Capital projects

Colleges are responsible for the buildings and space they use for education and training, which they either own or lease. Colleges need specialist buildings and facilities for many of their courses whether in engineering, creative arts, hospitality and catering or IT. College governing bodies are wholly responsible for the management of their estates including managing health and safety, fire safety, planning permission and other legal requirements are met.

Capital spending in colleges

One of the successes of college self-government in the 1990s and 2000s has been the modernisation of buildings which were severely neglected in the previous decades. The college capital model involves colleges managing a project and funding it with a combination of government grants, borrowing, land sales and their own resources. The era of lots of very large capital grants to colleges stopped in 2009 when the Learning and Skills Council had to cancel its college rebuilding programme for lack of money. However some big schemes did continue and the college sector spent a total of £4.9 billion in capital expenditure between 2010 and 2015 – an average of almost a billion a year. Capital spending has reduced since then and was just £404 million in 2016-17.

CHART FOUR: COLLEGE CAPITAL SPENDING AND GRANTS 2010-11 TO 2016-17

Government increased capital grants to colleges in 2013/14 and 2014/15 following the publication of research which identified positive returns from this spending

. In 2012 – at a time of sluggish economic growth - the Treasury was interested in positive spin-offs from public investment. In some cases, individual colleges spent too much and ran into financial difficulties which were advertised in FE commissioner reports. Changes in capital funding came in 2015. The 38 Local Enterprise Partnerships took responsibility for the skills capital budget and have taken a more directive approach to spending. Some LEPs have funded significant college rebuilds but others have spent the money on something else entirely. DfE’s total FE capital budget of £200 million is likely to be substantially underspent in 2018-19 and there is the risk of under-investment given the needs and demands of the 2020s.

College borrowing

Colleges have borrowed money from banks since the 1990s and, since 2012, have been able to do so without prior approval from government. The college sector was a net borrower between 2010 and 2015 which was a time when government paid more than £350 million to support building projects. At the start of area reviews in 2015, two banks (Barclays and Lloyds) accounted for a total of 90% of long-term loans to colleges between them. Barclays continue to make new loans to colleges they assess as having sound finances and strong management teams while Lloyds have generally sought to reduce their exposure. Santander have made some new loans

The government’s’ Restructuring Facility process has involved complicated three-way negotiations between the ESFA’s Transaction Unit, the college and the bank with sign-off at five different levels within government. ESFA’s Transaction Unit agreed a customised loan for each college based on an assessment of affordability. Colleges have been required to employ accountants to double check their data. The ESFA loan generally sits alongside a bank loan. All banks new require security against loans to colleges and an intercreditor agreement to determine their rights vis-à-vis government. This requires advice from valuers and lawyers. Fees typically run to several hundred thousand pounds which is a cost added to the amount covered by the government loan.

Total college borrowing has fallen from £1.5 billion in July 2015 to £1.25 billion in July 2017 and is likely to fall further as a result of repayments. A share of these loans in future will be restructuring advances owed by colleges to the government. The ESFA’s Transaction unit insists that colleges keep the terms of individual loans confidential until 2019.