Funding finance and pension Briefing 19/10/23

Teacher pension valuation

DfE officials expect to publish the 2020 teacher pension valuation on Friday 20th October. I haven't seen the report but know that it will recommend a significant increase in the employer contribution rate (currently 23.68%) and take it nearer to 30% than 25%. The main cause of the increase is the lower discount rate (reduced from CPI+2.4% to CPI+1.7%, ie a long-term rate of 3.7%) used in the 2020 valuation than the 2016 one but there are lots of moving numbers in what is a complicated process. In 2022, HM Treasury "widened the cost cap corridor" to increase stability (explanations available on request).

The Government Actuary Department (GAD) carries out all unfunded public sector pension scheme simultaneously. The civil service valuation is published (employer contributions up from 27% to 28.7%) but NHS and Police valuations are not yet available.

Public sector pension contribution changes take effect from April 2024 and last three years until 31 March 2027.

Ministers have already confirmed that HM Treasury will be providing compensating funding to "centrally funded employers" to cover the extra costs of these increases and have also confirmed that colleges, like schools, will be covered by an increase in existing funding. DfE consolidated teacher pension funding for schools into the national funding formula a few years ago but has continued to pay a separate Teacher Pension Employer Contribution Grant to colleges. Officials say this will continue. The amount will need to increase from £148 million to nearer £250 million a year and the formula used may mean that some colleges do better and others worse.

There are four main groups of TPS employers:

• state funded schools
• colleges
• private schools who now have the ability to opt out of TPS for new staff while preserving membership for existing staff
• post-1992 universities who are currently stuck in that they don't have an opt-out (unless they employ staff via a subsidiary company) but don't have any funding promise.

As with all budgets, Ministers have made no promise of funding beyond March 2025 because the current spending review period ends then. It feels unlikely that government would create a cliff-edge by cancelling the budget at that point but we have and will keep raising this issue.

The Coalition government overhauled public sector pension rules about ten years ago and included a twenty five year lock in the 2013 legislation which introduced consultation rules up until 2040. This is believed to limit the ability of any current or future government to make changes to the core rules and, having had a Court of Appeal defeat on discrimination (the McCloud judgement), it would take a determined set of ministers to push through changes.

Autumn statement

The chancellor, Jeremy Hunt, will be presenting an autumn statement to Parliament on 22 November 2023 and tax/spending topics continue to attract media attention. Three things to note this week:

• The consumer price index (CPI) rose by 6.7% in the year to September 2023 which creates the baseline for decisions on working-age benefits, state pensions, student loan interest and public sector pension indexation because it is normally the September figures that are used to change rates the following April. There is some pressure from Conservative quarters for the Chancellor to prioritise tax cuts.
• There is analysis on this and lots of other budget information in this week's IFS Green Budget which I think will be a more informed read than the "Growth budget" promised by Liz Truss for November.
• DfE ministers were required to take questions in Parliament about the £370 million spreadsheet error in 2024-5 school funding allocations but are sticking to the line that they will not increase the school budget to provide the previously promised increases

AoC's own contribution to decision-making is an 8,000 word paper which we sent to HM Treasury on 12 October and which we are due to discuss with officials. This:

• explains the economic case for government action on skills.
• documents three of the big challenges faced by colleges (staffing, financial viability, complex and expensive administration).
• lists issues requiring immediate DfE attention (pay, in-year growth funds, maths and English resits, T-levels, Level 3 reform, 2024-5 revenue funding and capital planning)
• sets out a long list of issues for the next spending review.

ESFA publication of 2023-4 allocations

As is normal each October, ESFA have published some very big spreadsheets with 16-18 and non devolved adult skills allocations for 2023-4. This isn't a complete picture of college funding because it does not include devolved, apprenticeships, higher education or capital funding let alone other income. However FE week have already asked about the numbers and UCU are taking a growing interest (albeit with the odd misinterpretation). AoC's Employment Committee recommended that individual colleges are transparent with staff about what funding was allocated earlier this year and what came in September.

Julian Gravatt

PS.
My reminder this week is about the high needs change process which requires local authorities to notify ESFA by 10 November 2023 of provider-level changes for the 2024-5 academic year