Like many colleges, one of our strategic objectives is to provide a physical and digital estate that are fit for learning now and into the future. Sadly, the sector is being stifled in achieving this necessary goal, not least by the ongoing ban on borrowing.
Of course, excellent learning can happen anywhere. But overcrowding, disrepair, archaic facilities and resources that don’t meet the demands of a modern curriculum hamper learning. They also lead to disrespect, a generalised feeling of a lack of care and erode reputation.
Halesowen College is coming to the end of an ambitious estates strategy. We’ve opened a new campus (funded wholly from reserves), reconfigured several aspects of our existing estate to accommodate T levels and a re-vamped curriculum offer, and we are in the process of refurbishing another campus with some financial support from the Transformation Fund.
Building inflation has made the budgets for these projects challenging, and reserves are finite. Meanwhile, the demographic trend continues to see increases in the number of 16-year-olds seeking college places.
Like us, many colleges are full and operate waiting lists for places on certain courses. They need to build additional facilities or refurbish existing estates.
The £950 million for capital announced in the budget is welcome, but the truth is that much of this will be directed to projects that are already in progress. In short, it will not meet the sector’s needs.
But every other path to financing the costs of capital is blocked by insurmountable barriers. Those colleges who had amassed reserves have long since sold off the family silver, there are currently no options for capital funding, and getting a loan is ultras vires (beyond colleges’ legal power).
This makes absolutely no sense. Borrowing can be costly, but skillfully tendered and negotiated commercial loans can represent good value. When the sector was previously in the public sector, commercial borrowing was allowable and colleges were accountable for value for money.
Every path is blocked by insurmountable barriers
There is also the option of government loans, so this all-encompassing total ban on borrowing seems short-sighted. It is all the more difficult to explain when resources are so scarce.
Absent this solution, it is surely timely to look to the private sector for affordable arrangements. If the reasoning for the ban on commercial borrowing is money leaking from the public purse, then this is not going to help. In fact, it could have the opposite effect.
Colleges may not have the millions required to purchase new premises, but there is a genuine commitment and expectation that we address the growing NEET issue and reduce the 16-24 claimant count.
Delivering this strategy will only further augment the need for additional space, even if there is an effective hybrid style of delivery.
Faced with an increasing difficult conundrum in balancing necessary estates development against acceptable levels of liquidity and earnings before interest, taxes, depreciation, and amortization (EBITDA) , rental will become an increasingly inescapable option.
A college may not be able to access say £5 million for a capital project, but may be able to finance £250,000 per annum in rent. However, the most basic of calculations will show that the costs of a loan are much more modest than a rental arrangement.
The latter inevitably places pressure on revenue budgets, feathers the private sector rental nest with public money, and leaves a college with no corresponding asset on its balance sheet.
No college wishes to move into ‘Requires Improvement’ for financial health, but neither do they wish to compromise education. The treasury’s ‘Managing Public Money’ has much to be applauded for. However, the stranglehold on capital flies in the face of the Nolan Principles.
Colleges cannot exercise excellent leadership without resources. Lack of capital investment will unquestionably hamper our sector from developing the skills and talents needed to drive growth and opportunity.
Our ambition, vision and success should not be choked by inability to realise the capital plans that underpin our strategic objectives. Unlocking borrowing would be a lifeline for many and keep more of our public money serving the public interest.
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