Financial sustainability of colleges in England: Nearly half have needed Government intervention

#FEReform – Today (16 Sept), the National Audit Office (@NAOorguk) reports that while the Department for Education (@EducationGovUK) has spent significant amounts of money aimed at helping individual colleges in financial difficulty, core funding for the sector as a whole has fallen and its financial health remains fragile.

The financial health of the college sector has fluctuated in recent years. Between 2013/14 and 2018/19, the sector’s overall operating position went from an £8.5 million surplus to a £45.7 million surplus, which followed a £70.3 million deficit in 2017/18. The proportion of colleges reporting an operating deficit fell from 37% in 2013/14 to 34% in 2018/19.

Area Reviews

Between September 2015 and March 2017, government oversaw a programme of ‘area reviews’, partly designed to improve colleges’ financial stability. The reviews, which led to 57 college mergers, are likely to have helped limit the financial deterioration of the sector.

Between 2015-16 and 2019-20, government provided 45 colleges with £431 million to help cover the costs of mergers and other structural changes, mostly in grants rather than loans. 46% of this funding (around £197 million) was used to help colleges reduce their commercial borrowing.

New Insolvency Regime

In addition to this funding, the Education and Skills Funding Agency (the ESFA) has paid £253 million to 36 colleges with serious cashflow problems, much of which will not be repaid. The ESFA has categorised £99.9 million (39% of the total) as non-repayable and, at March 2020, £61.6 million (just less than a quarter of the total) had been repaid.

Between April 2019 and May 2020, the ESFA also spent another £26.6 million dealing with two colleges going through a new insolvency process, although it expects to recoup some money from the sale of assets no longer required for educational provision.

The NAO found that, at February 2020, government was intervening in nearly half of colleges with the aim of preventing or addressing financial difficulty, and intervention often takes a long time.

Up To 35% Fall In Funding

In recent years, core funding to colleges has fallen. DfE funding per student aged 16 to 19 fell by 7% in real terms between 2013/14 and 2018/19.

Although the national basic funding rate for learners aged 16 to 17 has remained at £4,000 per student since 2013, in 2014/15, DfE reduced the rate for students aged 18 to £3,300, even though the basic cost of teaching 18-year-olds is likely to be the same as for 16- to 17-year-olds.

Total funding for adult education and support services (excluding apprenticeships) fell by 35% in real terms over the same period.

Narrowed Curriculum

Despite the financial pressures, at August 2019 more than four in five colleges were graded as good or outstanding by Ofsted.

However, financial constraints have meant that colleges have narrowed their curriculum and reduced broader support for students, such as careers advice and mental health services. This is likely to have detrimental effects on students and the development of skills.

Most of the fieldwork for the NAO report was undertaken between November 2019 and March 2020 before the COVID-19 pandemic. Although government has put in place measures to support colleges, more colleges are expected to face financial difficulties following the pandemic.

10-Year FE Reform Programme

DfE is currently drawing up a 10-year reform programme to address a range of challenges in the further education sector. The NAO recommends that this programme should set out a clear vision for the role, structure and funding of the college sector.

DfE should also assess systematically the extent to which colleges have dealt with financial pressures by narrowing their provision and reducing support services.

Sector Response

Gareth Davies, the head of the NAO, said:

“Colleges play a crucial role in many people’s lives and are vital in the development of the skills and knowledge the country needs.

“While there has been some progress in improving financial security in the sector, this has cost a lot of money, and systemic long-term weaknesses remain unresolved.

“DfE needs to seize the opportunity presented by its 10-year reform programme to set out what it wants from the college sector and ensure it is funded accordingly.”

Chief Executive of AoC, David Hughes said: 

“Today’s NAO report provides detailed insight into the complex financial system colleges operate within and the funding changes over the a decade of neglect. It shows that colleges have done a remarkable job to cope with real terms cuts whilst focusing on the quality of the student experience. They should be applauded for that, but it has to change. The government has made clear that it appreciates the vital role colleges play in every community, but to deliver on that, colleges need a stable, long term and fair funding settlement.

“That’s why I am pleased to see recommendations for DfE to evaluate the intervention regime and the impact on students and breadth of offer. The cuts have hit colleges hard, but even more importantly, they have resulted in the most disadvantaged students in our society bearing the brunt of austerity. Drops in pastoral support, enrichment opportunities and teaching hours have meant colleges have had to do their best with ever-shrinking resources.

“The improvements in college finances in the last few years were positive steps, but the pandemic, lockdown and the aftershocks will mean colleges find themselves in a much more precarious situation now and for the next few years. That comes at the same time as colleges being front and central in the recovery effort. Skills shortages will need to be filled quickly and those made redundant given access to re-training. Young people will need even better education, skills and support to enter a tougher labour market. Colleges can deliver on all of that with the right resources. 

“With college resilience at an all-time low, the white paper and spending review will be critical in turning that around over the next few years and allowing colleges to play their full role in the country’s recovery. The Government and DfE must make the white paper a real turning point for colleges and create a stronger, more resilient and stable education and skills system that works for everyone.”

Andrew Harden, Head of Further Education, UCU said:

“This study shows the current college funding system is not fit for purpose. Severe cuts to further education have led to job losses, course closures and fewer learning opportunities. 

“We need a radical overhaul where colleges are brought back into national ownership and funded properly.

“Colleges must be a vital part of our national recovery plan, but they can only do that with proper funding and support.”