New SFA chief Peter Lauener reveals college finance concerns in exclusive interview first with FE Week

New Skills Funding Agency (SFA) chief executive Peter Lauener (pictured) has told of his concern for the future of a “growing number of colleges” running into financial difficulties, in an exclusive interview with FE Week editor Chris Henwood.

Mr Lauener, appointed around the start of last month, outlined how “financial strategies” were key in the face of ongoing austerity measures.

In a wide-ranging interview, the first he has given since adding the SFA post to his existing chief executive role at the Education Funding Agency (EFA), he reflected on the scale of college inspections carried out by FE Commissioner Dr David Collins with concerns over bank balances.

He said: “All providers are certainly facing challenges, and we do have concerns about a number of colleges, and the growing number of colleges, and equally I could say in the schools sector there are a number of schools facing financial challenges, and some do have problems, but it is equally the case, coming back to the college sector, there are a number in strong financial health.

“Colleges need to look hard at their financial strategy; they need to look hard at their curriculum resourcing plan and make sure they’ve got a plan that they can afford, and they need to look hard as well at their governance and make sure that the corporation of an FE college, or a sixth form college for that matter, are getting the right regular reports about financial difficulties.”

The vast majority of Dr Collins’ 13 inspections, for which official reports have been published, were triggered by SFA financial concerns and where an Ofsted inspection result triggered his visit, finances were also later identified by the FE Commissioner as an issue.

“It’s not surprising that there would be more colleges in financial difficulty, given the reduction in budgets, in adult skills budgets, given the fact that the 16 to 19 budget has not been protected in the way that the pre-16 budget has been protected, so it has been, very clearly, a challenging financial position,” said Mr Lauener.

He added: “Our analysis indicates a worsening position for colleges in the FE sector and sixth form colleges, and that’s not surprising, given what we’ve talked about, and the workload of the FE Commissioner as a result is significant, as indeed is the workload of the Sixth Form College Commissioner [Peter Mucklow], who is one of my staff in the EFA.

“So there is definitely going to be an important agenda here over the next few years. In fact, I don’t see this being a ‘we’ll work hard and sort it over the next year’ situation — this needs to be a long-term issue.

“But the prime responsibility rests at corporation level, and I would much rather that these problems were sorted at corporation level. In my view, when there is intervention from the funding agencies, that’s because all the checks and balances in the system have not worked.”

And with further FE and skills cuts widely expected, Mr Lauener had words of budgetary caution. He said: “It would be foolish of any of us to expect that there will be a sudden loosening of the financial belt after the election — I would take quite the opposite from the broad statements made by the Chancellor [George Osborne] and the Chief Secretary [Danny Alexander] with the Autumn Statement.

“There is a public sector budget deficit that needs to be cut, and politicians from all parties are making it clear that they expect to cut that, to reduce that and eliminate that public sector financial deficit, and it will be very surprising if the post-16 sector was immune from that — I’m certainly not expecting that and I don’t think colleges should plan on that optimistic scenario.”

Peter Lauener in the FE Week spotlight

From left: FE Week editor Chris Henwood interviews EFA/SFA chief executive Peter Lauener at SFA offices in Central London

Chris Henwood: You’ve been at the SFA for around six weeks now. How are you finding the workload with your existing role at the EFA?

Peter Lauener: I’m certainly finding time is under a lot of pressure. Having said that, I’ve got two teams of very strong directors, and I wouldn’t have been able to take on this role without very strong people working for me, so that allows me to focus my time on what I think is most important.

What are your thoughts on the recent National Audit Office report that spoke of streamlining education and training funding systems?

If I look at the SFA and the EFA, they have done similar things in the territory of improving the IT systems, the platform on which we operate, so we both developed online account systems for the organisations that we fund. One question is could we bring these together? I think putting it a little bit more widely, and not just about the IT systems but about the systems that we use to fund. I think one of the questions I would certainly want to look at is whether there is cope for simplification in the SFA systems.

We’ve done quite a lot in recent years, partly because of the Alison Wolf agenda, to simplify some of the post-16 education funding agency systems, they’re massively simpler than they used to be, and that’s allowed us to streamline the data requirements of the sector from the EFA. I would certainly like to have a look at the scope for doing that in the SFA as well.

You mentioned IT systems, but this will send shivers down the spine of MIS officers up and down the country based on their experiences with Fis, Lars and the Hub. How can you assure them that they’re not in for more problems?

Things definitely went wrong in the last year. I’ve just had, in the last few days, a report on RO4 this year, because I asked to be kept up to date with my SFA and EFA hat on, and the reports are pretty encouraging, that the returns have worked to a good quality and consistent standard. So I think those problems are behind us, but I will certainly continue to look with my colleagues very closely at that, and there’s been a lot of work over the last year on the systems implementation, and I think we’re in a good position, a much better position than a year ago. But this will remain high on my radar for two reasons. One is a basic credibility thing — people expect a funding agency to be able to manage its data well. And people expect a funding agency to get the money out, but these are basic core licence to practice things. So before we do anything fancy we need to make sure we’re doing the basics now.

Are there any plans for a single funding system?

This is not about a merger of the organisations. I’ve not taken the job because of that, nor is there a plan to merge the organisations. Many of the organisations that the EFA and the SFA fund are the same; colleges, charitable and commercial providers, many of the partners and stakeholders are the same, so there is definitely scope for doing things simpler, better, better together, more effectively in the future, and I am obviously very keen to explore that.

We recently reported how providers were not complying with SFA rules on declaring subcontractor arrangements and, where they had, fees of up to 40 per cent were being charged. What are your thoughts on this?

I can’t say what we were doing in any particular case, but I do believe in transparency on these matters. Actually, there are many cases where you get a prime contractor/sub-contractor relationship which is entirely beneficial and allows organisations to play a part who haven’t got the capacity, or indeed the capability, and possibly not even the inclination to put in place all the QA arrangements and management information returns, they just want to do a particular thing.

A prime contractor can agree a wider range of functions with sub-contractors, and I don’t believe we should be laying down a very precise template and charging regime. Having said that, it would find it quite hard to see a set of arrangements that would justify a 40 per cent management fee, because it’s kind of obvious that what is taken as a management fee is not going to frontline education or training.

Exclusive additional Q&A content

Where the FE Commissioner has intervened, a vast majority have been because of financial problems, not Ofsted grades. Was that a surprise for you?

No, it wasn’t a surprise, and I don’t think it should have been a surprise in the sector. These financial problems have been brewing for the last couple of years, and Dr Collins’ letters to the sector have been very punchy and to the point.

I think it’s great having him in that role; every principal knows he’s been there, done that, got the t-shirt, in fact got one or two t-shirts, so his assessment is frank, it’s credible, but it only generally provides the basis for the next stages. It’s not the case that Dr Collins goes in, does a report, and the issue is sorted — it’s then often back to how do we now put these in place, what funding support might be needed, what is the action plan to bring this college back into a satisfactory financial state?

And that has to be led at the corporation level. Sometimes, there have obviously been cases, and no doubt there will be one or two, where it goes beyond the capacity of an individual corporation to do that, we will then need to look at the scope for mergers, if that’s a sensible way forward, and we can’t, we wouldn’t, rule anything out in that situation.

What we have to do is have confidence that the plans that emerge will provide a satisfactory way forward. There’s no point going from the frying pan into the fire and creating a situation that there is no confidence that it would be viable in the long-term. So that will need a long, sustained focus from corporations, and from the funding agency/agencies.

What kind of projections has the SFA got for the number of colleges we can expect to see being visited by Dr Collins?

I’m not going to give numbers of colleges, because this is not an area where you can turn the handle on a model and you get out a specific number.

This is something that we need to keep under very intensive review, and every time we get a new point of information, recalibrate and say, have we got concerns about that college, are things getting better or worse. So the important thing I would say here is that we’re very clear about the way we use data. And this is certainly one area that I am keen to look at the relative experience of the EFA and the SFA.

In the EFA, we’ve got quite a lot of experience of manipulating large amounts of financial data, because we’re funding now 4,500 academies. So 4,500 academies is a long way past the position where you can have a deep personal knowledge about what happens in each institution, so what we rely more and more on is data — putting data to an analytical model.

I was asked about this at the last public accounts committee I went to with my EFA hat on, and it’s a kind of data analytics approach that any organisation working in the financial sector will now use. So we’ve developed in the education funding a risk assessment tool, I know there have been similar approaches in the SFA, but I’d like to say, well, can we pool our experience on this? And are there different ways of using the data that will get us to a sharper understanding of the risk that is being run here? The second thing that I think is very important is absolute transparency. So one of the things that bothers me when I hear corporations that say, “Well, we didn’t know about this…” No, that’s obviously a set of arrangements that are not working well, and in many cases there are outstanding corporations with outstanding leadership teams, and there’s everything you would want to see. But I do think that funding agencies have got a role in making as much data transparent. So making data about the sector as transparent as possible, and I think there’s scope to go further with financial data on that, certainly making it transparent to corporations.

What was the thinking behind the change to a new system of loans from BIS [covered by FE Week in edition 121] as opposed to the former system of SFA advances?

That is just a matter of departmental accounting practice. This is not a matter of policy, but it is a matter of accounting practice, and the delegations, and where authority to make loans, as opposed to advances, is held. There’s nothing complex about that. As the chief executive of the SFA, I have authority to make advances of funding, but not authorities to make loans — and it’s as simple as that.

The final decision is a matter for ministers in cases of loans, but the recommendations and assessment are made by the SFA in a similar way as previously, so I don’t regard this as a big change in practice, or something odd or unusual, or something limiting the SFA.

Does this change to loans have any benefit?

Well, I’m not convinced it either has benefits or disbenefits. Again, we’re also in ‘last resort’ territory, because I never start from the proposition when a college is in financial problems that we should step in and bail it out, and I don’t think any college starts from that expectation. The first thing is, can the college reschedule its affairs? Can it make savings, can it realise assets, can it change what it does that will earn a surplus? And of course colleges are able to secure loans from the banking sector, and most colleges have got loans of one sort or another, or overdraft facilities, and that will resort to be the first point. I would always regard it as a sign that something was wrong if any college came in, and obviously a number do, seeking financial support in the form of an advance or a loan.

What are your thoughts on the future of the SFA in light of the movement towards city devolution and devolution of the skills budget?

It was already there with local enterprise partnerships (Leps) and skills pilots and all these things, and I think the wider question is, “What isn’t right to specify nationally?” or, “What isn’t right to specify locally?” or, “What isn’t right that employers should dictate?”

I view the devolution issue as part of that. And sometimes, there’s a mistaken belief that in the SFA we specify from on high what colleges should be doing — well, we don’t at all. That has always been a matter decided locally. The question comes from the localism/devolution debate is what the sum of colleges are providing in a particular area? Does it add up to what the local community needs or to employers’ needs? And some local partners are saying no.

If I was a college principal in that situation, I would be wanting to work very closely with other colleges, or in a college where you’ve got a large college covering a city, like Sheffield College, where I come from, I would take a particular responsibility for saying, “What evidence have I got that I am meeting community needs, young people’s needs, adult needs and employer needs?” And I would want to be on the front foot in that debate with local government, with the Lep, and I would be. I would see them as important stakeholders to satisfy. I don’t think that debate is going to go away, and I think it’s very important that the sector responds with national leadership and local leadership.

It’s our job at the SFA to make those arrangements work, however they emerge from the ministerial discussions and decisions — it’s not our job to say it should be this or it should be that. It’s our job to make the system work in the best possible way, the most efficient way, the most effective way, the way that consumes least resource from the system so everyone else can get on, provide the skills, provide the opportunities, get employers working more effectively.

So you don’t see the role of the SFA as being challenged by city devolution?

Not necessarily, and indeed we’re doing a lot of work to support Leps in their role. Now, clearly you could construct scenarios that said that the funding should be done, managed in a completely different way, and I’m neutral on that question, because the SFA doesn’t have a policy of responsibility or a planning responsibility. Our job is to make the system work as effectively as possible to meet the objectives set by ministers, and to advise on the best way. Is there a policy idea, say, to advise on the feasibility of implementation? Now, if there was a decision to manage some budgets in completely different ways, that’s probably a decision for ministers, and if that affects some of the rules that we do, then that’s something we will need to adjust.

But at the moment, ministers have asked us to work very closely supporting both Leps and supporting the new deals that are emerging for cities, and we will be doing that. I was talking with one of my senior team about discussions in Manchester, about the Manchester deal, and I’m sure we’ll play an important part in both providing data about what’s happening, and in developing the possible ways that local aspirations can be met.

Apprenticeships among the 16 to 18 age group are on the up again, but now the issue is for the 19+ age group and 25+. We have even heard that growth requests are being turned down for 25+. How can you increase 25+ apprentice numbers? Do you want to?

We want to meet whatever targets the government give us — as we speak on the day that the two millionth apprentice was announced. The adult apprenticeships budget is a single unringfenced budget so there are no separate limits for 19 to 24s and 25+ but of course we pay different amounts. We’re certainly targeting growth in 16-19 and 19 to 24.

Association of Employment and Learning Providers chief executive Stuart Segal recently said there needed to be greater flexibility when it comes to funding apprenticeships. What are your thoughts around that?

Providers always call for greater flexibility. I’ve already said I think there is a case to look at for other areas where we can simplify the funding system, but I have two absolute requisites in any systems we are operating. Number one, I have to manage the budget. A funding agency that busts the budget will not be long for this world, and we can probably all think of one or two examples where that has happened. I don’t think Stuart was saying this, so if providers are saying: “We need a fast-track way to increase our budget,” then that is only possible up to a point because we have to operate within a national budget, and that will never change — and nor should it change. We have to manage within the national budgets.

Then the second thing that’s a requisite for me in that kind of situation is all part of the national targets, and if there is a priority to a particular target, then to achieve that target you will have to maintain funding on that line and not move it into another line.

So I’m kind of sympathetic, subject to my two requisites and from managing the budget to meeting our targets. We are keen to expand higher apprenticeships, and I think that’s really important for the future of the whole programme, so we need to prioritise that. This may relate back to your 25+ point, but government is all about priorities, and if you decide to spend the money here rather than there, then that knocks back into the funding system. What we need to do in the SFA is not to erect our own rigidities that were never intended by ministers in setting the policy objectives and the targets for the organisation of the system.

Apprenticeship funding reforms have been in the pipeline for a while now. Do you have any concerns about making employers pay a third?

Well, we need to wait, clearly, to see what funding policy proposals emerge, so it’s our job to make a system work once a policy is decided. At the heart of it, it’s not a debate about funding — that’s a mechanism for making the policy happen. At the heart of it is getting employers engaged in the delivery of apprenticeships.

Why? Because that’s good, it’s right for the apprentice, it’s good for the employer and it’s good for UK Plc — and that’s at the core of it.

What have you learnt about the SFA since you have been at its chief executive?

It’s not exactly something I learned, but I’ve had a very warm welcome. So I’ve made a point of visiting all the SFAs major sites, so there are six major sites and I’ve visited all six in the last few weeks, and conducted staff meetings on those sites. I’ve also visited a seventh, as it happens, one of the smaller sites, and I’ve enjoyed talking to staff about the organisations they have previously worked in. So there is a lot of experience, a wealth of knowledge in the SFA, and that’s great — and that’s something I’ve had confirmed rather than something I have learned. The second thing I would say is that I’ve been looking at areas where there might be scope for the EFA and the SFA to work jointly and more effectively in the future together in a way that might enable us both to do a better job and to make savings, and there are a few areas that I’ve developed where I would want to look further at that in months to come.

What words of advice can you give to college principals in terms of the austerity ahead and the difficulties we are facing?

I would say there are some great colleges who are delivering for employers, delivering for their communities and delivering for their students, whether they are young people or adults, and they are running their organisation, getting excellent inspection results from Ofsted and with strong finances. So there are great examples in the sector for others to learn from. So make sure you made your own assessments of your college, and are aware of where there are colleges that are maybe doing things that you should learn from.

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