The government urgently needs to get to grips with the financial state of further education institutions, the Commons Public Accounts Committee (PAC) has said.

In a report published this morning, the PAC says that the intervention approach taken by the Department for Education, Education and Skills Funding Agency and further education commissioner is “too long, costs too much and is not effective in making colleges more sustainable”. 

At a committee hearing in November last year, the ESFA revealed that £6 million of public money had been spent to date on administrators for Hadlow College, the first FE college to enter administration. 

More: College funding increases set to be ‘eroded’ by Covid

Background: 64 colleges struggling with ‘cash days left’

Need to know: Ney review on college financial oversight published

The Ney report, published in July 2020, also raised similar concerns over financial intervention in colleges, and said that the nature of the current regime, the lack of a sector-wide strategy and the capacity and resources of the ESFA “have resulted in a relationship between government and the sector which is largely focused on financial failure” and which “inhibits colleges being transparent with government”.

Today’s PAC report highlights that in 2018-19, one in three colleges reported an operating deficit.

Fears over college finances

In February 2020 the government was intervening in nearly half of colleges for financial health reasons, and it has had to provide over £250 million in emergency funding, alongside other support, to ensure the continued functioning of colleges.

The report says: “Colleges’ autonomy can hamper the department’s ability to protect learners and safeguard taxpayers’ money - for example, colleges are free to borrow sums that they may struggle to repay, and to run with financial deficits year after year. Poor financial management can diminish students’ learning experience, and in extreme cases jeopardise colleges’ viability.”

The committee says there is “a disconnect between the picture of improvement that the Department for Education and the Education and Skills Funding Agency painted during our evidence session, and the much less positive situation on the ground”. 

Meg Hillier, MP and chair of the Public Accounts Committee, said that the DfE’s handling of the pandemic - and chaos around young people’s education and qualifications - had been “late and confusing”, and has left “already struggling colleges squeezed when people need new skills more than ever:

She added: “As focus turns to rebuilding and reskilling for the ‘new economy’ that will emerge, this is a chance for DfE finally to take a hold and develop the proper, integrated vision for the college sector that it has lacked for so long. The young people training and qualifying in these times are the people who will rebuild our economy and society. The department cannot keep putting sticking plasters over this gaping wound.”

The report says that the DfE has lacked a proper integrated vision for the college sector and that a “proper plan is vital and overdue”.

It adds that rising pension costs are putting significant pressure on college finances, and that these financial pressures are having a detrimental impact on what colleges can offer students, including in cuts to mental health and other support services. 

It also urges the government to consider changing the formula for funding colleges so that it takes account of real time or more recent information about student numbers, saying that the department’s funding decisions are based on previous years’ student numbers, which risks holding back colleges that are growing.

The report says that it is “clearly iniquitous that sixth-form colleges have to pay VAT while post-16 academies and schools with sixth forms do not” - and adds that the DfE should work with the Treasury to assess the merits of making the rules on VAT consistent for schools and colleges. 

The committee also raises concerns about T levels, saying that successful implementation risks being delayed by a lack of work placements.  

It adds: “The department should write to the committee before the start of the next academic year setting out what up-to-date assurance it has that there will be enough work placements for T levels. This should cover what impact the Covid-19 pandemic has had on the availability of placements, and plans to incorporate virtual placements.”

David Hughes, chief executive of the Association of Colleges, said the report was “a useful reminder of the financial situation many colleges are operating in during this crisis and whilst they are seeing more demand, particularly from young people”.

“The Covid-19 crisis has stopped any college sector financial improvement in its tracks and created large financial challenges for colleges this year. However, many issues stem further back than this, including rising pension costs, 16-18 VAT rules that subsidise small sixth form colleges, increased demand from students for support of their mental health and well-being and a funding system not designed for such uncertain times.  

“The report is right to say that DfE needs a long-term plan for the further education sector. The recently published White Paper is a good step forwards towards that and offers opportunity to tackle some of these long standing issues, improve colleges’ resilience and hopefully simplify oversight arrangements. It has the potential to put colleges on a firmer footing but we also need long-term spending review commitments that match its ambition.”

‘Proper funding’ needed

Professor John Holford, joint secretary to the Centenary Commission on Adult Education, said that the work FE colleges do to foster a strong and fair society and on individuals’ personal growth was at risk.  

“The House of Commons Public Accounts Committee report makes clear that the financial state of the country’s further education sector is dire,” he said.

“What is required is proper funding to enrich further and adult education, along with colleges which are properly and democratically accountable to their local communities. 

“What we have got, via the proposals in last week’s Skills for Jobs White Paper, is new forms of central government intervention and tinkering with college governance.”

Apprenticeships and skills minister Gillian Keegan said: “I welcome the PAC’s focus on further education - a sector which is vital to ensure more people can retrain and upskill so we can unlock even more potential and level up opportunities across the country.

“As set out in our Skills for Jobs White Paper, we will overhaul the funding and accountability rules so funding is better targeted at supporting high quality education and training that meets the needs of employers and individuals. We will also  introduce new powers to intervene when colleges are failing to deliver good outcomes for the communities they serve. We will consider the PAC’s recommendations carefully and will respond in due course.”