Concerns remain about a Skills Funding Agency policy aimed at “smoothing” the impact of its new payment regime, despite it ditching plans to cut provider earnings rates by up to 25 per cent or more.

The agency wanted to introduce protection measures for colleges and training providers to stop earnings rocketing or nosediving in the next academic year.

Providers have been given a number — a ‘transition factor’ — that indicates how much of their budget under the new system they can earn.

A factor of 1.1 would increase a provider’s earnings rate by 10 per cent, while 0.9 would indicate a cut of 10 per cent — meaning that it had to do more work for the same money.

But the agency stepped away from factors that would result in earnings rate cuts just days after FE Week reported on worries within the sector. The agency said such factors would now be “reset” to 1.

The move was welcomed by the 157 Group, but concerns remain that the agency could still reduce earnings rates with policy wording that states: “We reserve the right to adjust your factor where we have evidence that it is no longer suitable from your ILR submissions or because of the change to your offer in 2012/2013 and 2013/2014.”

Peter Roberts, 157 Group chair, said: “We welcome the quick response by the agency regarding the concerns expressed by colleges over potential implications of the transition factor and confirmation that each college’s 2013/14 allocation remains unaffected.

“We will still need to ensure that the notion the agency ‘reserves the right to adjust your factor’ does not become a mandate to reduce rates at any time in the future without the careful dialogue needed.”

An agency spokesperson said: “We will reset the factors in the way we have communicated and only review that position on a case-by-case basis.”

The agency dropped its plans for cutting earnings rates after FE Week reported a Joint Information Systems Committee online forum for college finance directors in which one provider revealed its rates under the new system would be cut by 25 per cent.

“I can’t imagine that colleges are going to take this lying down,” said one forum member.

And at least one independent training provider had been given a transition factor below 0.7, FE Week understands.

But the agency dropped its plans after what it described as “feedback”.

“As part of the consultation process, we wrote to providers setting out their individual transition factor,” said the agency spokesperson.

“We asked for feedback on any implications or concerns as soon as possible. The feedback from the sector has been very helpful.

“It was clear that there would be a number of unintended consequences.

“As a result we have reset the transitional factor for those providers where earnings would have been reduced as a result of the transitional arrangement.”

She added: “We would like to stress that the 2013/2014 allocation is entirely unaffected by the transition arrangements.”

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