AoC proposals for the March budget (14 January 2021)

15 Jan 2021

The Chancellor plans to publish the 2021 government budget on 3 March 2021. AoC’s budget submission raises ten issues where colleges and their students need action on or before the budget, suggests 15 issues that need consideration in longer-term spending plans and (as budgets are mainly about tax) suggests a proper look at VAT as it affects post-16 education.


HM Treasury will use the budget to fix taxes and spending for 2021-2 and to indicate longer-term plans. Leadership from government is more important than ever because the UK is in the middle of its worst health and economic crisis for more than a hundred years. Companies, jobs and family incomes are at risk. Some public services are at breaking point. The government’s budget deficit has reached record levels in 2021-2. These challenges come on top of those associated with our new global position outside of the EU, the climate crisis, the Government’s own pledge to level up and the need to secure economic and racial justice.

Colleges have a role in offering solutions across the range of big issues facing our society. By the time the Chancellor publishes the budget, government will have published an FE white paper as part of a package of post-16 reforms which, we hope, will recognise the vital role of colleges and set an ambitious, expansive direction for the sector.  The shared priorities for government and colleges are economic growth and social justice.

The government made some helpful decisions in the 2020 spending review:

  • A higher 16-to-18 budget to provide extra places for a rising population, including, for the first time, a capital fund to support expansion;
  • Allocation of £375 million for the National Skills Fund;
  • Allocation of £110 million to develop higher technical education;
  • Continuation of the Teacher Pension Scheme employer contribution grant for another twelve months;
  • Capital funding to improve the condition of college buildings, to support the introduction of T-levels, to set up more Institutes of Technology and to promote wider regeneration (the levelling up fund).

However, there were limitations to the 25th November announcement because the spending was allocated for only 12 months. Some significant issues and challenges were deferred. Since then, the deteriorating public health situation has forced government to extend controls in December and announce a third national shutdown.

Immediate and urgent decisions

There are a number of immediate and urgent decisions that HM Treasury or the Department for Education should make on or before 2 March 2021:

  1. Catch-up: There is a clear and pressing case for additinal catch-up funding on top of the £96 million allocated in 2020 to support additional teaching for continuing students and for those transferring from schools.
  2. Reallocating funds: Funds that cannot be used right now because of the shutdown should be reallocated to where they are most needed.
  3. National Skills Fund: Some of the restrictions should be reviewed and government should confirm that this fund will grow with demand
  4. Adult education in 2020-1: DfE needs to act to protect capacity in 2020-1 because reduced enrolment as a result of the pandemic may lead to cutback
  5. Apprenticeships: Recruitment incentives should continue beyond 31 March 2021 and targeted funding made available to aid the completion of practical apprenticeships.
  6. Job retention scheme: should be extended to smooth the impact on the economy and to support colleges to retain capacity in priority areas such as apprenticeship training.
  7. 16-18 growth: There shoul be funding for the additional 20,000 students in colleges in 2020-1, many of whom are in education because of the shortage of apprenticeship places..
  1. Planning capital projects: There needs to be flexibility in use of capital funds to maximise value for money
  2. Restructuring funding: Funding is needed in exceptional cases and should be deployed swiftly in line with a clear set of rules.
  3. Access to loans; Colleges need better access to loans to support cashflow and capital investment

HM Treasury has confirmed departmental budgets for 2021-2 but should set longer-term budgets during 2021 with an eye to ensuring economic growth and social justice through investment in skills. AoC's submission suggests action in 15 areas:

  1. A national & place-based plan, focused on growth sectorsincluding Health, Construction, Digital and the Green Economy
  2. College business centres could stimulate the demand for skills and lead to higher productivity as companies adopt new business practices and technology.
  3. FE teacher pay and pensions: DfE should develop new pay, recruitment and retention incentives for FE teaching staff in key sectors. AoC is researching the costs to colleges of lifting pay above the foundation living wage and increasing starting salary for FE teachers. Colleges currently lack funding to properly act on pay. HMT need to ensure that progress is not derailed by pension costs.
  4. Skills budget: Overall spending on adult skills should keep ahead of inflationthe growth in the working-age population, the costs of delivering high quality education (see recent AoC research on adult funding rates) and the need to increase provision for people and places that are bypassed by current spending on universities and apprenticeships.
  5. Fundng for growth sectors: There should be selective DFE interventions to support sectors where there is potential for job growth
  6. Apprenticeship priorities: Treasury, DfE and BEIS should develop and publish a statement which sets out the purposes and priorities of apprenticeship funding. Apprentices should mainly be new labour market entrants developing skills for careers and not just current employees. The statement should be accompanied by changes to the funding of degree apprenticeships.
  7. Retraining:  DWP and DFE should work on an updated version of the Kickstart and Restart programmes to  support adults who lose their jobs to be able to train or retrain on a flexible basis up to higher level technical / professional level. The aim should be to get people into sustainable employment as quickly as possible, with additional training to manage their transition once they are in work.
  8. Funding rates DfE increased 16-18 funding rates by 4.7% in 2020-1 but has reverted to a no change approach in 2021-2. HM Treasury should provide funding so that rates can rise above the rate of inflation towards a £5,000 rate for 16, 17 and 18-year- olds. This would allow colleges to increase student hours and to increase pay to levels needed to retain and recruit expert staff. 1.1 million young people would benefit from this investment
  9. Demographic growth HM Treasury has provided funding for additional 16-to-18 places for one year only (2021-2) but should work with DfE to ensure that the system expands fully to deal with an increase of 100,000 in the population over the coming years.
  10. Pupil premium The pupil premium should be paid to 16,17 and 18 year olds to reflect the commitment to supporting the needs of all young people. There is no clear justification for stopping the premium at age 16.
  11. Young people with high needs: DfE should reform the funding of post-16 high needs, including considering block funding of places in colleges where that would best meet student needs as explained in recently published research commissioned by AoC, LGA and Natspec.
  12. Improving the quality of places of learning:  DfE should maximise the value for the money spent on young people by providing capital funding for new places, by developing the IT infrastructure and by a targeted programme of reviews of small school sixth forms to remove uneconomic and lower quality provision.
  13. A new funding formula in the long-term:  DFE should develop a policy-directed, cost-informed funding approach for setting budgets and funding rates across the age range with the aim also of removing some of the supplements and poor incentives in the current system. This should be a major proposal in the  forthcoming white paper because it is an essential underpinning reform to help achieve  the aim of moving to a more strategic and nurturing relationship with resilient, high quality and independent colleges.
  14. Capital spending and financing:  HM Treasury should add to the capital budget allocated in 2020 so that there are funds to secure new places, to invest in IT and to develop specialist and hyper-specialist provision. Funding needs to be at a level that helps colleges move towards the 2050 net zero target. At the same time, the Treasury and DfE should review the capital financing requirements of education in the 2020s including the option of government loans to both academies and colleges as an alternative to 100% capital grants for the former and reliance on a vanishing commercial loan market for the latter.
  15. Black Lives Matter: DfE should fund research and analysis to help understand the experiences and outcomes for Black Asian and Minority Ethnic (BAME) students and staff in further education and commit to an action plan to address the inequalities we know exist. Funding should also be invested to support BAME staff recruitment and progression into colleges at all levels, with the intention of having staffing and governance which better reflects the student make-up.

Any queries or comments to Julian Gravatt.



Tax measures

  1. VAT

HM Treasury may now be able to make changes to VAT which were previously difficult because of UK membership of the European Union. The differing treatment of sixth form college corporations and sixth form college academies in the VAT refund scheme exemplifies the absurdity of the current rules, particularly as 25 corporations have converted to academy status in the last few years. 16-to-18 education VAT rules favour smaller, state-controlled sixth forms focused mainly on academic courses over more efficient, not-for-profit colleges aiming to develop technical education.


There is also a case for action in more detailed areas




AoC's budget submission is available to download below.