The National Audit Office verdict on colleges in 2020

By Julian Gravatt on

I dislike telling busy people to read long reports but this week’s National Audit Office report on college finances is worth your time. NAO reports are fact-checked by government departments and are used by the Public Accounts Committee to grill civil servants, so everyone takes care to make sure they’re correct. And in this case, the time and attention paid off.

NAO’s central conclusion is that colleges have a really important role to play in national life but that the way the system is organised in England gets in the way. Funding levels have been cut. The funding formulae are complicated. Ministers introduce big policy changes like the apprenticeship levy without evaluating the full impact but when a particular college gets into financial trouble – and is barely able to pay its bills – the oversight and intervention processes are lengthy and costly. 

As the auditor to government, NAO staff are free to report what they find. In their latest effort, they turn up some interesting stories to titillate Twitter. They find that seven colleges have been in “early intervention” (a modern form of college purgatory) for four years. They add up the spending of the first college insolvency and report that it has cost £26 million. They explain that DfE has paid out £253 million in repayable exceptional financial support over the last six years, 40% of which has already been written off when college mergers. This sort of detail that makes the full NAO report a page-turner for anoraks like me but it’s worth understanding the bigger picture. The people running the English college system are so busy fighting fires and capping problems that there’s rarely an opportunity to step back and think about cause, effect, problem and solution. NAO staff have a privileged position to offer a long view. They have used their time well. This week’s report is a “five years on from our 2015 report, are things better exercise?”. The verdict is “requires improvement”.

One big question that NAO address is whether area reviews made colleges more financially sustainable. They report some improvements. Mergers take years to deliver but so far (up to 2018-9), they report the stronger partner pulling up the weaker one rather than the other way around. The £432 million spent by DfE on restructuring has contributed to a fall in total college debt (to £1.3 billion) and a reduction in the number of heavily indebted colleges. In the years from 2015 to 2019, they report a small but significant improvement in college financial health. But there are buts.

NAO staff carried out their fieldwork for this report in spring 2020 but decided to focus almost entirely on the situation before the pandemic struck. The six months have plunged the UK into the worst health crisis for 100 years and the worst economic crisis for 300. This makes a difference. The summer 2020 financial hit to colleges has been smaller than feared (but hard for some colleges). The impact in 2020-1 is unfolding as we speak. Colleges are enrolling rising numbers of 16-18 years olds this September but have fixed budgets for any higher costs that arise – including those relating to health and Covid safety. Meanwhile apprenticeship retention will fall as unemployment rises. It is too early to say whether adult and higher education enrolments will hold up but a number of income lines are fragile. Strong financial management at college level produced the 2015 to 2019 improvements reported by NAO. If nothing changes in policy, colleges will need the same robust approach in 2021. This will mean redundancies and downsizing just at the point when more, not less should be the motto for education and skills.

The focus of all NAO work is ultimately on the implementation of government policy. Having clearly explained the contribution that colleges make to government objectives, NAO’s analysis pinpoints some of the ways in which implementation fell short. The government pressure on colleges to improve their financial position narrowed the post-16 area review programme to activities that could be delivered swiftly. The pressure secured an improvement in the relevant metrics but with adverse consequences for staff retention, asset maintenance and breadth of courses on offer. The fact that financially stretched colleges secured better Ofsted grades did not distract the NAO staff from wider issues. Meanwhile the fact that government continued to cut real-terms funding per student since 2015 and make piecemeal reforms undercut its own improvement programme. In passing, NAO note the unreasonable nature of the 17.5% cut in funding for 18-year-olds and the fact that ESFA underpays colleges by 6% each March (the death valley for college cashflow).

This leads us to the final conclusions and recommendations. DfE – we are told officially for the first time – is working on a ten-year plan in its planned FE white paper. Having criticised short-termism at various points, NAO endorse this plan while saying it needs to encompass a vision for the sector, an appropriate structure and funding. They ask for a proper assessment of college finances (this Scottish report would be a good model). They recommend that reforms to the funding system and a proper evaluation of the intervention system. 50% of colleges were in early or full intervention before the pandemic struck. To what end? To use an analogy from a former principal (Ray Dowd), we have so many people discussing how to fix the engine, we may be forgetting the passenger. Fix the leaks, top up the fuel, program the satnav and we might be on our way.