Plan to clawback adult education funds targets are missed by over 10% (23 March 2021)

23 Mar 2021

The Education and Skills Funding Agency has confirmed that it will claw back adult skills funds from colleges and other grant-funded organisations like local authorities if they miss their 2020-1 academic year targets by more than 10%. In technical terms, ESFA has lowered the reconciliation threshold for the non-devolved adult education budget to 90%.

FACTS

The facts behind this announcement are as follows:

  • Budgets: Responsibility for the adult education budget in 2020-1 is split between the ESFA and 8 mayor-led local authorities (mayoral combined authorities and the Greater London Authority). ESFA allocated £615 million in adult education grants to colleges (£456 million), councils, universities and academies and £88 million in contracts. 
  • How adult funding works: Providers have to use the funds in line with the 104 page adult education budget funding rulebook and report activity on every student via the Individual Learner Record. Every student and their course is priced in ESFA's AEB funding formula. The latest announcement confirms that ESFA will not take back funds if grant funded providers achieve 90% or more of their funding allocation but there will clawback for every extra pound if the funding target is missed by more than 10% (ie 85% performance implies clawback of 5% of funds).
  • The timing of the clawback: ESFA takes the money back by reducing the funds that it pays out to colleges on a monthly basis. 2020-1 clawback will be taken in December 2021 though colleges can ask for this to be phased over the following three months. Any deferral of clawback into April 2022 or beyond will be treated as a DFE loan to the college, require a formal agrement and result in the college being placed in intervention.
  • Adult education budget devolution: The devolved authorities have their own rules but some said in spring 2021 that they would wait to see what DFE decided


IMPLICATIONS

AoC has been asking for DFE to change the threshold since autumn 2020 because of the disruption  caused by the pandemic and the need to stabilise college income to avoid the need for redundancies now that would reduce capacity in future. Our position on the latest announcement is as follows:

  • Better later than never but 10% tolerance is too low: It is good that DfE has accepted the need for a lower threshold but 10% tolerance is not much given the disruptions of the year and will leave some colleges scrambling for enrolments or savings. The announcement comes four months before the end of the financial year
  • Activity likely to be 75-85%, implying clawback of £22 million to £68 million: ESFA state that a 90% threshold is a "fair representation of average delivery" but the agency has not collected data from colleges since early February and it is likely that some colleges sent in optimistic mid-year forecasts to avert mid-year adjustments to their funding. We believe college delivery is more likely to fall between 75% and 85% which would imply total clawback at the end of 2021 of between £68 million and £22 million. These will be six figure sums for some colleges and could exceed the additional funds allocated via the National Skills Fund to support the Level 3 entitlement from 1 April 2021 onwards.
  • The case for a variable threshold: Some colleges expect to be able to meet their adult education targets, particularly where they use the money mainly to support younger adults on full-time courses (for example in the 19-to-24 age group) or for courses suitable for distance learning. It has been much harder for colleges to run English for Speakers of Other Languages online and there have been cities and towns were under higher levels of Covid restrictions before the November shutdown. The spring shutdown disrupted plans for spring course starts. Some colleges traditionally use a share of their adult education budget to provide courses for people under Jobcentreplus mandates but there have been fewer referrals since the pandemic started. These was - and is - a case for a more sophisticated ESFA decision-making process on thresholds rather than a single 90% threshold.
  • Impact on investment: FE colleges submitted bids on Monday for the FE Capital Transformation Fund which involves £1.2 billion in government spending to improve the condition of college buildings and facilities so that they are fit for the future. The deadline for T level capital fund bids falls this weekend. Colleges are also involved in Towns funds, Institutes of Technology and other schemes to support for the government's plan for growth. Understandably DfE wants colleges to use their own resources where they have them to match fund. This announcement will put these plans at risk at some colleges.
  • The threat to adult education teaching jobs: Government allows publicly funded organisations like colleges to apply for the Job Retention Scheme (JRS) to sustain jobs but it is not straightforward for colleges to use JRS for staff in this area because, even with fewer enrolments, colleges still need staff to deal with smaller class sizes and also to manage additional jobs given to them by DfE, for example lateral flow testing and additional student assessment. Delaying this announcement until late March leaves individual colleges little time to use furloughing, thus increasing the likelihood of some redundancies later in 2021. We hope that DfE does not automatically adjust next year's adult education allocations (for 2021-2) on the basis of 2020-1 activity because this would compound the financial issue for some colleges.
  • Side-effects for the Level 3 entitlement: Colleges were encouraged last week by the Prime Minister and Education Secretary to make full use of the National Skills Fund to support the new Level 3 entitlement. It is hard for any organisation to simultaneously expand and contract in the same field of work.
  • Improving FE funding and accountabiliy: In the Skills for Jobs white paper, DfE promises to reform the funding and accountability system so that there is a move towards accountability for outcomes and a strong focus both on high quality, high value provision and on addressing skills shortages. These are positive goals and we look forward to DfE's consultation which will set out plans to put this into effect for 2022 and beyond. Unfortunately this latest development will reinforce the activity that the white paper criticises - namely a pressure to fill courses to meet a funding target.

WHAT NEXT?

AoC is gathering information from colleges on this latest development. We advised colleges who believe they face a significant clawback to discuss this with their ESFA territorial team (as required by clauses 12.1 and 12.2 of the 100 page ESFA funding agreement. We have raised some of the concerns set out above wiith DfE and ESFA officials and encourage them to consider whether the threshold is too high and whether an exceptional case process would help deal with the variable threshold point made above.

Any queries on this note to Julian Gravatt.