This week’s Department for Education announcement of a 90 per cent threshold for delivery on the adult education budget has prompted despair and anger from a lot of principals.

Running a college is difficult enough in normal times but this term has brought new and unexpected tasks.

It started with the snap decision about whether to go ahead with BTEC exams in the week of a national lockdown. It ends with more tests: lateral flow, functional skill, internally assessed but virtually moderated. You name it, someone at college will be working to make it happen.

In these circumstances, the government plan to cut around £50 million from college budgets is a destructive and self-defeating move. We won’t know the exact size of the clawback until autumn and it will not be taken back until December, but we know from the mid-year forecasts on AEB delivery that the average performance on this target will be 80 per cent at best and, in some cases, as low as 50 per cent.

The fact that a few colleges may have returned optimistic forecasts in early February is irrelevant. There has been severe disruption to adult education and skills in this academic year in ways that were not fully foreseeable when colleges set budgets last summer.

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There are, as ever, exceptions to the average. Some colleges have met this particular target by sterling efforts with online courses and full-time programmes for young adults.

But there are activities that don’t work so well online - whether it’s welding, English for speakers of other languages or skills courses for jobseekers - and where best-laid plans were waylaid by events.

With hindsight, some principals would have made different choices but when the vast majority of a group misses a target, the best response is probably not to hand out lots of £250,000 fines.

The clawback in December 2021 is particularly self-defeating because it undermines the plans that the government has for colleges. The agency’s adult funding machine is the one the department plans to overhaul, as it is (to summarise the White Paper), a machine that is “complex”, “focused on process” and “an obstacle to strategic planning”. Uncertainty about budgets creates incentives to chase enrolments.

These are the fair criticisms of a funding system. It hasn’t worked well for years because the rule book is too long (102 densely written pages), the price list is too old (unchanged for seven years) and there’s too much focus on meeting an annual quota.

Scramble for enrolments

The department is right to want change but too cautious in making adjustments now. Colleges are already well behind their annual AEB target for 2020-21. A scramble for enrolments will bring some up to 90 per cent but others will be forced to sub-contact or find savings at speed.

The clawback in December will cut funds available next year. Just at the point where government wants colleges to collaborate, to work with employers and to invest in the sectors of the future, too many will be making short-term cuts to stay afloat. This is why there is such anger over a technicality like a reconciliation threshold. It’s the fear of hope taken away just when there’s more hope around.

To end on a positive note, there are constructive solutions to this issue. They’re quite dull but dull is often what works best in finance. The department and agency should look again at the data it collected and perhaps update the February data with June numbers (R10 rather than R06 to use the appropriate jargon).

Having reconsidered the threshold, they could consider a multi-year HMRC-style measurement in which colleges could carry forward an overperformance credit or earn back next year what they missed this time around. If that sounds too complicated, think of it as “best of three”.

The third adjustment relates to the scale of the clawback. If money has to be recovered, it could taken back at a marginal rate relating variable costs rather than pound-for-pound. And if this algorithm is starting to look too complicated, a bit of judgement about cities and towns that have been in permanent lockdown would be a sensible finishing touch.

A final option that would be the easiest to implement would be to decommission this part of the funding machine entirely for 2020-21.

The DfE plans to consult on a new approach to funding over the summer so that it is simpler to understand, skills-focused and supportive of high-value programmes focused on employer needs. There’s a lot of support for the FE White Paper, but some things will take time. This is one area where we don’t need to wait.

Julian Gravatt is deputy chief executive of the Association of Colleges