The £1bn ques­tion

Fur­ther ed­u­ca­tion in­sti­tu­tions use up £1bn of their fi­nan­cial stock­piles, rais­ing fears of in­se­cu­rity

TES (Times Education Supplement) - - CONTENTS - JU­LIA BELGUTAY

Are col­leges ‘los­ing con­trol’ of their fi­nan­cial sit­u­a­tion?

FI­NAN­CIAL RE­SERVES are the ul­ti­mate safety net by which col­leges pro­tect them­selves against cash tur­moil. Ac­cu­mu­lated over many years, they can be used to cover one-off items of ex­pen­di­ture, such as large build­ing projects. Col­leges also use them, how­ever, to safe­guard against sud­den and un­pre­dictable changes within their en­vi­ron­ment, such as fund­ing cuts, fluc­tu­a­tions in stu­dent num­bers or ur­gent cam­pus re­pairs.

But a new Tes anal­y­sis of col­lege ac­counts re­veals that £1 bil­lion has dis­ap­peared from col­lege ac­counts over the past five years. The to­tal re­serves held by col­leges across Eng­land have de­creased from £3.69 bil­lion in 2010-11 to £2.61 bil­lion in 2015-16. The trend broadly matches the drop in the over­all core bud­get for adult skills, which fell from around £3 bil­lion to £2 bil­lion be­tween 2009 and 2015.

This sug­gests that more col­leges have dipped into their re­serves to re­place gov­ern­ment fund­ing. Ju­lian Gra­vatt, deputy chief ex­ec­u­tive of the As­so­ci­a­tion of Col­leges, says that other fac­tors lead­ing to a re­duc­tion in col­leges’ re­serves could in­clude changes in pen­sion deficits and cap­i­tal ex­pen­di­ture.

But a lower level of re­serves is a con­cern, he adds: “That means there is a risk of col­leges los­ing con­trol. It is an un­pre­dictable en­vi­ron­ment. There will be some col­leges that have too many re­serves, but it is un­usual.”

In 2015, the Na­tional Au­dit Of­fice warned that the num­ber of col­leges un­der fi­nan­cial strain was ex­pected to rise “rapidly”. The fi­nan­cial po­si­tion of the sec­tor had been de­clin­ing since 2010-11, said an NAO re­port, which high­lighted that the num­ber of col­leges as­sessed by the Skills Fund­ing Agency to have “in­ad­e­quate” fi­nan­cial health had risen from 12 in 2011 to 29 in 2015.

“The de­cline in the fi­nan­cial health of the sec­tor has been quicker than in­di­cated by col­leges’ plans, and cur­rent fore­casts sug­gest that the num­ber of col­leges un­der strain is set to rise rapidly,” the NAO con­cluded at the time. At present, 41 col­leges are sub­ject to a no­tice of con­cern over their fi­nan­cial health.

In 2015-16, West­min­ster Kingsway Col­lege had the big­gest re­serves of £152 mil­lion, fol­lowed by City and Is­ling­ton Col­lege (with which it has now merged) on £107 mil­lion, and Barnsley Col­lege on £63 mil­lion.

NCG saw its re­serves drop by al­most a third in 12 months, ac­cord­ing to the lat­est col­lege ac­counts, from £74.1 mil­lion in 2014-15 to £50.8 mil­lion the fol­low­ing year. A spokes­woman for the group says this is “pri­mar­ily due to some sub­stan­tial one-off re­struc­tur­ing costs of £20.6 mil­lion in 2015-16,” in­curred to en­sure the busi­ness’ “long-term suc­cess”.

The group is now in an “ex­cel­lent fi­nan­cial po­si­tion”, she says, adding: “Our strong bal­ance sheet and cash re­serves en­able us to be re­silient to eco­nomic chal­lenges. This is par­tic­u­larly im­por­tant, given the sig­nif­i­cant eco­nomic un­cer­tainty the UK faces.”

Some col­leges, how­ever, have bucked the trend. Over the same pe­riod, Bed­ford Col­lege in­creased its re­serves from £26.5 mil­lion to £32.2 mil­lion. Prin­ci­pal Ian Pryce says the col­lege had looked at re­duc­ing its pen­sion li­a­bil­i­ties, and re­serves had in­creased be­cause it had chal­lenged “the ac­tu­ar­ial as­sump­tions”.

“We had a [global] fi­nan­cial cri­sis be­cause banks didn’t have enough re­serves to cope with lend­ing that couldn’t be re­paid,” says Pryce. “Col­leges need re­serves to get through tough times, so you could ar­gue they are re­duc­ing be­cause times are hard. This won’t change for a while, so fall­ing re­serves is a prob­lem, and we fo­cus on in­creas­ing ours.”

Ne­wham Sixth Form Col­lege dipped into its re­serves to help fund a £10 mil­lion build­ing project at the site. The de­vel­op­ment, of­fi­cially opened in June, houses a li­brary and other of­fice and teach­ing fa­cil­i­ties.

“About three-quar­ters [of the over­all cost] we funded from re­serves, and the fi­nal quar­ter we bor­rowed,” says prin­ci­pal Ed­die Play­fair. “That’s what re­serves are for. We saved up for a num­ber of years. It de­pletes our re­serves, but we made sure we have a pru­dent level left, and the plan would be to build them up again.

“The strat­egy was to build a fan­tas­tic new build­ing to show what can be done and im­prove fa­cil­i­ties for our stu­dents. If you have a mas­ter plan for your col­lege then it makes sense to save up to progress that mas­ter plan. What is not sen­si­ble is build­ing up re­serves to bail you out if you have got a deficit.”

The Univer­sity and Col­lege Union’s head of fur­ther ed­u­ca­tion, An­drew Har­den, says: “Col­lege fi­nances need to be man­aged re­spon­si­bly, but changes to skills pol­icy in re­cent years have made this dif­fi­cult at times as fund­ing lev­els are not al­ways easy to fore­cast. Most im­por­tantly, col­leges’ pri­mary func­tion is to pro­vide ed­u­ca­tion for stu­dents, and col­lege lead­ers need to en­sure that money is be­ing spent where stu­dents need it most, not least on re­cruit­ing and re­tain­ing ex­pert staff.”

A Depart­ment for Ed­u­ca­tion spokesper­son says it is pro­tect­ing the base rate of fund­ing for 16- and 17-year-olds in full-time ed­u­ca­tion un­til 2020. The area re­view process will “put the sec­tor as a whole on a stronger, more re­spon­sive and sus­tain­able foot­ing for the fu­ture,” the spokesper­son adds.

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