Transcript AoC Conference 2014 - Association of Colleges

AoC Conference 2014
Funding forum
Long-term trends, short-term issues
Julian Gravatt, AoC Assistant Chief Executive
20 November 2014
Slides available at
http://www.aoc.co.uk/funding-and-corporate-services/
funding-and-finance/reports-and-presentations
Twenty years of funding, what we’ve learnt
Lots of activity - agencies, initiatives, acronyms etc
Periodic changes to the funding formula – 2003, 2008, 2013
Incessant fiddling with qualifications, prices and programmes
Funding used to nudge and control
Some longer-term trends if we can discern them
Long-term trends, short-term issues
What this presentation covers
Politics
Economics
Issues in the DFE & BIS budget
Implications for colleges
Politics – where we are now
Uncertainty
24 weeks before the 2015 general election
Coalition governing parties in open disagreement
SNP, UKIP, Greens both doing well enough in polls to gain more MPs
Electoral system efficient at converting Labour votes into seats
Result currently difficult to call
Timetable
Autumn statement, 3 December 2014
Budget, mid March 2015
Easter, 7 April 2015
General election, 7 May 2015
Coalition negotiations, May 2015
Queen’s speech & Spending review, Summer 2015
Politics and funding
Before the election
General avoidance of boat-rocking
Decisions on 2015-16 allocations made before the election
Departmental budgets fixed up 31 March 2016
Autumn statement may add to, subtract from or devolve budgets
After the election
Post-election 2015 spending review (budgets from 2016-17 onwards)
Spending likely to dip around 2018
Economics, politics & demography all imply post-16 education cuts
UK economy
Big recession in 2008; shaky recovery in 2011 & 2012
Growth in 2013 and 1H2014; uncertainty about future
Inflation now below target
Inflation spike in 2011 (higher oil & commodity prices)
Some concern now in 2014 about deflation
Unemployment below 2 million
Unemployment peaked at 2.6 million (8.5%) in 2011
High employment levels – self-employed & older workers
Expectations about official interest rates
Interest rates expected to rise but now not until 2015
The economy
The current challenge
The UK has had an economic recovery for more than a year
Not a very balanced recovery
Unemployment has fallen but lots of low-quality employment
Fears that economic growth may falter during 2015
The economy and public finances
UK govt tax income has grown by less than the economy
Deficit reduction from 2009 to 2014 is not considered sufficient
Politicians interested in tax cuts to tackle living cost issues
The bigger spending picture
Public finances (in £ billions)
800
Government finances
Deficit closed this decade
Tax income rises > spending
Spending in some areas rises
e.g. pensions, interest
Revenue DEL static in cash terms
Protected spending (eg NHS) rises
OBR: 30-40% cuts in unprotected
700
600
500
Taxes
400
PSCE
RAME
300
RDEL
Deficit
200
100
0
-100
x
Policy measures taken by the Coalition
80
£ billion, based on original scorecard costings
70
60
50
Takeaway
Other public spending
Social security and tax credits
CDEL
40
30
RDEL
Other taxes
VAT and excise duties
20
Capital taxes
10
Corporation taxes
Income tax and NICs
0
-10
-20
Net effect
Original plan
Giveaway
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
Source: O BR
Tax rises, tax credits and benefit changes all used before 2015
Revenue DEL reductions after 2015
Spending as % of GDP (current plans)
60
Annually managed
expenditure (AME)
50
Per cent of nominal GDP
43.5
42.5
41.6
40.2
40
30
20
10
22.3
2.0
19.2
38.8
37.8
Capital investment
(CDEL)
21.9
2.2
18.5
22.0
2.1
17.5
22.0
2.0
16.2
22.0
21.8
1.9
1.9
14.9
14.2
2017-18
2018-19
Day-to-day
spending on public
services (RDEL)
Total
0
2013-14
2014-15
2015-16
2016-17
Memo: AME includes Single Use Military Equipment.
Source: HMT, O BR
Plans assume RDEL as % of GDP falls by 23% from 17.5% in 2014-15
to 14.2% in 2018-19
Policy measures taken by the Coalition
20
NHS (Health)
Per cent of nominal GDP
Education
15
10
9.1
8.6
0.5
0.5
3.1
3.1
7.9
International
development
0.5
3.0
O ther
16.2
14.9
14.2
Implied PSCE
in RDEL
5
6.4
6.3
6.2
PSCE in RDEL
0
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
Plans for RDEL excluding depreciation upto 2015-16. Beyond 2015-16 based on implied PSCE in RDEL calculated from the
Government assumption for TME. O ther includes unallocated amounts.
Source: HM Treasury Budget 2014, HM Treasury Public Expenditure Statistical Analyses, July 2013
OBR forecasts that unprotected DEL spending falls by 32%
from 8.6% of GDP in 2014-15 to 5.9% in 2018-19.
Defence spending likely to stay near 2% of GDP
Public spending – where are we now
Political uncertainty
24 weeks until the 2015 general election
Hard to predict who will run the government after 7 May 2015
Public spending
Changes may be made in the Autumn statement or budget
2015 spending review (by November 2015?) sets budgets after 2016
OBR says current plans imply 30-40% cuts in unprotected depts
The DFE budget after 2015
DFE’s cash crunch: too many schools, pupils & promises
DFE budget £53.7 bil (2014-15) of which £41.2 bil is spent on schools
80% of school income spent on staff
On-costs up 5% in 2015-16 (£0.9 bil cost for schools)
2015 to 2020: 11-16 pupils +10%
Pensions and budgets
Cost of employing a teacher to rise by 5% plus any payrise
Now
By 2016
TPS employer
14.1%
16.48%
NI employer (approx)
10.4%
13.8%
Employer on-costs
26%
33%
Staff cost ratio
63%
?
Now
By 2016
TPS members (avg)
9.6%
9.6%
NI employee (approx)
10.6%
12%
TPS
15 year recovery period
Lower discount rate
High pay growth assumption
2015 reforms don’t save enough
Costs Colleges 1% of income
National insurance
DWP simplifying state pension
Removal of an NI relief
£5 bil extra NI
Costs Colleges 2% of income
16-18 funding in 2015-16
In 2015-16
16-18 funding letter out (12 pages)
Same systems (rates * lagged numbers * historic funding factors)
ILR data vital (R15 in October, R04 in December)
Funding factors in December and allocations by February 2015
In 2016-17 and beyond
Big question whether 16-18 is protected or not
Forecast that 16-18 population will fall by 8% from 2015 to 2020
Savings from end of Formula Protection & start of funding condition
Further cuts either to rates, numbers or factors
Plausible to anticipate 2% (c£150 mil/year). Could be worse
16-18 students and funding
Students
Instits
16,17
18 FT
PT
H/Needs
Colleges
332
519
116
105
18
755
2,274
Schools
2,099
411
19
23
3
457
218
Other
834
33
9
35
16
93
111
Total
3,265
964
141
164
37
1,306
400
Total
£ millions
Prog
Disadv
H/N
Bursary
Total
Colleges
3,372
420
110
133
3,616
Schools
2,057
110
20
42
2,121
291
48
145
19
452
5,721
577
275
194
6,193
Other
Total
Average
Colleges are larger but future cuts could fall disproportionately on
18 year olds, part-timers & on additional funding factors
The BIS budget after 2015
BIS revenue spending in 2015-16 and total outlays on HE
£ bil
25
HE & Science
7.9
20
19+ FE
2.9
15
10
All other BIS
2.4
BIS RDEL
13.2
5
0
Teaching
IFS scenarios for UUK
1. Reduce science/research (£4.6 bil)
2. Cut Medicine & STEM (higher fees)
3. End HE maintenance grants (£2 bil)
4. Reduce number of FT HE students
5. Cut 19+ FE/Skills
(on top of 35% cuts 2009-15)
Student
Research
Support
Grants
Loans
Total
Total
Several options for 19+ FE/ Skills
Several options for reform
1.
2.
3.
4.
Devolution of budgets to 152 councils, 39 LEPs or 7 metro areas
Employer-routed funding for apprenticeships (£700 mil 19+ spend)
Expansion of FE loans to 19 year olds & Level 2
Action to reduce numbers under 24 on benefit
The bigger the reform, the less things change in the short-term!
College income
EFA
SFA
FE College income
2014-15 (£ millions)
233 Colleges
EFA
SFA
Other
Total
Surplus
2,823 (44%)
1,734 (28%)
1,756 (28%)
6,396
34
Colleges
Sixth form colleges
2014-15 (£ millions)
93 Colleges
EFA
(95%)
SFA
(5%)
Total
Surplus
822
42
864
20
Recent trend in income
Income
2014
2014-15
2010
2011
2012
2013
£726m
+5.1%
+0.8%
-2.7%
-2.7%
-2.2%
£712 m
FE 16-18
£3,005m
+0.6%
-0.8%
-1.7%
-2.2%
-2.2%
£2,823m
FE SFA
£2,169 m
-3.7%
+4.1%
-2.1%
-9.3%
-6.2%
£1,810m
SFC 16-18
2009-10
£5,900m
£5,345m
Spending changes & budget reductions affect colleges incrementally
c10% (£550 mil) cash reductions in last 5 years
Risk that the pace of budget reductions continues & even increase
Changes depend on policy but also on the college response
Financial health
College finances
Deficits in 2012-13 (48% operating deficits, 10% cash based deficit
Ofsted-related spending + capital projects = short-term deterioration
Financial outturn for 2013-14 expected to be worse
Rising costs (staff costs 60-65%) & falling income
How Colleges need to respond
Understanding their own position & likely scenarios
Governing bodies responsible for solvency & viability of college
Use AoC’s ETF-funded governance support programme
Core financial skills
Relationships with SFA, EFA, MPs, councils & banks
Think about opportunities and what comes next
The wider context
Education and training for those over 19
Changes to public spending permanent
Consider HE, FE & Adult education together
Loans are a way to make fees more palatable
Fees were a bigger part of the mix in the 1980s
.. but we’re now in an Aldi / Amazon world with big income gaps
Adults are working longer/need to retrain
Employers still think about workforce development
Education and training for 16 to 18 year olds
Young people still seeking a route to university & work
Survival strategies at a time of population & budget reductions
Considerable curriculum change 2015 to 2018
On a more positive note...
Some final thoughts
Colleges have friends and allies
Government will still be spending £70+ billion on education in 2020
Income generation opportunities exist
Quality counts
Productivity improvements from IT only partly realised in education
There are some relatively simple things that can still be done
Important to plan now
Slides available at
•http://www.aoc.co.uk/funding-and-corporate-services/
•funding-and-finance/reports-and-presentations