Ministers are being urged to relax financial intervention rules for the rest of 2022 to protect college reputations in the face of ongoing challenges.
The Association of Colleges has written to education secretary Nadhim Zahawi with the request after finding a “significant minority” of their members face “real financial difficulty” due to changing patterns in 16-to-18 recruitment and low adult enrolments caused by the pandemic.
Colleges that receive ‘inadequate’ financial health ratings from the Education and Skills Funding Agency usually receive a financial notice to improve and subsequent FE Commissioner report, both of which are published and can lead to news articles in the local and trade media.
David Hughes, the AoC’s chief executive, told FE Week the normal intervention regime “triggers all sorts of unhelpful things, not least of which is a public bad mark”.
He feels this would be “unfair” over the next year, considering the unavoidable impact of Covid-19.
“What you want is for colleges to feel confident about coming forward now. It’s not every college, but it’s a significant minority. We don’t want colleges to worry about that honesty which brings all of those potentially negative outcomes.”
Hughes’ letter said the fact that most colleges have long-term bank loans and covenants “will continue to ensure discipline”.
The FE Commissioner’s team paused most duties in March 2020 as a result of the first lockdown, while the ESFA also paused its routine funding audits.
“Confidential” support to any colleges struggling financially as a direct result of the pandemic was offered by the FE Commissioner until normal duties were resumed in August 2020. Audits then got back under way in November.
And in October 2020, the ESFA announced that colleges which apply for government bailouts will not automatically fall into formal intervention from that point on.
A Department for Education spokesperson said: “We recognise the impact the pandemic has had on the FE sector.
“Nobody wants to see any college get into financial difficulties, which is why our published guidance sets out that there is already the ability to take covid impact into account.”
Hughes’ letter pressed that colleges face “several unprecedented challenges” just at the time the government wants them to develop more opportunities, such as skills bootcamps, traineeships and apprenticeships.
The association said FE’s lagged funding system will “see many colleges facing reduced funding in 2022/23, even though it is likely that their learner numbers will begin to bounce back” due to summer exams taking place, which are expected to move the grade profile of GCSEs back towards 2019 levels.
The AoC also said lockdowns have made engaging adults learners and employers “very difficult”. Despite this, there has been a “clear message” from the DfE that the normal 97 per cent performance threshold for the national adult education budget will apply in 2021/22.
But this was set before Omicron emerged. The AoC said current data implies a clawback of £100 million in funding from colleges by the end of 2022.
The association has called on Zahawi to adjust the clawback threshold to 90 per cent, as it was in 2020/21, as well as to hold a business case process for colleges.
As part of the government’s education recovery package announced in October’s spending review, an extra £800 million has been committed over the next three academic years to fund an additional 40 learning hours for students on 16-to-19 study programmes and T Levels.
This will increase the national FE base rate by 8.4 per cent – rising from £4,188 to £4,542. But this will only come into effect from August 2022.
Hughes’ letter said the increase, on the face of it, “will help” but warned the extra hours “will squeeze the money available for rising costs”.
He added that the combined cost of higher energy prices, the higher minimum wage and the national insurance rise “prevents adequate money to properly invest in all staff including teachers”.