Where did the £400 million for 16-19 year olds go (2 November 2020)

29 Oct 2020

Just over a year ago, on a sunny Saturday just before the start of term, Sajid Javid announced a £400 million increase in spending on 16-to-19-year-olds. This was part of a September statement  in which HM Treasury agreed a 3-year funding deal for schools. AoC's chief executive, David Hughes, described the 16-19 funding increase as a "good start" and said it represented the "first meaningful investment  in 16-to-19-year olds for a decade". This note is my attempt to describe where the money has gone. This one page slide summarises the note 

How Treasury, DfE and ESFA divided up the money

The £400 million cash increase represented an increase of just over 7% in revenue funding. According to DfE officials a few weeks later, this money was allocated seven ways:

  • £190 million to increase funding rates by 4.7% (the first in seven years). This takes the full-time rate for 16 and 17 year olds up to £4,188 and the full-time 18 year old rate to £3,455
  • £65 million to increase the programme weight factor in the 16-19 funding formula in six high cost subject
  • £55 million for a new High Value Course Premiums
  • £35 million to extend funding for GCSE English and Maths resits from those taking T-levels to all Level 3 courses
  • £25 million for T-level development
  • £20 million for workforce initiatives 
  • £10 million for the Advanced Maths Premium

In addition the September 2019 Treasury-DFE funding deal included an £800 billion (12.6%) increase in the High needs budget, some of which will be for 16-19 education.

Twelve months on, it is inevitable that DfE and ESFA have adjusted these allocations but ESFA has now published 2020-1 allocations in a large spreadsheet which record about 20 funding lines for 2,797 institutions (242 of whom are colleges). I'm still looking and checking the data but there are a number of headline trends:

  • £520 million extra in 2020-1: the total cash increase between the 2019-20 and 2020-1 academic years in 16-to-19 programme funding is, in fact, £520 million - a 10.3% increase. It is not obvious why these figures are different to the budgets shared by officials but the most likely explanation is the financial year/academic year overlap. Treasury has given DfE a budget up until March 2021. DfE's funding agency has, in line with standard practice, allocated funds for the 2021 summer term even though it doesn't know for certain what its budget is.
  • just 5,000 extra funded students: there was a small (0.5%) increase in funded student numbers in 2020-1 which means that the cash increase should, in theory, be going solely to cover the education of 16-to-19 year olds. However, as I explain below, there are some big unfunded costs which are soaking up much of this money.
  • six lean years: these cash and student number increases in the 2020-1 academic year are the first in at least six years. DfE cut the cash it allocated for 16-to-19 year old education by £602 million (10.6%) between 2014-5 and 2019-20 which was mainly driven by a 13% reduction in funded student numbers (falling 16-to-18 population, no increase in the participation rate) but also the freeze in the cash funding rate. The extra funds in 2020-1 bring total 16-to-18 spending near to previous levels but the sector is still smaller in financial terms than in the Coalition years.
  • targetting: in line with the new policies, ESFA is allocating sizeable sums in new directions. There is £84 million routed via the High Value Course Premium and £55 million for Level 3 students who are also taking GCSE resits (though nothing here for the larger number of Level 2 students on resit courses).

Colleges are funded in 2020-1 for 617,000 16-18 year olds (an average of 2,814 students per FE college and 2,114 per sixth form college). This is 54% of all sixth formers but a declining figure because the conversion of 25 sixth form colleges to become 16-to-19 academies has shifted the balance of the sector a little. Also, numbers in FE colleges have fallen from the heights of 2011 - squeezed by demography and competition. The headlines trends and numbers for colleges differ a little from the overal trend:

  • a marginally smaller FE share: FE colleges of all types secured £224 million of the increase in the 2020-1 academic year - a 9.8% rise - while the 50 sixth form colleges secured £50 millon or 11.9%. 
  • student numbers are rising while funding is fixed: For the first time in many years, funded student numbers in FE colleges were up overall, but only by 0.1%. The funding formula sets this year's funding on the basis of last year's student numbers. For 2020-1 this means that allocations are based on 2019-20 despite rising 16-18 population numbers (a 2% rise in 2020) and also despite the rise in demand which is visible as a result of the pandemic, the recession and the fall in apprenticeship vacancies. In normal years, the most popular programmes for young apprentices in colleges take programmes in construction, sport and hairdressing. All have been disrupted
  • changes in individual allocations depend partly on student number growth or contraction: As usual there is a big range of outcomes relating to student number growth or contraction. 5 FE colleges and 2 sixth form colleges had cash increases of more than 20% reflecting growth of 150 students or more while 7 FE colleges had cash reductions despite the funding rate increases
  • .. and curriculum portfolio: the government targetting of extra funds on high value courses and GCSE resitters taking Level 3 courses had variable effects. Two-thirds of the high value premium went to school sixth forms which reflected the decision to focus these funds on Science and maths A-level students. FE colleges in disadvantaged areas with course portfolios focused on less technical subjects at Level 2 did worse in 2020-1 allocations. ESFA calculated the high value allocation on historic data (from 2017-8) which has the effect of reinforcing existing patterns of provision rather than supporting change. However if the premium stays in place, then funding will follow in future if colleges change their courses.

A note on 16 to 19 funding rates

Back in autumn 2019, there were firm hopes that extra 16-to-19 funds were the first payment in a series of increases which might allow colleges to take a number of necessary actions. DfE has never explained or justified the £4,000 funding rate. The Sixth Form College Association commissioned research which explained that a £4,760 rate was necessary to bring sixth form funding back to levels at the start of the decade. AoC has argued for a £5,000 rate. Whatever the figure, increases of this level would allow colleges - and school sixth forms - to do one or more of the following:

  • increase weekly teaching hours which, in England, average 15 hours a week compared to as many as 25 in some of neighbouring countries.
  • extend the investment currently focused on T-level students to all sixth formers
  • help colleges address the staff retention, recruitment and development issues identified by the National Audit Office and allow starting salaries to catch up with those in schools
  • provide funds to support disadvantaged students

Fifteen years ago, the Chancellor of the Exchequer (then Gordon Brown) set the ambition that state school funding should rise to catch up with private school fees. This is a distant dream in post-16 education right now becuase private schools charge around £18,000 a year whereas 16-19 funding per student is barely £5,000 (taking everything into account)

The financial impact of the pandemic in 2019-20

The plans that colleges had to use extra funds for improvement have taken a big knock as a result of the pandemic. The shutdown of buildings in March affected all types of activity. DfE continued to pay grants and acted quickly to provide reassurance that money wouldn't be taken back but colleges took a sizeable income hit in summer 2020 across a range of areas including adult education fees, international students, apprenticeships, events and lettings. This is more of an issue for FE colleges than sixth form colleges. Sixth form colleges receive more than 90% of total income from 16-to-19 revenue funding and much of the rest from ancilllary income (catering, trips etc) relatinng to the same students. At FE colleges, by contrast, 16-to-19 year olds account for, on average 48% of income. Many colleges also incurred extra costs in educating students remotely but they also made savings. Combined with assistance from the Treasury's job retention scheme, the summer 2020 savings appear to have offset the income loss and left most FE colleges reporting smaller pandemic related losses in 2019-20 than they expected. They will confirm final figures for the accounts ending 31 July 2020 in January 2021. It takes six months to settle college accounts because ESFA does not confirm final funding amounts until late in the year

The impact in 2020-1

Now that colleges are back, they’re facing higher costs but the stabilisation measures and support have largely gone. Around one-third of colleges claimed from the job retention scheme but very few will be able to make use of the new job support scheme. The new and rising costs in 2020-1 arise in several areas:

  • extra students: most colleges have enrolled extra 16-to-18 year old students but the funding formula works on fixed budgets during the year with any increase delayed until next year (in this case 2021-2). There is always some turmoil in enrolment patterns as students change their mind in September and October. Autumn 2020 may be worse because of the August exam chaos. Colleges will not confirm student numbers for autumn 2020 until early December but there are plenty of signs of increased demand, running at about 100 extra students in many colleges. Across the whole set of FE colleges this might mean 10,000 extra students, many diverted away from starting apprenticeships.
  • higher pension costs: college are paying rising employer contributions to the public sector pension schemes which their staff are entitled in law to join. The Teacher Pension Scheme contribution rose by 7 percentage points in September 2019 to 23.68% while Local Government Pension Scheme rates increased, typically, by 2-3%. DfE is funding the extra TPS costs for the period up until March 2021 and may continue to provide support (as it is doing for schools) but there is no guarantee of this.
  • Covid costs: Covid-related costs (everything from cleaning schedules, hundreds of laptops and exam costs) are now a major concern for college leaders. DfE provided direct support to schools by buying extra laptops, supplying school meal vouchers and covering £50 million in summer term costs but has not extended this help to colleges. Colleges have had to find the money from their own resources which has meant raiding the extra 16-18 increase.

In addition there are a number of colleges experiencing a persistent reduction in their 2020-1 income:

  • apprenticeship reductions: apprenticeship training is employer-led and funded on a monthly pay-as-you-go basis. Colleges experienced reductions in apprenticeship income in summer 2020 but the fall is worse in the autumn because completing apprenticeships are not being replaced by new starts in the same volumes and apprentices may find it difficult to complete programmes in sectors which have been damaged by the pandemic and recession.
  • lost adult learning fees: colleges and institutes of adult learning shifted courses online in summer and autumn 2020 but it is harder to sustain the same level of fee income and this has had a damaging impact on finances because the DfE funding model assumes a 50/50 split of grant and fee income.
  • commercial and international income: colleges with significant commercial or international income, including land-based colleges, have experienced significant losses in commercial and international income

Working out where the money is going

It is too early to know exactly how 2020-1 will measure up for colleges but the financial returns sent into ESFA provide some clues about income. For the average FE college, the extra 16-18 income (up by just less than 10% according to the allocation data) just exceeds the loss from commercial and apprenticeship income to produce an overall income increase of around 2% in 2020-1. Up 10% or £224 million in extra 16-19 funding but down £150 million overall on other income. FE colleges with a stronger technical/employer-focused basis are in a more vulnerable position and may yet find the position worsens for them. But the bigger picture is a rise in income for Covid-safe and online classrooms but a loss in employer focused income. The costs of running these classroooms, whether online or in-person, will drain more of the £224 million. There are £40 million in summer 2021 pension costs which may or may not be covered by DfE but, even if they do, FE colleges are carrying perhaps £40 million extra in LGPS costs from the April 2020 contribution increase. Covid-costs are mounting and have been estimated by finance directors at around £250,000 to £500,000 for the full year. For the sector as a whole that averages at £75 million. Finally there are the marginal costs of the extra unfunded students. Most college costs are fixed but an extra 15,000 students across the sector could easily cost another £45 million particularly taking into account falling family income and the rising demand for bursary support.

So, adding up the numbers and guesses:

+ £224 million extra in 16-19 allocations
+ £15 million extra via the adult education budget (2% cash increases)
- £150 million income loss (a highly uncertain figure)
- £40 million pension costs (perhaps double that)
- £75 million Covid-costs
-£45 mllion unfunded students and bursary costs

A £70 million loss overall

What does this mean for pay rises and redundancies

A couple of colleges consulted on redundancies in summer 2020 but most of those who faced a downturn in income and activity used furloughing to avoid this. Back in June, many colleges predicted that they would be making redundancies in autumn 2020 but this has not happened yet for a number of reasons:

  • college leaders have taken a wait-and-see approach because they want to avoid letting people go and because they needed to see how enrolments went
  • all colleges received extra cash in September 2020 as a result of the Chancellor’s economic update. This was allocated for catch-up tuition, 18 and 19 year olds and building works and generally with tight conditions. Colleges received the cash in August and September but may find themselves paying some of it back in 2021 because some of it is difficult to use. It's difficult to carry out building works before 31 March 2021 at short notice and in more intensively occupied buildings). Colleges are waiting to see if there is more clarity on the rules and decision-making 

The decisions on redundancies affect the decision-making on pay rises. It is perfectly possible for a college to make some people redundant while arranging a payrise for all the staff who remain. It is equally possible to limit pay rises and redeploy people to new roles as a strategy to minimise redundancies. 

AoC is currently consulting colleges on its national pay recommendations following a pay claim from the trade unions for "a significant move towards the full restoration of college pay levels to where they would be had college pay kept pace with inflation since 2009."

The bigger question for the sector is whether the forthcoming Spending review (due on 25 November) and the FE white paper that may accompany it takes necessary action to stabilise college funding and to provide the investment needed to improve technical and academic education in the medium term.

Julian Gravatt
Deputy Chief Executive, AoC
2 November 2020