Autumn budget: college leaders unite to call for urgent investment

Around 172 college leaders have written to the Chancellor Rachel Reeves to warn her that without investment in further education (FE), the government’s missions cannot be delivered.

The leaders represent 1.6 million learners across the country, and their letter draws attention to the stark staffing challenge in FE, the rapid growth in the numbers of 16 to 18-year-olds and the injustice of colleges having to pay VAT.

Four weeks before the autumn budget, leaders voiced their dismay at the lack of a funded pay rise for FE teachers to start to close the £9,000 pay gap between school and college teachers. That gap is making it impossible to recruit and retain lecturers in key sectors like construction, engineering and health and social care, stifling economic growth and opportunity. The Association of Colleges estimates that it would cost the government £250 million to match the school pay award.

“The decision to award school teaching staff a 5.5% pay award for 2024/25 and not make funding available for colleges to be able to do the same will sadly see this challenge only deepen, unless action is taken,” leaders said.

Without lecturers, the letter warned, skills shortages will remain, and the government will not be able to deliver manifesto commitments like 1.5 million new homes, the transition to net zero, a reformed NHS and much-needed productivity gains.

Leaders highlighted that the government must also fully fund the growing numbers of students enrolling in FE while there are falling numbers of pupils in primary school. In the 2023/24 academic year, for example, around 39% of college leaders told AoC they had seen a growth of 10% or more in young people coming to their college. And while enrolment is still underway for 2024/25, leaders are reporting larger numbers than ever.

No college wants to turn prospective students away, and therefore leaders have asked for a basic funding commitment from the Treasury: funding in-year growth, as well as capital investment to deliver the extra space and equipment needed.

The letter also called on Rachel Reeves to end the injustice of VAT payments. Unlike schools and academies, colleges are not covered by the VAT refund scheme, despite being classed as public sector organisations with strong social inclusion and public service roles.

“Colleges spend an estimated £210 million a year on VAT (around 3% of income) that they cannot reclaim, unlike schools and academies where VAT is reimbursed. The result is that college students have fewer resources spent on them than their peers in schools,” said the leaders.

David Hughes, Chief Executive, Association of Colleges, said: “It’s clear that the government recognises the vital role the further education sector must play in reducing skills gaps, increasing productivity and driving forward economic growth. You could step into any number of colleges across the country and see exceptional provision fulfilling this role. Colleges have huge potential to do even more to support the government to meet all five of its missions, but crucially they cannot fully deliver without better investment.

“Without equality of pay between FE and schools and FE and industry, colleges will continue to struggle to recruit and retain the staff they need, and without in-year growth and capital funding colleges won’t be able to meet the population demand.

“We recognise the tight fiscal environment the government is operating in. However, in the upcoming autumn budget, the Chancellor has a very real opportunity to inject £210m directly into colleges through changes to VAT rules and show commitment to the FE sector and the government’s own missions. Imposing VAT on independent schools will bring in £1.5 billion, so the time to right this wrong is now.”

Dr Sam Parrett CBE, Group Principal and CEO, London South East Colleges, said: “The decision to grant the FE sector a VAT exemption is long-overdue and very much needed. For our college alone, this exemption would have been worth around £3 million last year – funds that would enable us to continue investing in our estate and capital programmes. This is essential as we strive to ensure our high-quality provision can meet local, regional and national skills needs and support people of all ages into successful careers.

"This exemption would also help alleviate some of the financial pressures we face, in a challenging environment. It would also be a small step towards addressing the pay disparity between FE teachers and those in schools – another long-standing injustice. While there are still other inequalities to tackle, this would be an extremely positive step towards putting FE on an equal footing with schools as we transition back into the public sector.”

Andrew Green, CEO, Chichester College Group, said: “Year on year, colleges are finding it harder to fill vacancies in teaching roles and at Chichester College Group, we are no different. The decision to award school teaching staff a 5.5% pay award, without making funding available to colleges to do the same, has made that worse.

“That means the country will stall in its bid for growth, as there will be no staff to deliver the skills training that our economy so desperately needs. Without lecturers, skills shortages will deepen, and our young people, adults and apprenticeships will suffer. It really is that simple. The FE sector has suffered neglect for more than a decade and we need the new government to turn that tide. Investment in skills in FE will offer a big return on investment for the country, if the Britain that Labour wants to build is one shaped by industry and economic success.”

You can read the letter and see full list of signatories here.