The further education operating context is incredibly tough

Delivering any form of public service is extremely difficult. Expectations are high, resources are scarce, it is not always clear what success looks like or even who the customer is…

Public service delivery is a tough gig. A really tough gig. Expectations are understandably high. As citizens’ experience of service delivery in the private sector evolves with the introduction of new technologies, slick user interfaces and tailored products, they naturally expect the same from public services. Yet, particularly following the financial crisis of 2008, resources are scarce.

Citizens’ tolerance for tax increases is limited – though that may be starting to change – wages are growing very slowly at best, and government’s fiscal focus has been to reduce the national debt – meaning a sustained period of austerity in public spending.

Understanding measures of performance

It can be acutely difficult to measure – sometimes, even to define – what success looks like in the delivery of public services. Where in the private sector price, cost, profit and loss are simple, widely understood measures of performance, the same clarity is rarely available to public sector organisations.

While it is likely possible to define and quantify the outputs required of a given public service organisation, it can be incredibly difficult to adequately measure the breadth of outcomes which are expected to flow as a result.

It is the nature of public service that mission, strategy, objectives and measures of success change – whether the result of a change of government, minister, spending review outcome or some other political event.

It is the lot of those involved in public service delivery to respond to such events at a pace that most private sector leaders would consider laughable.

I recall vividly the day in June 2007 when my Director General – my hero at the time – returned from a meeting to inform several hundred of us that we now worked in the new Department for Innovation, Universities and Skills (DIUS) and not the Department for Education and Skills (DfES) – which no longer existed following the stroke of a Prime Ministerial pen.

Knowing Your Customer

At times it can be difficult for public service organisations to know who their customers are.

Is it their citizen service users, with whom they interact on a daily basis to deliver the outputs expected of them?

Or is it the government agencies, departments and ministers which so actively shape their operating environment through the definition of policy, determination of funding and prescription of the outputs they must deliver?

The answer should be citizens, but it can be incredibly difficult for public service leaders to stay focused on their service users when their regulators, funders and policy-shapers demand so much of their attention.

These and other contextual factors combine to make the leadership of any public service organisation an extremely difficult task.

The unique context, challenges and nuances of public service delivery are too rarely understood by those who level generalised criticisms at the public sector about inefficiency, lack of commercialism and poor performance.

It is not that those criticisms are always and necessarily invalid; rather that they often fail to reflect a nuanced appreciation of the operating context and challenges faced by colleagues leading the delivery of public services and public service organisations.

The value, success or failure of a given public service organisation cannot be distilled simply from a review of its financial statements as some who come late to public service delivery are used to doing in their corporate lives.

The game is a different one altogether and must be understood as such before performance can reasonably be assessed.

The environment in which further education colleges operate

I’ve worked on both sides of the fence and am determined that this piece will be a balanced, reasoned one. I therefore want to use this chapter to characterise the environment in which further education colleges operate.

Subsequent discussion of college performance, issues and transformation does not make sense without proper reflection on this context.

Government policy relevant to further education colleges changes often. Many of those changes have major implications for the overall operating environment

As a young civil servant, I worked on the 2006 Leitch Review of Skills and the Government’s response to it in the 2007 World Class Skills: Implementing the Leitch Review in England.

The publication of a white paper I drafted much of and edited all of was the proudest achievement of my career, until the HLG Ofsted inspection of 2017.

I loved every minute of my incredibly long working days on a strategy which I genuinely believed would see us through to 2020.That was, after all, the stated purpose of the review and our response to it. We spent months and months modelling the upskilling that would be required to bring the nation’s skills base up to the level of our international competitors.

We worked out how many training places we would need to fund to deliver that level of change in the skills mix of the working age population. We debated and negotiated the long-term policy measures and investments that would get us there. It was brilliant.

The happiest time of my career by miles; many of my best friends in the sector are folk I worked with around that time and in the golden era of the Department of Innovation, Universities and Skills that followed. Several have been kind enough to review emerging drafts of this piece.

I was so naïve!

I thought that we were developing long-term policy for the long term. It quickly became clear that we hadn’t been.

By 2009, I was overseeing the development of a new strategy for adult literacy and numeracy; this was the point at which slightly scary mime hands replaced the gremlins in the marketing effort.

By 2010,Train to Gain was gone, buried in a pile of its own deadweight. With the change of government in 2010, the pace of change picked up further. My beloved 2020 goals were gone, replaced with a new target to deliver 2 million apprenticeship starts by 2015. Leitch was out of fashion, Wolf was the new vogue.

Since 1997, there have been 11 secretaries of state responsible for further education and too many ministers, in too many different formations, to recall.

Responsibility for the sector has sat in five different government departments in that time: Education and Employment (DfEE); Education and Skills (DfES); Innovation, Universities and Skills (DIUS); Business Innovation and Skills (BIS); and Education (DfE).

That level of change in the mothership, coupled with the changing nature of policy-making and the media, make it almost inevitable that policy will change often and substantially.

A recent IFS report describes a ‘near-permanent state of revolution in the further education sector’ and includes a timeline of 25 major reforms between 2000 and 2020. Their diagnosis is spot on – though I could add another 15 major changes to their timeline off the top of my head.

A former colleague once told me that further education quangos should expect to exist for five years – seven if they’re lucky. Those five years, he suggested, were much like the term of an American President in that they actually included about a year in which they could expect to get anything done – once they’d been properly set up and before they’d started to fight for their political life. Looking at the IFS list, he was about right.

Phantom Menace

More recently, we have seen a new phenomenon; what I call phantom (menace?) policies, i.e. those which are announced but which never quite get to the point at which they have substance.

Government first announced its intention to create a national network of ‘institutes of technology’ in July 2016. These new pieces in the further education jigsaw were to provide technical education in STEM (science,technology, engineering and mathematics) subject areas, and would ‘build on infrastructure that already exists but will have [their] own independent identity, governance arrangements which directly involve employers, and national branding’.

We were told that these new organisations would be a central topic of discussion through the area review process. They weren’t, because we weren’t given any more details about what they were until after the area review process was completed.

The issue seems to have been that even the wordsmiths of the Civil Service couldn’t find a way of describing a polytechnic without just using the word. It wasn’t until November 2017 that Government issued a prospectus launching a tender exercise which would create the first wave of institutes. The outcome of the tender exercise is not due until March 2019, i.e. almost three years since we first heard of these vital new instruments.

One might reasonably wonder whether and how these institutes will sit in the T-level landscape to come, and whether, therefore, they will ever come into being.

The 2009 capital crisis, area review process and apprenticeship reform are examples of initiatives which have had major implications for the college operating environment.

The level of policy change characterised above is clearly an issue in and of itself. It is perfectly possible that government has hit on the right set of policies to address the nation’s technical and vocational skills challenges over the last 20 years – but changed course before those policies have had time to bed in, mature and deliver on their potential.

The pain of policy change is felt most acutely in the organisations charged with delivery. What can be finessed away as‘an evolution of…’, ‘building on…’, or ‘learning the lessons from…’ a given initiative in a government policy statement feels like a ship tilting from one side to another in a storm if you’re in a front-line delivery organisation.

If you’re in the front-line delivery organisation that is also in the midst of a transformation effort designed to address serious curriculum and or financial challenges, acute sea sickness is inevitable. Some policy changes and initiatives are so substantial in their nature that they create rippling implications for the operating environment which go far beyond their direct purpose.

These implications are too often not considered, understood or mitigated by government when they initiate such changes. I am particularly interested in three examples which, in different ways, have had major implications for the further education operating context:

1. The 2009 capital crisis
2. The area review process, and
3. Apprenticeship reform

1. The 2008/09 capital crisis

The 2000s saw substantial, welcome and much-needed government investment in further education college capital projects. Between 2001/02 and 2007/08, projects worth £4.2 billion – attracting £1.7 billion of Government funding – were approved for investment by the then Learning and Skills Council (LSC).

All of which sounds brilliant, right? In December 2009, the LSC announced a three-month moratorium on new projects while it conducted a review of the programme because, ‘a large surge in college proposals had opened up an untenable gap between the resources identified and the costs of projects underway or in the pipeline.’ Which sounds quite a lot less brilliant.

When the LSC completed its review, it found that 253 projects were already underway or fully approved; a further eight projects had also been given the go-ahead. Another 79 had received first-stage approval in principle – generating a requirement for £2.7 billion of LSC funding.

A further 65 colleges had submitted proposals for approval – which, if approved, would generate a requirement for a further £3 billion of LSC funding. The number and value of projects which had received ‘approval in detail’ and ‘approval in principle’ – let alone those in the pipeline for approval – far, far outstripped the level of funding available.

The LSC’s efforts to boost interest in the programme had stimulated way (way, way) too much interest. Once the LSC had completed a detailed review of the programme, many projects were paused, deferred, scaled-back or cancelled altogether. Many colleges had incurred substantial costs – including one which had spent £4m – and some had even started demolition and development work given the approvals they received from the LSC.

Sir Andrew Foster, who was asked to review and make recommendations on the programme, concluded that‘the crisis was predictable and probably avoidable. Certainly, it could have been mitigated if action had been taken earlier. The final confusion in communication made a bad situation worse’.

The lasting impact of what came to be known as ‘the capital crisis’ cannot be underestimated. Colleges invested a huge amount of time, energy, resource and hope in their engagement with the programme. Those that were forced to defer, scale back or cancel projects were distracted, distressed and dismayed by the programme’s implosion.

The lasting financial impact will be material for many of the colleges affected – whether in terms of money spent without benefit accrued; land bought or held for development, but not developed; or projects latterly taken forward at greater cost to the college than originally expected.

Whatever else it may be, the capital crisis is a clear example of the way in which Government has not always played its part in the proper, sensible functioning of the further education sector. One dreads to think what the FE Commissioner would have to say if a college so calamitously mismanaged.

2. The area review process

Government first signalled its intention to launch a programme of area reviews in July 2015. The purpose of the programme was clear and radical: to drive consolidation among further education and sixth form colleges, given a belief that fewer, larger organisations would be more efficient, resilient and responsive to customer needs.

At that time, government seemed to intimate that it had an appetite for fairly aggressive consolidation.The impression was that no area would exit the process with the same number of organisations that entered it.

Given my long-held belief that colleges operate sub-scale, the funding outlook (see below) and the growing number of colleges in some form of distress at that time, I found it hard to argue against the government’s strategic intent – though I did have reservations (and still do) about whether a programme of traditional college mergers would deliver the benefits which government hoped for from the area review process.

We were also told that once the area review process was complete, government’s approach to organisational failure would change. No longer would government act as a funder of last resort for colleges which fell into financial trouble. In future, organisations would be left for the wolves through a new insolvency regime.

At the time of writing, we have yet to see what that regime will look like in reality.

Governments tend to lose their nerve on failure in public service organisations given the citizen impact and political stakes. The area review process was conceived in advance of the 2015 spending review, which many feared would be a bloodbath for further education. In the event, the spending review was not as bad as most – in and outside of the Department – feared; spending on provision for both 16 to 19-year-olds and adults was protected in cash terms through to 2020 with ‘only’ £360m of savings sought from other parts of the overall adult budget.

I, and many others I have spoken to in preparing this piece, felt that the Department’s relief at the settlement was palpable in the way that the area review process was conducted.

One did not get the sense that government was ready for the fight that would come with the radical consolidation many expected. The latter waves of the review were reduced to little more than a bureaucratic tyre-kicking exercise.

The FE Commissioner’s annual report for 2016/17 notes that 332 colleges (including both general further education and some, but not all, sixth form colleges) were visited as part of the area review process.

At the conclusion of the process, it was agreed that 133 further education and/or sixth form colleges should continue as standalone organisations and 144 should ‘look towards’ merger. That’s quite some way short of the sort of level of consolidation which government seemed to intimate that it had an appetite for when it first initiated the process. During 2016/17 – the first full year after the area review process was completed – 23 further education college (and five sixth form college) mergers were finalised.

The Commissioner’s annual report noted ongoing challenges with the implementation of the review’s recommendations including, most notably, difficulties with colleges reaching final agreement on merger proposals and banks’ appetite for lending to merging organisations.

While the area review process did not deliver radical reform, it did deliver radical disruption.The original rhetoric of the review process created something of a ‘hunger games’ for college CEOs in the expectation that, post consolidation, only a minority would survive.

There were endless discussions amongst partner organisations nationally, regionally and locally about what the outcomes might be in a given area. Colleges were required to complete a colossal data return about their performance, estate and outlook – providing information almost all of which was already available to reviewers from other of the many submissions required of organisations through the regulatory cycle.

Colleges were visited by the FE Commissioners’ team of expert advisors.Then there were steering group meetings; big, long ones with an unmanageable number of attendees – predators, prey, bemused and amused.

The distraction factor, cost and opportunity cost were real and substantial for colleges – even those that were very likely to be untouched in the final reckoning.

Delivering well as a further education college is difficult. Delivering well with scare resources is very difficult. Delivering well with scarce resources while being distracted by a process that does not, in the end, deliver the profound reforms – and benefits – expected, is unfairly difficult. The point about lenders’ risk appetite touched on in the FE Commissioner’s annual report is an important point to draw out.

A process designed to improve the organisations’ resilience and sustainability spooked lenders – making it harder for colleges to access finance and manage their debt, in turn requiring government to step in to the lender role where institutions would previously have been able to access commercial finance.That is to say, government’s intervention both failed to deliver the intended benefits and made the problem worse.

3. Apprenticeship reform

I am basically a fan of apprenticeship reform. Reform of the apprenticeship product and funding mechanism, taken together, could and should deliver meaningful long-term benefits if they are both properly implemented and given time to mature.

It follows from much of the above that those are quite big ‘ifs’ – but I do think that this is an example of a reform package which government must hold its nerve on and stick with for the genuinely long-term.

Apprenticeship reform is a complex and multi-faceted thing for further education colleges to engage with. There are real opportunities to improve and grow provision, generate additional revenue and tangible benefits for the students, businesses and the communities which colleges serve.

There are also, however, real challenges – to improve and grow provision, generate additional revenues and tangible benefits…!

Apprenticeship reform offers real, substantial and long-term opportunities for colleges – provided that government permits a long-term, of course. Colleges occupy a unique position in their local community; particularly in technical areas, even the worst-off colleges possess facilities that are the envy of their commercial competitors.

Minister Boles’ infamous challenge to colleges that were guilty of allowing more agile and commercial providers to ‘nick their lunch’ was probably justified by the data on college apprenticeship performance to that point – if not by the principles of good stakeholder management.

The struggle is real too, though.The dramatic slow-down in apprenticeship starts since the apprenticeship levy was introduced in the spring of 2017 will have been a real issue for colleges working with larger, levy-paying business customers. A February 2018 AoC survey reported that colleges’ carry-in activity would account for half of their apprenticeship income in 2017/18. Given that the dip in activity has continued into 2017/18 that figure will likely be some way lower going into 2018/19.

The analysis of further education college finances below suggests that few are in a position to ride out a continued dip unscathed. Likewise, and on a more practical level, the move from grant allocations and payment on profile to income earned in-year and paid in arrears on actuals, will have hurt the cash flow of even the most financially robust colleges in 2017/18.

A February 2018 AoC survey of colleges reported a slowdown in payments compared to the pre-levy system. Just as colleges had to manage both their engagement with the area review process and its wider, rippling implications for the operating environment, the same is true for apprenticeship reform.

The development of new programmes, new delivery models and new commercial models must be accompanied by a studied response to the wider implications of the same reforms.

As with the area review process, it is worth it if the reforms sustain and deliver. If they don’t, all you’re left with are the costs, opportunity costs and the distraction factor.

Matt Hamnett, Director, MH+A

Over the next few weeks FE News will be publishing this research in full, and FETL will be hosting a webinar with Matt on the report later in February.