Understanding college finances - an AoC explainer (26 June 2020

26 Jun 2020

There are 242 further education college corporations in England , educating and training 2.2 million people each year. Colleges shut down most of their buildings in March 2020, maintaining in-person courses for vulnerable students and shifting to remote learning for the rest. Ministers made quick decisions on college funding but the protection was limited.

On average, about 65 percent of college income is protected in the 2019-20 academic year and 50% in 2020-21 regardless of activity with adjustments deferred to 2021. Other income continued to flow in 2019-20. DfE is only starting to collect financial data from colleges in July 2020. In the meantime, AoC estimates are that there will be:

  • Major financial issues next year: as much as £2 billion (40 percent) at risk in 2020-1 including apprenticeship, adult education, tuition fees for adult and higher education, commercial contracts with employers, catering and commercial income. The government increased funding levels for 16 to 18 education in 2020-1 but colleges face significantly larger costs. Social distancing will make education less efficient because it requires more space, smaller class sizes and fewer people on transport to college. Colleges need to provide more IT, spend more on cleaning and help young people catch up for months of lost learning time.
  • A significant current year impact: a £150 million loss for colleges in the 2019-20 academic year (2 percent of income).
  • Individual colleges in trouble: A severe impact on commercially focused colleges. This will increase the numbers in financial trouble with a particular pinch point in March 2021 because that is the month where cumulative government payments to colleges reach a low point compared to spending
  • A particular risk for apprenticeships: The number of new apprentices is falling by as much as 50%. Construction, engineering and manufacturing make up half of this projected decline with very steep falls in sectors like hospitality and catering. The total income loss could be £250 million

Colleges are self-governing and have to spend money up front without certainty in all cases that income will be forthcoming and have few places to turn for cashflow support. Governing bodies are setting their 2020-1 budgets now and do so within a legal framework which requires them to protect college solvency. Colleges have a social mission and will take action to maintain staffing levels in the hope of an upturn but this is high risk from a financial perspective. In the absence of a relief package to bridge the gap, some colleges are preparing significant cost reductions which will involve redundancies.

This four page note explains the situation in some more detail 

These slides set out some facts and assumptions for colleges in setting 2020-1 budgets