Why I think making colleges public sector is damaging - Ian Pryce

Four years ago in the World Cup final, Mario Mandzukic scored an own goal that sent France to victory. The decision by the Office for National Statistics (ONS) to designate colleges as public, rather than private, sector bodies, is a similar catastrophic own goal by the Department for Education (DfE), which makes colleges, our staff and our students the losers. At least world cups come round every few years, allowing redemption for past mistakes. Sadly, the ONS decision is not just for Christmas, it fundamentally damages our sector.

Colleges have always trodden a fine line in terms of designation. The ONS decision is based on the actual changed environment in which we operate. In theory, it is a neutral act, but it has extremely damaging consequences.

Access to capital

The most obvious change will be our inability to access commercial lending. Every college is currently able to make its own decisions about its estate. In the absence of government grants incorporation allowed colleges to still invest. The transfer of assets to our corporations in 1993 was a superior approach to that developed for academies. Over the last thirty years, every college has been able to plan and execute its accommodation strategy. We have moved into new communities to reflect real travel to work patterns, often outside our local authority boundaries. We have created many wonderful civic assets, and demolished civic eyesores, without troubling the public purse. Reclassification means saving up before investing (impossible) or relying on central government largesse (a lottery).

Control of our revenue reserves

If capital investment is scaled back (surely the opposite of what is needed to stimulate economic growth) then we also fear revenue surpluses being confiscated, as happened in Scotland. We have received initial assurances, and academies have been allowed to retain accrued surpluses. However, this possibility is now out of our hands, at a time when public funds are in short supply.

Given our current financial straits, colleges may well give a wry smile and say government is welcome to our overdrafts and deficits! But this new risk will change behaviour in a negative way. It reduces the incentive to make a surplus, accelerating the deterioration of our asset base. Surpluses generate cash to invest in buildings and equipment. I predict a more cavalier approach to our financial management; money will switch from the upkeep of buildings, and other revenue investments, to staff costs. This may be OK in the short term but is not sustainable.

Pay controls

The college sector has the best record of any public service on senior remuneration due to good governance and transparency (Principal pay is reported every year for every college in a single spreadsheet). There is a very clear correlation between CEO pay and college size. The typical multiple of CEO pay to the average member of staff is about 5:1, one of the lowest in any industry. Bringing government pay controls into the equation could backfire. Despite these controls the salaries of many multi-academy trust CEOs exceed anything we see in our sector, with salaries reaching over £400,000 in one case. Expect some colleges to push that comparator to its limits.

Year end

The teaching year will never match the tax year. We always need to budget for a period that covers September to July, and to know with certainty our funding for that period. Initially we will maintain our financial year (as academies do) but over time that seems increasingly likely to change. Watch out down the line for frustrated college finance teams and sudden changes in the student experience in the final term.

Governance

Since incorporation the sector has recruited a superb army of selfless, committed, undervalued volunteers, who give their expertise for free. The quid pro quo is they make strategic decisions that make a visible difference to their community. Once you become part of government, unable to develop your own estates strategy, and at risk of being stripped of your unpaid position if you disagree with a curriculum someone remote decides is not appropriate for the community you know intimately, why would you bother? Our governors have been undermined by this decision, out of step with the original aims of incorporation, and with levelling up.

Subsidiaries

Incorporation was supposed to generate innovation, and we have seen much of that since 1993. It hasn’t always been good, with franchising and subcontracting scandals over the years. But it has produced some genuine improvements. Subsidiaries are used to deliver commercial activities like farms, rental of sports facilities, weddings and catering services. Some colleges acquired private training providers or use companies to employ support staff on different pension arrangements. The need for these to be approved will stifle innovation.

Insolvency regime

Not long ago, we applauded an approach to colleges in trouble that involved shared risk with other creditors, including banks. The educational administrator, able to shield vital educational assets so they remain available for further education, is innovative. It seems unlikely this approach can survive. Creditors will now expect government to meet all liabilities, and this again could mean colleges taking more risk, knowing they will always be bailed out.

VAT

Optimists in our sector may cling to the idea that reclassification will mean colleges being treated like academies on tax matters. The unfair treatment in respect of VAT is indefensible, but it will continue to be defended in the manner of my Chelsea hero “Chopper” Harris in his prime.

Overall, reclassification is our Brexit, without any of the upsides. It is the result of intervention powers within the Skills Bill. We are told the ONS decision was a known risk at the time but, if true, why were colleges not consulted and the implications thought-through much earlier?

Milton was clear that, in paradise, God gives us free will because, if he mandated otherwise, he would have no proof of our love. In 1992 a Conservative government gave us free will through incorporation. Taking that freedom in 2022 proves love is no longer a two-way street.

The views expressed in Think Further publications do not necessarily reflect those of AoC or NCFE.