Colleges are back in the public sector but there is confusion over their financial footing, says Anne Murdoch

Stuck in the middle

The Office for National Statistics (ONS) published the outcome of its review of college classification at the end of November 2022, bringing colleges back into the public sector. 

College leaders discovered that this had an immediate impact on their decisions about loans but that detail of other significant changes to financial regulations had to wait for the revised College Financial Planning Handbook (not published at the time of writing). 

There are still some unknowns from reclassification but what we do know is that the much hoped for financial gain from returning to the public sector did not materialise and VAT will still be charged on transactions. Some confusion remains over the government’s instructions on capital receipts, subsidiary companies, and transaction approvals as colleges must now ask permission to act on unestablished issues. There are also implications for senior staff pay based on Treasury guidance for the public sector. 

The current situation is complicated and leaves colleges in an odd position: they are now in the public sector for some matters but not treated as such for others. 

Consent for borrowing 

Reclassification issues remained at the start of the year for some colleges, including having to secure DfE consent for borrowing and, for some, delaying submission of their 2021/22 accounts until they have resolved borrowing consents. Other colleges are reporting problems over whether they have consent for guarantees to subsidiary companies or are required to seek consent for senior staff salaries. 

It was unreasonable for the DfE to make mid-year changes to major rules without consultation. It ignores governors’ decisions, destabilises the finances of colleges, and means a chaotic introduction of new controls. 

The DfE published Further Education Capital Reclassification Allocations (FECRA) (www.gov.uk/guidance/fe-capitalfunding) for the £150 million budget announced by the Skills Minister alongside the reclassification announcement in November 2022. The department confirmed that this money is in addition to the three-year £2.8 billion FE capital budget agreed in the 2021 spending review but, as the funding is being distributed to every college, what each institution gets is small and will not cover the capital financing requirements of those colleges that had planned to borrow in 2023. The DfE will be issuing new public loans to some colleges in the coming months, but the amounts, terms and conditions are still, generally, unclear to those who must implement them. 

All this adds up to the fact that the reclassification of colleges midway through a year may have righted ‘wrongs’ in the way that college accounting was treated but it did nothing to help the financing of these institutions or simplify the plethora of policy changes that emerged. 

Colleges must sign an approval letter to access the capital and loan funding that the DfE plans to make available in April 2023 and that must be spent within a two-year window. However, applications for other funding, only available to some colleges such as for energy efficiency and wave 5 T level capital funding, had a February 2023 deadline. It means that capital funding and planning in some colleges is in confusion. 

The Public Accounts Committee report, published in December 2022 (www.ascl.org.uk/PACDevelopingAStrongWorkforce), found that whole employment sectors are struggling to recruit people with the skills they need. Why then are there mid-year changes by the government to the finances and pay controls of the very institutions that can help with skills training? We know that participating in learning reduces social isolation, improves wellbeing and has a positive impact on people’s health and yet investing in skills training to deliver a return on investment is apparently not a priority for ministers. 

Where next? 

Other updates and announcements by the government following reclassifications have included a delay in the introduction of the new Lifelong Learning and Skills Fund until 2025 ( The Lifelong Learning (Higher Education Fee Limits) Bill was published in February), proposed changes to traineeship funding, updates to the college oversight and intervention policy, changes relating to accountability agreements and brief guidance on new senior staff pay controls. 

Amid all of this, it is no wonder that employers are struggling to recruit to meet skills needs when the core of skills training is suffering such change.

Dr Anne Murdoch OBE
ASCL Senior Advisor, College Leadership
@ASCL_UK

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