College financial planning
19th June 2019
ESFA asks colleges to return financial plans by 31 July 2017. These plans cover the current financial year (2016-17), next year's budget (2017-18) and the publication of these documents was delayed by the election. The spreadsheets are little changed from the last year but where there are changes, the template guidance document expla As lasins the reasons. The handbook outlines ESFA's approach to assessing college financial health. Under the new system introduced last year, three elements make up the overall score: Current ratio (excluding assets for resale, deferred capital grants, holiday pay) with good being 1.2 EBITDA as % of income with good being 6% Borrowing as a % of income with good being less than 35% ESFA provide a checklist (at Annex A) for the supporting commentary. Principals are required to confirm in writing that the commentary has been written with due regard to the checklist. Government does not provide any information on economic or other trends that might affect plans. Here are some notes: Inflation: On the CPI index, inflation is now 2.9% (having dropped to zero last summer) because the fall in the value of the pound resulted in higher import prices. The Bank of England expect that it will remain above 2% for sometime yet. Pay: Discussions have yet to start between either AoC or SFCA and the recognised trade unions. AoC is gathering together data on FE college pay intentions. The timetable means there will not be a settlement until autumn but this reduces the chances of damaging strike action during enrolment. DfE's advice to the School Teacher Pay Review Body suggested a 1% pay increase for school teachers in 2017-18. STRB have not yet reported. Meanwhile the Universities and Colleges Employers Association (UCEA) made a final offer to university staff unions of a 1.7% rise for 2017-18. The Bank of England reported in May that whole economy pay growth (taking account of all elements of pay changes) is 2.3% which is similar to what it was a year ago. National Insurance: There are no current plans to change the Class 1 employer NIC rate of 13.8%. Pensions: Colleges were presented with LGPS employer contribution changes in April 2017 but need to ensure they account for the full year effect. TPS contributions will next change in 2019 (most probably in September). HM Treasury has reduced the discount rate for the next valuation from 3% to 2.75% which implies an increase in the employer contribution rate, perhaps to 18% or even higher. Minimum wage rate: The main rate (for over 25s) increased from £7.20 to £7.50 in April 2017 and is dues to rise again in April 2018 though perhaps at a slower rate because overall pay growth is down. Exam fees: These often rise by more than inflation because of lack of competition and government inspired curriculum change. Energy prices: Oil prices are falling slightly but gas and electricity prices are both expected to rise this summer. Subscriptions: Government spending cuts have been made on the assumption that costs can be passed onto institutions. This will be a particular issue in higher education. DFE expects to introduce college subscriptions to partly fund JISC and the new Office for Students (covering higher education) in 2018 but the timing means that these will mainly have an effect in 2018-19. AoC will be writing to individual colleges with planned subscriptions for the next 3 years. Interest rates: These are currently at low levels because of the 0.25% Bank base rate but already rising for colleges because of increasing bank margins and likely to rise further because of an assessment that colleges are a higher financial risk. On funding: ESFA's 16 to 18 funding formula is unlikely to change much for the 2018-19 allocation round though AoC continues to press for higher rates, adjustments to the retention factor and a more sensible approach to the English and maths funding condition. There may be some early funding available to implement T-levels - perhaps to support more work experience placements. ESFA's Adult Education Budget is fixed in cash terms and will only change for the 2018-19 academic year if the Autumn Budget brings changes to departmental budgets. ESFA's cautious approach to apprenticeship spending is likely to continue for some time yet because of lack of information about how levy paying allocations will be used. Officials hope to restart a procurement later in the summer for post January 2018 non levy new start apprentices.