Monday 30th April 2018

Time for a Radical Rethink about the Role of Colleges and their Funding

I have been widely criticised in the past for being Anti College. Let me set the record straight; they do amazing work. I am a product of the FE System (good or bad – having been to Chesterfield Tech for many years in my formative years) and their role is much more than simply educating individuals of all generations – often taking the responsibility from failures in our Primary and Secondary systems.

However, there is a big BUT. Incorporation happened some 26 years ago now, indeed I spent many years in the 1990s supporting Colleges emerge from previous Local Authority control. They have been flexible in many aspects of their development – some say entrepreneurial but I wouldn’t go as far as that. They claim to be major players in almost everything but the evidence simply doesn’t support that – and there lies the issue – they are too general to be seen to be specialists in anything and they grab at almost every opportunity that comes along.

It makes me sad to see the College system being simply left behind as providers of solutions for the levy. I can honestly say in the past 2 years, I have never seen any College shortlisted for a pitch we have been bidding for and I have certainly never seen a CEO of a College fronting their drive for winning new business. The levy has become the game changer and a transformational event for the sector and yet again the Colleges, with some notable exceptions are being left behind. Even the Collab Group struggles to collaborate from my observations – plenty of members but not too many active.

I was at a meeting in London only yesterday discussing Governance – not the most exciting subject you might say – but we had an interesting discussion about the different governance arrangements required in differing circumstances.

Managing an organisation in decline – either measured by income or any other measure – where the cost base is almost wholly fixed is the most difficult job in any business – it requires specific skills and drive and determination to address the underlying issues. THAT I would argue is the position facing over 80% of Colleges in the country whilst the opportunity has been to grow themselves out of decline, but this has simply not happened.

Some of you will know I am a sad accountant at heart so I have reviewed the most recent FE College summary of accounts issued last week for 2016/17. 304 submitting returns. What this tells us is interesting:

  • Cumulative college surplus for the year MINUS £144m
  • Current Ratio of only 1.5
  • Cash days in decline to an average of just 75.

Further analysis shows the fixed cost base of institutions has not dropped – some simple principles of business tell you that you need cash to invest for the future and this is just not happening.

We then look at the Principals’ salaries – the AVERAGE salary is £147k –comparing 2015/16 with 2016/17 with declining income shows that the Principals pay has actually risen quite dramatically. It will be interesting this time next year to see what happens with those colleges experiencing a dramatic reduction in income due to the reduction in non-levy contracting and sub-contracting whether the Principal comes forward with a commensurate reduction in salary and benefits – especially those approaching retirement!

So what does all of this mean. I argue:

  • The area review process has clearly been a failure of unprecedented proportions and you could argue has done more damage than actual good
  • FE Colleges are facing financial crisis – if you cannot generate cash you have no opportunity to invest to keep ahead of the game
  • Fixed costs are now seriously ahead of any sustainable business model
  • It requires new energy to lead many of these organisations and put simply £44m a year spent on Principals salaries I would argue is just wrong.

The answer for me is not to say that Colleges are under-funded – they are demonstrably not – they have just not capitalised on the opportunities that have been presented to them.

We need a MODERN College sector that responds to the needs of learners and employers and a competitive sector to give more choice and opportunity. This means:

  • Colleges open 48 weeks a year not 36
  • Modern employment practices which address the prohibitive costs of final salary schemes
  • Flexible use of buildings and inviting PTPs for instance to use them for a rent!
  • Modern leaders who will come forward and not see a pension as part of their ‘right of entitlement’.

It requires a fundamental Parliamentary review of the role, funding and leadership of FE. Without it, we are facing major problems with our College system and the only consequence is the Government pumping even more money into addressing failure.

Finally I hear some say that the reputation damage is done by the Private Training Sector with some of the events over recent years. Certainly the PTPs have to address their own Governance and I’m pleased to see this is happening. But failure of PTPs results in financial loss to the shareholders and almost universally not the Government. Failure in the College system results in the Government delivering financial support of many £m’s per annum – that will only increase, not reduce and puts the losses in the private sector pale into insignificance.

We need a healthy College system – the time has come to act!

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