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The pros and cons of conversion

17 February 2016

This year sixth form colleges will face a big decision. The Government has responded to years of questions about VAT by giving sixth form colleges the option to convert to academy status. If a sixth form college converts, it can expect to secure £250,000 a year in refunded VAT which will make a helpful contribution to protecting high quality, specialist provision. Conversion doesn’t tackle the underlying issues about the differential tax treatment of schools and colleges but deserves to be considered carefully by every governing body against other options raised in the area review process. As with any changes, there are always pros and cons, so this week’s blog will try to break these down. The main benefits from conversion are financial and these are important. Although most sixth form colleges have good or satisfactory financial health, the prospects are tough. This April’s National Insurance increase will cost the average sixth form college more than £150,000 a year. Colleges need to make savings just to stand still because the national sixth form funding rate is fixed at £4,000 regardless of any inflation or pay pressure. Conversion will help offset these costs and may provide access to some funding initiatives which are not currently accessible to sixth form colleges, for example assistance with insurance premiums. There’s no denying that the academy brand is at the heart of the Government’s education policy. Both David Cameron and Nicky Morgan have expressed the wish that every school should become an academy. Conversion will standardise the legal character of sixth form colleges in a way that will be more understandable to officials and suppliers. But there will be drawbacks. The Government rarely offers something for nothing. The default option for conversion is the requirement to join a multi-academy trust. The Department for Education is pushing for these trusts as a vehicle to turn around failing or coasting schools. Sixth form colleges may find that the conversion deal requires a greater involvement in secondary education which may divert leaders from their core purpose. This issue is up for discussion during the application process. It may be possible to convert as a single academy trust by showing what the sixth form college already does to assist schools. The biggest challenge relates to the rigidity of the financial framework. Academies are in the public sector so conversion will involve a greater degree of regulation in its activities in terms of spending, employment of staff, use of land and financial reporting. Restrictions on international student recruitment and higher education provision are unavoidable given political priorities and current legislation. Other issues are probably negotiable. Sixth form colleges will need to reset any long-term loans and may need to undertake not to borrow any more. There is also a one off VAT charge for those with new buildings which the Association of Colleges has asked the Treasury to waive but which may be reclaimable anyway by the post-conversion new academy trust. All in all there will be a difficult and critical decision for sixth form college leaders. Financial pressures will force the pace while area reviews will organise the timetable. There are likely to be a several applications in 2017, lots in 2018 and a last chance in 2019. It is impossible to predict now what the final position will be or whether the outcome is better or not. It is an odd comment on the education system that the Government would prefer to nationalise dozens of sixth form colleges than tackle long standing injustices in VAT legislation which started the process off and which will remain even when it is over. Julian Gravatt is the Assistant Chief Executive of the Association of Colleges.