manchester, Cambridgeshire & Peterborough, West of England) and delegated to the Greater London Authority (GLA). North of Tyne and Sheffield City Region are in scope for devolution for 2020/21.
Devolution of the AEB will give MCAs and the GLA direct control over adult education provision for their residents for the first time; this is a significant step that will give local areas the opportunity to better meet local economic needs.
28 September 2018