The 2020 spending review and colleges (25 November 2020)

25 Nov 2020

The Chancellor, Rishi Sunak, announced details of a one year spending review today. Key points for colleges

Further education

The Department for Education will have a larger budget in 2021-2 than 2020-1 but much of the increase is earmarked for schools, as part of the three year deal agreed in September 2019:

  • DfE's total managed revenue spending (its departmental expenditure limit) rises from £67.8 billion to £70.7 billion (a 4.2% or £2.9 billion increase). The schools revenue departmental expenditure limit (RDEL) rises from £47.6 billion to £49.8 billion (up 4.6%), with the non-school part of the budget up from £20.2 billion to £20.9 billion.
  • Most of the extra £700 million increase in the non-schools part of the budget is going to colleges, including £291 million for 16-19, described as a top up to the £400 million allocated for 16-18 education in the current year and  £375 million for the National Skills Fund (ie less than £500 million).
  • There are three parts to the National Skills Fund in the 2021-2 financial year: £138 mil for Level 3 courses as part of the Lifetime Skills entitlement, £127 million to continue the summer economic update programmes and £110 million for higher technical (including some capital funding) covering new flexible loan entitlement. This means that the NSF will be used to fund the plans announced by the Prime Minister in his Exeter College speech but also to continue some of the programmes (traineeships, sector based work academies) announced by the Chancellor in July (which might otherwise cease).
  • Some of the extra £291 million in the 2021-2 financial year budget for 16-19 education has already been committed by ESFA in the 2020-1 academic year allocations (which were £546 million higher than in 2019-20). The Treasury promise to protect funding rates in real-terms and says funding will rise in line with demographic growth. Funding looks tight to meet these three requirements but it is too early to say.
  • Officials have said that Teacher Pension Scheme funds allocated to cover extra (discount rate related) contribution increases for colleges in September 2019 are within DfE's core budget for 2021-2 but we are double checking this.
  • The statement allocates £2.5 bil for apprenticeships including core programme and some new initiatives in construction, health and support for apprenticeship training agencies
  • Within the Covid allocation, Treasury promises to continue the holiday activities and free meal programme for school age children until the end of 2021. 

The spending review is relatively limited and for one year only, leaving unanswered questions about parts of DFE's budget not mentioned in the document (for example adult education or higher education teaching).

New programmes

The spending review has resulted in a number of new programmes

  • a Levelling Up fund managed by the Treasury, Communities and Transport ministries which appears to be a replacement for the Local Growth fund routed through Local Enterprise Partnerships between 2013 and 2020
  • a Shared Prosperity Fund which will replace European funds and which will be piloted in the next 12 months and where there is a clear promise to spend some of the money on skills including "work-based training supplementing and tailoring national programmes such as the adult education budget"
  • a Restart programme to focus on the longer-term unemployed and allocated a £3 billion budget via the Department for Work and Pensions

Capital expenditure

DfE's capital DEL increases from £5.1 billion in 2020-1 to £5.6 billion in 2020-1. Most of this money will spent on new and existing schools but there is an increase in the funding that colleges can access:

  • around £100 million to improve FE college condition, as part of the long-term (now six year) programme to bring all college buildings up to the good standard
  • £83 million to expand 16-19 provision to deal with rising numbers due to demographic growth
  • £162 million to support the roll-out of T-levels with these funds focused on colleges and providers in Wave 2 and 3
  • £72 million for the second wave of Institutes of Technology

Public services

Following a record-breaking increase in spending in 2020-1, HM Treasury anticipate a reduction in spending on Covid-related departmental spending from £140 billion to £55 billion in 2021-2. Meanwhile core departmental budgets (total revenue DEL) is due to rise from £540 billion to £554 billion

Economy and public finances

This is the first full fiscal statement since the 2020 budget on 11 March 2020 and provides confirmationof how the pandemic has wrecked the economy:

  • the economy is expected to contract by 11% in 2020 before growing again by 5% in 2021 but is forecast to be 3% smaller in 2024
  • the UK government deficit is forecast to reach £394 billion in 2020-1 (19% of GDP) and then to fall in stages to around £100 billion a year by 2024.
  • total Covid-related spending (job retention, spending on public services, tax deferrals) is assesed at £280 billion in 2020-1, falling to £55 billion in 2021-2 but this assumes that the stabilisation measures stop on 31 March 2021.
  • unemployment is expected to peak at 2.6 million (8% of the workforce) in the second quarter of 2021 (ie when the Job retention scheme ends)
  • UK debt is expected to reach - but not exceed - 100% of GDP

Bad as they are, these figures are slightly better than predicted in the summer 2020. The Chancellor described the situation as "unsustainable in the medium term" but there won't be information on possible tax measures or longer-term spending (after April 2022) until the March 2021 budget at the earliest,.

Pay

The Chancellor announced a 2.2% increase in the main National Minimum Wage rate (for over 23 year olds). This takes it from £8.71 an hour to £8.91 an hour

The government's public sector pay policy for the next 12 months will be:

  • a pay rise for NHS staff in line with Review body recommendations
  • a one-year pay freeze for all other staff
  • a £250 rise for staff earning less than £24,000

These decisions only cover staff in the public sector and not college staff (classified by the Office for National Statistics) as working in the private sector.

Any queries, comments or corrections to Julian Gravatt. Updated at 4pm