The process will start with recommendations from the National Rates Advisory Group at the end of September, a consultative circular late in October and consultations with providers during November and December. Decisions will be made by the LSC in January when it will also know the total funding it will get from the Department for Education and Skills and the latest thinking on government priorities.

There has to be a review of funding because the weightings currently used are based on Further Education practice, whereas from 2003-4 the formula applies equally across schools, colleges, work based learning (WBL) and - for the first time - adult and community learning.

In any event, the FE rates themselves needed updating. The advisory group has therefore commissioned a substantial body of research to back up its proposals, many of which may be controversial and all of which will be significant.

Colleges and other providers will not hear about the proposals officially until the consultation circular in October, which gives little time to consider a complex set of changes. They need to be ready to respond quickly. Fortunately, the major issues can safely be predicted.

Disadvantage.

On the fifth anniversary of the Kennedy report, when many feel that not enough progress has been made to widen participation, new proposals for the disadvantage factor will be of particular interest. The advisory group has commissioned two separate studies on the issue and also looked at work by Learning and Skills Development Agency and Higher Education Funding Council for England. Key questions are whether disadvantaged learners will still be identified largely through postcodes and whether there will be an increase from the current average 10 per cent extra on budgets. One approach attracting interest is to retain this “uplift” but also use other cash outside the funding formula to help sign up new learners.

Area Costs.

The London weighting has always been a contentious issue but a new study by Frontier Economics will provide evidence on wage differentials that may support an increased uplift. It may also show “hotspots” outside London and the South East that could for the first time justify a weighting. There is bound to be controversy over boundaries, however, since some will argue that local LSC areas have significant differentials within them.

Rural isolation.

A key decision for the advisory group is whether to introduce a weighting for rural or other sparsely populated areas - to reflect what some claim are the increased costs of rural provision. It will be important in this debate to separate those costs that are borne by providers, from those, such as home to college transport, that are met by learners or learner support funds and are therefore outside the scope of the formula.

Programme Weights.

The relative costs of delivering different types of courses and programmes are reflected in a range of what are called “programme weights”, typically high for construction and engineering and low for humanities.

PricewaterhouseCoopers has led a review of programme weights that takes into account changes in learning approaches and the need to move beyond the FE context. Headline attention will be focused on proposed changes for specific areas of work that can have a substantial effect, particularly on specialist providers or departments. It will also be important to consider whether one set of weights fits all. For instance, are costs the same for learning at work and in the classroom?

Specialist Colleges.

The PWC review also has to take into account the removal of the specialist colleges factor - a 10 per cent uplift due to disappear from August 2003. The factor was introduced by the Further Education Funding Council when it was realised that programme weights did not apply to income from fees, nor to funding in lieu of fees when colleges give approved fee remission. In theory the review of weights should remove the need for this special factor, but colleges affected may need convincing.

Carving up the cake.

Behind the changes in rates lies a big issue for LSC and DfES. The advisory group only deals with relative costs. Its job is to advise on how to divide up the cake, not on how big the cake should be. But is it really sustainable to argue that if research shows that providing for the disadvantaged costs more than we thought, it should be financed by paying even less for other learners? Is it reasonable that if wage costs in London have gone up, an increased weighting should be balanced by reductions in the North and West. Although the consultation is for providers, some big questions this autumn will be for government.

Mick Fletcher is research manager for the Learning and Skills Development Agency