2. Management of education spending should be reformed

Recommendation 2

The management of education spending should be reformed to improve efficiency, to allocate funds to areas of greatest need and to provide more predictability.

DfE’s total revenue and capital Departmental spending is around £60 billion and £6 billion a year respectively. This money is divided up between several funding agencies who use different systems to allocate it to nurseries, schools, colleges and universities. There are obvious reasons why funding works differently in different sectors, but some budget allocations make less sense if looked at afresh. It is not clear, for example, why the Government acknowledges the existence of inflation in universities[1] but nowhere else, or why the pupil premium stops at age 16.  Other problems exist in the management of spending:

Budgets are set and managed on an annual basis with tight controls to avoid overspending. The consequence is a short-term approach to an activity (teaching and learning) which requires a sustained investment of time and effort.

Tight control of spending in the 2015-16 financial year resulted in a £120 million (3.3%) underspend in the Skills Funding Agency (SFA) budget and appears to be leading to a further underspend in the 2016-17 financial year.

Every year, in March, a number of colleges face cashflow difficulties because the funding agencies reduce their monthly payment each spring and pay a higher amount in April[2].

For the last nine years, there has been a division in spending at age 19 which has resulted in unhelpful differences in approach within the apprenticeship system and where young adults take longer to achieve minimum standards for adult life by age 19.

The machinery of government changes have made it possible for DfE to shift funding responsibility for continuing students aged 19 from the adult budget managed by the SFA to the 16 to 18 budget managed by the Education Funding Agency (EFA), but more substantial action is necessary. The Treasury has confirmed longer term budgets in other public services like local government and transport and should consider doing the same in education. Three-year funding agreements would help colleges plan their provision effectively allowing them to meet the needs of their community and local employers over the full period.


[1] The Higher Education White Paper promises increase in higher education fees linked to inflation and the Higher Education and Research Bill creates a mechanism for regular uprating. The 2017-18 fee cap is due to rise by 2.8%

[2] The funding agencies pay around 60% of their annual grant payment in the first eight months of the government financial year between August and March which represents a 6% shortfall against  an even monthly profile