Reclassification

Colleges are now classified in the public sector

The Office for National Statistics has published its decision on the classification of colleges in the UK National Accounts and its verdict is that all 228 college corporations and designated institutions in England as well as their subsidiaries should be reclassified to the public sector side of the UK national accounts. ONS explain their decision in a short statement which says that this decision is based on the existence of legal powers that have existed since 1992. Because of this, the public sector classification decision is retrospective to April 1993. Government statistics work in mysterious ways.

The government is introducing new controls on borrowing straightaway

The Department for Education has published its response in a public document and in two letters sent to colleges, one from the Minister (the Rt Hon Robert Halfon) and the other from the ESFA chief executive. The letters are here

RH to College Principals

DAO letter FINAL FOR ISSUE 28112022

The key decisions are:

• Ministers have accepted the reclassification for now and are making a number of changes to the controls that apply to colleges. You can read the Skills Minister’s written statement to parliament here.
• There are no planned changes to the law. Colleges continue to be self-governing corporations with charitable status and with responsibility for their educational character, their own courses, contracts, and relationships with staff and students.
• The new controls from DfE involve 16 issues where they will require colleges to get approval before going ahead. These controls apply immediately. For most colleges, the most important changes relate to borrowing. There are no changes to existing loans but a clear DfE objective to replace borrowing from banks in the future with grants or borrowing from government. DfE will be distributing £150 million in spring 2023 in formula-based capital grants to FE and sixth form colleges and will be bringing forward £300 million in revenue payments from summer 2023 to March 2023 to reduce the need for borrowing.
  
• Apart from these payments (which are funded from existing budgets), DfE has not identified any financial benefit from the reclassification for colleges.
  
• Most of the controls closely mirror those that apply to academies but, significantly, colleges will not need to get prior approval for capital transactions and normal commercial activity. Colleges retain their reserves, any surpluses they make or assets they sell and also have the ability to manage their own capital spending and can take out leases.
  
• DfE and ESFA signal rapid movement towards consolidating college accounts for the 2024-5 financial year. They are likely to ask for new information as of 31 March 2023 so that they can produce prior year comparative data and account for activity in the financial year. They plan to work on a new College Finance Handbook over the 12 next months and promise to work closely with us at AoC and with college leaders to develop it.

AoC’s view

We have produced an initial slide deck to explain the changes

Ao C ONS 29 11 22

DfE’s new college oversight plans could be described as academy-style controls with a few commercial features. We believe that colleges work best when they are able to act independently in the interests of the communities they serve and we fear that the extra monitoring will make colleges less fleet of foot in meeting the needs of their students, employers, and communities.

We have and will continue to push DfE to improve and simplify the funding and accountability system but, in this decision, they have taken a simple copy and paste approach from the academy handbook. The development of a new College Finance Handbook might be an opportunity to make progress from this position.

Colleges retain their reserves and the ability to make capital spending and funding decisions. The new permissions and processes required for borrowing could limit college freedom of action and there is a risk governors and leaders will be constantly looking over their shoulders to check what officials think and to seek permissions. We have a specific concern about the speed with which ESFA will act in issuing approvals and we regret the fact that these controls are being introduced with no notice and without consultation.

There is a lot to work through in terms of the impact on colleges and we are keen to have your feedback. We will also be pushing ministers and officials to take action to help colleges deal with rising costs and to address the injustices in DfE funding arrangements which can no longer be justified now that colleges sit alongside academies with the same status, and the same level of control but different funding.

The five key things DfE could do immediately are to:

1. Implement VAT changes for colleges akin to those for schools
2. Issue a Local Government Pension Scheme guarantee letter as they do for schools
3. Support teacher recruitment, as they do for schools
4. Add colleges to its centralised buying schemes like business rates, licenses, insurance etc. which are all funded for schools
5. Provide capital funding to compensate for borrowing restrictions and help colleges save energy by winter 2023.

Presentation slides

There will be many questions and comments over the coming days and weeks. AoC's Julian Gravatt is always happy to take questions.

DFE officials have used these slides to explain the changes

DFE ONS slides 6 12 22

Some AoC slides, including some commentary are here

Ao C colleges in public sector slides 7 12 22