Thirty-Eighth Report - Managing colleges’ financial sustainability

On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Education (the Department) and the Education and Skills Funding Agency (the ESFA) on managing the financial sustainability of colleges.1

The intervention regime for colleges incorporates a number of phases, from prevention work, through early intervention and formal intervention to, in the most serious cases, 31 C&AG’s Report, paras 1.7–1.8 and Figure 1 32 Q 43; C&AG’s Report, para 2.10 … Read more The intervention regime for colleges incorporates a number of phases, from prevention work, through early intervention and formal intervention to, in the most serious cases, 31 C&AG’s Report, paras 1.7–1.8 and Figure 1 32 Q 43; C&AG’s Report, para 2.10 33 Qq 43–45; C&AG’s Report, para 2.10 34 Q 64 35 C&AG’s Report, para 4 36 Qq 107, 112 37 Q 109 Managing colleges’ financial sustainability 13 insolvency.38 At February 2020, the ESFA was intervening in nearly half of all colleges for financial health reasons—84 colleges (35% of open colleges) were in early intervention, while 31 (13%) were subject to formal intervention.39 Show less

Between November 2014 and March 2019, the ESFA paid £253 million to 36 colleges which had serious cashflow problems. The purpose of this emergency funding was to help the colleges maintain their teaching and other services for learners. At the … Read more Between November 2014 and March 2019, the ESFA paid £253 million to 36 colleges which had serious cashflow problems. The purpose of this emergency funding was to help the colleges maintain their teaching and other services for learners. At the beginning of this period, government’s intention was that all the emergency funding would be repayable. However, at March 2020, the ESFA had categorised 39% of the total (£100 million) as non-repayable.42 Show less

The ESFA told us that some amounts that were originally given as loans then had to be converted to grants because not enough work had been done at the outset to assess whether there was a realistic expectation of repayment. … Read more The ESFA told us that some amounts that were originally given as loans then had to be converted to grants because not enough work had been done at the outset to assess whether there was a realistic expectation of repayment. It explained, however, that if a college did not have the capacity to repay debts, emergency funding had to be given as a grant in order for the college to continue to provide for learners.43 It also said that emergency funding was now subject to stronger governance arrangements, involving HM Treasury, which included an assessment of value for money.44 Show less

In January 2019, the Department introduced an insolvency regime for colleges, which applies aspects of corporate insolvency law and involves a special administration regime known as ‘education administration’. The overriding priority while a college is in education administration is to … Read more In January 2019, the Department introduced an insolvency regime for colleges, which applies aspects of corporate insolvency law and involves a special administration regime known as ‘education administration’. The overriding priority while a college is in education administration is to protect the students. Two colleges in Kent entered education administration in 2019—Hadlow College, and West Kent and Ashford College.45 Show less

The ESFA confirmed that the administration processes for the two colleges were largely complete, although some statutory duties and administrative tasks remained to be done.46 It estimated that it would have spent more than £60 million on the two cases … Read more The ESFA confirmed that the administration processes for the two colleges were largely complete, although some statutory duties and administrative tasks remained to be done.46 It estimated that it would have spent more than £60 million on the two cases by the time they were completed. It said that a large proportion of this related to the costs of bringing the colleges’ estates up to a reasonable standard, before other providers took them on. It had also provided a significant amount of emergency funding to pay the colleges’ creditors.47 The ESFA estimated that the cost of the administrators 38 Q 97 39 C&AG’s Report, para 19 40 C&AG’s Report, paras 19, 3.21, Figure 9 41 Qq 99, 104 42 C&AG’s Report, para 20 43 Q 108 44 Q 110 45 C&AG’s Report, paras 3.31, 3.33 46 Qq 102–103 47 Q 92–93 14 Managing colleges’ financial sustainability was £6 million – 10% of the total cost – and was likely to rise further as the process was finalised.48 The Department asserted that, without the insolvency regime, it would have cost over £20 million more to resolve the problems at the two colleges.49 Show less

In July 2020, the government published an independent review of college financial oversight by Dame Mary Ney. The review made a number of recommendations with a view to improving the support individual colleges and the sector received, and enhancing oversight … Read more In July 2020, the government published an independent review of college financial oversight by Dame Mary Ney. The review made a number of recommendations with a view to improving the support individual colleges and the sector received, and enhancing oversight and intervention arrangements. Dame Mary proposed a new, more nurturing relationship between government and colleges.50 In written evidence, the Association of Colleges described the existing intervention regime as “very negative”.51 The ESFA acknowledged that intervention—including the use of the word—jarred with the sector. It told us that it was taking action in response to Dame Mary’s report, including moving the FE Commissioner into the ESFA, to present a more joined-up approach to intervention.52 The Department’s strategy for further education Show less

As mentioned above, between September 2015 and March 2017, government oversaw a programme of 37 area reviews of post-16 education and training provision across England. The area reviews aimed to ensure that there was the right capacity to meet the … Read more As mentioned above, between September 2015 and March 2017, government oversaw a programme of 37 area reviews of post-16 education and training provision across England. The area reviews aimed to ensure that there was the right capacity to meet the needs of students and employers in each area, provided by institutions that were financially stable and able to deliver high-quality provision.53 The Department told us that the programme had helped to limit the financial deterioration of the college sector.54 However, we note that the sector still faces strategic challenges including sustainability; relevance to local labour markets; accessibility and equity of provision across the country; and clarity of the message about what colleges offer.55 Show less

The Department has not had a clear long-term strategy covering the college sector’s role, structure and funding in an integrated way.56 The Department said that there had been individual elements of long-term strategy, such as giving employers more of a … Read more The Department has not had a clear long-term strategy covering the college sector’s role, structure and funding in an integrated way.56 The Department said that there had been individual elements of long-term strategy, such as giving employers more of a voice about skills and reviewing the number of qualifications on offer. It also highlighted that the impact of COVID-19, together with concerns about productivity, meant there was now a huge amount of focus on setting a strategy for further education and skills development.57 The ESFA told us that it hoped the White Paper resulting from this work would be published before the end of March 2021. It said that the White Paper would articulate the role of FE in the education landscape, the importance it must have, and the things it needed to deliver for the future success of the country.58 48 Qq 94–95, 100–103 49 Qq 96–97 50 C&AG’s Report, para 3.14 51 Association of Colleges, para 4 (MCF00001) 52 Qq 97, 104, 111 53 C&AG’s Report, Figure 8 54 Q 114 55 Qq 83, 90, 106, 108–109, 113; C&AG’s Report, para 3.11 56 C&AG’s Report, para 3.10 57 Qq 64, 80 58 Qq 65–66, 89 Managing colleges’ financial sustainability 15 Show less