Ofsted overhaul: What you need to know about new-style inspections

Further education, apprenticeships and skills training providers will see more grades and more performance data in their inspection reports from November as Ofsted introduces its new-look report cards.  

Chief inspector Sir Martyn Oliver set out to reform inspections with a bolstered focus on inclusion and teacher workload and report cards that better flag what providers do well and what needs to improve. 

Ofsted received over 6,500 responses to its consultation on its reform proposals and has today announced its decisions affecting inspections from November. 

Here’s your FE Week guide to the key decisions…

New grading scale 

From November, familiar ‘outstanding’, ‘good’, ‘requires improvement’ and ‘inadequate’ grades will be replaced. 

Ofsted will proceed with a new five-point grading scale, but the grade titles have changed from what was proposed in February.  

Initially proposed replacement grades like ‘secure’ and ‘causing concern’ were “confusing” and “too harsh” on providers, according to consultation feedback.  

The new scale will be: ‘exceptional’, ‘strong standard’, ‘expected standard’, ‘needs attention’, and ‘urgent improvement’. 

Ofsted said their baseline expectations across the new inspection system are for the ‘expected standard’ grade. Anything below that will get you ‘needs attention or ‘urgent improvement’ and above will get you ‘strong standard’ or ‘exemplary’. 

Plans to replace ‘outstanding’ with an elite committee-approved ‘exemplary’ grade have been ditched for being “too complex” and burdensome. 

Instead, the ‘exceptional’ grade can be awarded in the same way as the other grades, by meeting the criteria set out in the toolkit (more on that below). 

Providers receiving a ‘needs attention’ grade in their inspection will be subject to a one to two-day monitoring visit, but it’s not yet known how the new grades will trigger contractual or FE Commissioner intervention. 

Alongside inspection grades, Ofsted’s new report cards for FE and skills providers will also feature performance data. This will include the 16-18 overall achievement rate, 19+ achievement rate, apprenticeship pass rate and apprenticeship overall achievement rate. 

Example FE report card

Reduced headline grades 

Following the consultation, the maximum number of grades an FE and skills provider can be awarded under new inspections has reduced from 20 to 16.  

Consultation respondents said Ofsted’s original proposals for up to 20 could be “difficult to manage”. 

Report cards will now list and explain three grades per provision-type, rather than the proposed four. Planned curriculum and developing teaching and training grades have been merged. 

So a large further education college with programmes for young people, programmes for adults, apprenticeships and high needs will get three grades for each type of provision: curriculum, teaching and training, achievement and participation and development.  

Colleges and designated institutions will continue to be graded on ‘contribution to skills needs’, but this will now be graded on Ofsted’s five-point scale, rather than the current, ‘limited’, ‘reasonable’ and ‘strong’ scale. 

Alongside those, each inspection will deliver a provider-wide grade for inclusion, leadership and governance using the five-point scale, and safeguarding using the familiar ‘met’ or ‘not met’ grades. 

FE respondents to the consultation flagged existing criteria around behaviour and attitudes and personal development did not match up with the new evaluation areas. Ofsted said it has now embedded these in the participation and development criteria in the new toolkit.  

Getting the grades 

From November, each inspected provider will get a grade for ‘inclusion’ based on how well the needs of disadvantaged and traditionally underperforming students and apprentices are met.  

That will include learners who have been eligible for free meals while at school, others from low-income families, learners and apprentices with SEND and high needs, learners who are in social care or are care leavers and those who are “known or previously known” to the youth justice system.  

Inspectors will expect to see “high expectations” for those learners for the length of their course, qualified SEND professionals and that learners’ needs are “generally” met for a provider to achieve ‘expected standard’. 

Leaders at all providers will have to ensure their staff have “manageable” workloads and “consider” their wellbeing in order to achieve ‘expected standard’ in the new leadership and governance grade.  

But if inspectors find “inappropriate use of subcontracting” or leaders “imposing unsustainable workloads on staff which undermines moral and performance,” that could land the provider with an ‘urgent improvement.’ 

Example FE report card

Ofsted’s published inspection toolkit lists its criteria for each provider-level and provision-level grade to achieve each of the five possible grades.  

For example, for the curriculum, teaching and training grade for each provision type, inspectors will want evidence on the quality of curriculum leadership, curriculum design, teaching and learning quality and inclusive teaching practices. 

The achievement grades will depend on evidence proving inclusive attainment, progress and preparation for positive destinations. 

And participation and development will include the quality of leadership, attendance, behaviour, dealing with bullying and learners’ access to development and enrichment activities. 

‘Not such a burden’

Ofsted said it has taken concern about inspection-related workloads “extremely seriously” and claimed “nothing” in the new toolkit adds to providers’ to-do lists. 

It assures providers: “We do not expect any provider to be doing more than it needs to just ‘for Ofsted’.”

The inspectorate said it accepts that unacceptably low standards are more often because professionals are “struggling in difficult circumstances” rather than “malign intent”. 

As a result, it wants to balance protecting children and learners with “giving professionals the support they need”. 

It hopes to “ease concerns” through changes include capping hours inspectors can be on site each day, reducing evaluation areas, clarifying distinction between grades, and changing inspectors’ approach to the ‘exceptional’ grade. 

The early proposals were first “tested and revised” with providers in April and May, which found many FE and skills providers “disagreed” that their workload would be reduced. 

In response, Ofsted said it reduced evaluation areas, revised its methodology, clarified and “constrained” expectations and removed the “deep dive” approach. 

To avoid burdening providers with long days,new operating guidance says inspectors should not arrive on site before 8.30am and should leave by 5.45pm, other than in “exceptional circumstances”. 

‘Likely to cause stress’  

The inspectorate also commissioned an independent ‘wellbeing impact assessment’ that found the introduction of a new framework is likely to cause stress as providers adapt. 

The assessment, carried out by consultancy Education Support between April and July, found that long-term stress levels are “unlikely to change materially change” while the high stakes consequences of inspections remain intact. 

A key concern of the review is the “pervasive perception” across the education sector that additional work is created through the need to keep an “audit trail” of records for inspectors, which creates “additional work”. 

Ofsted could “shift the dial” on this under its new framework – but only if the inspectorate establishes an “evidence base” of current demands on providers and carries out an independently verified evaluation. 

The time and resource the inspectorate has put into should also “gradually increase trust”, but stakeholders’ “deep frustration” with “tokenistic consultation” on the design of the new framework has had a negative impact. 

In response to specific recommendations in the report, Ofsted said it hopes that reforms to the “whole process” of inspection will improve wellbeing, particularly for principals who face isolation and high levels of individual responsibility. 

Specific measures for leaders include naming chairs of governors in reports alongside CEOs, sharing emerging grades early to reduce “unexpected findings”, and tailoring inspections to providers’ contexts. 

In the longer term, the inspectorate promises that its strategy and delivery unit – set up last year – will “track the progress” of actions it’s pledged to take. 

It will also commission “in-depth qualitative research” of the renewed framework’s impact in spring next year. 

Five defence technical excellence colleges to open by 2026

The government has confirmed plans to create five “defence-focused” technical excellence colleges to “make the country safer and boost jobs”.

Applications for existing colleges to win funding to be a technical excellence college (TEC) will go live by the end of this calendar year, with successful centres to be launched in 2026.

The announcement was made in the government’s new defence industrial strategy published this week.

Other strategy elements include increased nuclear-related apprenticeships, a clearing style system for apprenticeships and a defence skills passport.

Defence secretary John Healey said: “It’s British workers who gave UK companies the leading edge in defence innovation and industry. 

“Our defence industrial strategy puts skills at the heart of the Government’s plans to make the country safer and boost jobs across the UK.

“This is the biggest defence skills plan in decades, a plan to boost Britain’s security and create well paid, high-skilled jobs for young people for generations to come.”

The government hopes the defence sector plan will help make the UK a “defence industrial superpower” by 2035.

It has also earmarked £250 million in investment for “defence growth deals” for five locations: Cardiff, Belfast, Glasgow, Sheffield and Plymouth.

The five colleges

The five defence TECs will follow ten construction TECs confirmed in August, which will each receive a share of £80 million in capital and £20 million in revenue over the next four years.

Officials will work with the defence industry to identify where the TECs would be “best placed” to address “large demand for skilled workers” from specialist industries.

As with the construction TECs, the funding will be both revenue and capital and will be aimed at building “capacity and capability” for teaching, curriculum development, specialist equipment and facilities for “cutting-edge defence skills provision”.

It is not yet clear whether the defence TEC’s will be UK-wide or just available in England like their construction counterparts.

Careers and upskilling

The college funding is part of a “comprehensive” £182 million package aimed at skills for the defence industry that the Ministry of Defence (MOD) says will help train people for roles such as submarine engineers, specialist welders, and cyber warfare specialists.

Through the National Nuclear Strategic Plan for Skills (NNSPS), launched last year, the sector aims to “double” defence nuclear apprentice and graduate intakes, creating 22,000 apprenticeships and 9,000 graduate roles over the ten years.

There are currently about 24,000 apprentices supported by the MOD each year.

To help plug workforce gaps, the ministry also plans to launch an ‘apprenticeship and graduate clearing system’ that will offer opportunities in the defence sector to those who narrowly miss out on defence graduate and apprenticeship schemes, which are “typically oversubscribed”.

Officials also plan to establish a ‘defence universities alliance’ for a “more strategic relationship” with the higher education sector, and will “explore” a partnership with the University and Colleges Admissions Service (UCAS) to promote defence careers.

To encourage mid-career transitions into the defence industry, the MOD will “scope the development” of a ‘defence skills framework’ that will include a defence skills passport to enable a “smoother identification and transfer” between armed forces, defence industry and neighbouring industries.

The government says funding will also pay for “thousands” of short courses so that defence employers can train new and current staff “more quickly”, although details of this remain limited.

Skills England will play a “crucial role” in the MOD’s strategy to support the defence industry, by “providing the authoritative voice” on skills needs, analysing local and regional needs, and mobilising employers.

Education secretary Bridget Phillipson said: “The defence sector doesn’t just keep the British people safe; it drives growth and unlocks opportunities for young people to learn pioneering skills and pursue a great career.

“This investment and our new defence technical excellence colleges will break down barriers to opportunity for people in every corner of our country, drive economic growth as part of our Plan for Change and secure the UK’s place in the world, putting us at the cutting edge of innovation and new technology.”

Reshuffle: 15 facts about new education ministers

Three MPs from Labour’s class of 2024 have been appointed ministers at the Department for Education in this weekend’s reshuffle.

While education secretary Bridget Phillipson kept her role and skills minister Jacqui Smith was given a new department to co-work in, it was all change elsewhere in the ministerial ranks.

Schools minister Catherine McKinnell, children’s minister and Commons skills spokesperson Janet Daby and early years minister Stephen Morgan moved out.

In their place came Georgia Gould, Josh MacAlister and Olivia Bailey – all elected to parliament for the first time last year. While Gould replaced McKinnell at the minister of state rank, MacAlister and Bailey are at the more junior parliamentary under-secretary of state level. Their specific portfolios have not yet been confirmed.

The reshuffle comes at the start of a busy term for education. Ofsted’s inspection reforms will be announced tomorrow and the curriculum and assessment review, SEND reforms and schools and post-16 white papers are due before Christmas.

Here’s FE Week’s trusty need to know on the new education ministers…

Georgia Gould, education minister

  • Gould, the MP for Queen’s Park and Maida Vale, was a councillor in the London borough of Camden from 2010 to 2024, serving as the authority’s leader from 2017 to 2024. Camden includes the constituency represented by Sir Keir Starmer 
  • Before her promotion to become a minister of state at the DfE, Gould was a parliamentary under-secretary of state, a more junior minister, in the Cabinet Office. According to the government’s website, she had responsibility for public sector reform, oversight of government functions and public bodies policy
  • She is the daughter of New Labour grandee Lord Philip Gould and Baroness Gail Rebuck, the current chair of publishing house Penguin Random House
  • In 2015, Gould wrote a book titled Wasted: How Misunderstanding Young Britain Threatens Our Future. Writing about it, she said: “Young people don’t just want a job, they want the opportunity for creativity, entrepreneurialism and to be part of something bigger than themselves. The big challenge for Labour is to hold as many aspirations for young people as they do for themselves.” One of her solutions was for “radical devolution”
  • Gould told the Local Government Chronicle it was while attending Camden School for Girls that she saw the “depths of inequality” in her borough. “I saw more and more of my friends and people I was at school with leaving education early and meeting all sorts of barriers,” she said. In another piece, she described herself as a “proud feminist” and points out the school was founded by suffragist Frances Mary Buss

Josh MacAlister, junior education minister

  • Within months of becoming an MP, MacAlister tabled a private members bill to ban smartphones in schools in October 2024. The bill has since been watered down, instead calling for the education secretary to research the impact of children’s use of social media and the digital age of consent to rise from 13 to 16 years. He has also called for a “resurgence of civics in schools”
  • In 2013, MacAlister established Frontline, a graduate social working training programme modelled on Teach First. It was provided with £45 million funding from the Department for Education in 2019
  • He also led a review of children’s social care under the Conservative government between 2021 and 2022. It made over 80 recommendations, calling for schools to become statutory safeguarding partners and “corporate parents” of children in care
  • MacAlister is married to Matt Hood, an education policy expert who helped found and then lead the Oak National Academy

Olivia Bailey, junior education minister

  • Bailey became MP for Reading West and Mid Berkshire – a newly-created seat – in the 2024 election
  • Her family has education ties. Her mother worked as a secondary school teacher and her father, Roy Bailey, is deputy leader and executive member for education at Bracknell Forest Council
  • Bailey has brushed shoulders with senior party leaders, working as head of domestic policy to Starmer from 2020 to 2022. She also worked for two years as the party’s head of domestic policy
  • She previously worked as director and then partner at Public First, a consultancy which has clients in the education sector. Public First partner Ed Dorrell is currently advising the DfE on drafting its upcoming schools white paper
  • At university, Bailey served as women’s officer of the National Union of Students from 2009 to 2011. Here, she published the first national study into harassment and abuse suffered by female students

Starmer’s shake-up could be the gamechanger FE needs

Sir Keir Starmer’s decision to move adult skills policy out of DfE and into a new “super ministry” focused on workforce productivity and growth is a golden opportunity for the FE sector and the country.

Details are still emerging on exactly how this latest machinery of government change will pan out under its new secretary of state, Pat McFadden.

DfE officialdom will resent the fact that a large chunk of its FE budget is to be taken away. Education ministers are set to lose responsibility for at least £5 billion of annual public expenditure, including the apprenticeship budget and the adult skills fund.

Skills England shift

Skills England will become an arms-length body of a UK-wide department, which itself presents an opportunity to create a more coherent approach to skills and devolution. The emergence of “post-code lotteries” for adult learners and costly “parallel skills bureaucracies” across the UK has created stark inequities and inefficiencies in delivery.

McFadden, born in Scotland and representing an English Midlands constituency since 2005, is a stalwart of the Labour movement, having cut his teeth in student politics.

Of course, this move takes place in the context of a terrible decade for adult learning. Following the Wolf Review in 2011, the Conservatives significantly reduced the qualifications available to those seeking access to the lower rungs of the opportunity ladder.

Austerity delivered cuts of 40 per cent to the adult community budget. It meant that participation has plummeted, from 5 million 16-64 years in FE during the early 2000s to just above 2 million today. Historically, we are far removed from the working-class self-improvement movements of the nineteenth century that gave rise to the first mechanics’ institutes.

Sluggish growth

The tragedy is that this underinvestment in publicly funded skills capacity has coincided with sluggish productivity growth, exacerbated by the fact that private sector training volumes have halved since the abolition of the industrial training boards in the early 1980s. Many workers are paid little more in real terms today than they were at the time of the 2008 global financial crash.

It is one of the leading causes of today’s cost-of-living crisis. That’s because the skills engine has been allowed to decouple from the growth engine: policy has focused on tinkering around with skills supply instead of focusing more laser-like on tackling skills demand.

Focusing on demand requires an entirely different policy approach from the one that Whitehall officials have been pursuing. Instead of top-down training products designed by the centre and delivered via FE, the model needs to shift its focus to skills utilisation and creating good jobs in every community. It requires local differentiation within a universal framework of properly funded learning entitlements. Crucially, it requires the seamless integration between domestic skills policy and the issuance of work visas to overseas nationals.

The new ministry has these kinds of levers, should it choose to use them. For example, instead of the emphasis on taking minimum-wage jobs inherent in universal credit eligibility, it should now be possible to upskill and reskill the workforce to secure higher-paid employment.

It can also implement strategies to address the impending job dislocations that will result from increased automation and AI. 

Levy upside

Apprenticeships are another area that could benefit substantially from a UK-wide approach. I dedicate a whole chapter to this issue in my forthcoming book.

After all, the growth and skills levy is collected on a UK-wide basis. Employment policy is reserved for Westminster. By reclassifying apprenticeships as part of employment policy, ministers would acquire the levers to ensure a common approach to apprenticeship standards and delivery regardless of whether apprentices and firms reside in England, Wales, Scotland or Northern Ireland.

Such a move would help bolster the UK’s internal market, as well as reduce red tape for training providers and assessment bodies to work in all four nations.

Of course, success alone doesn’t come from government machinery changes. However, this move by Keir Starmer might just get what has been a hollow and hugely disappointing year for skills policy back on track.

Don’t return to ‘punitive’ intervention, colleges tell new FE Commissioner

Education Partnership North East CEO Ellen Thinnesen will become England’s fourth FE Commissioner in January – and face a new Ofsted inspection framework, a post-16 education strategy reboot and calls for a “reset” with the sector.

Announcing the appointment last week, the Department for Education said Thinnesen would be expected to “drive improvement at pace across the sector” and play a “key role” in helping the government tackle the rising numbers of young people not in education, employment and training (NEET).

Thinnesen said it was a “great privilege” to take on the role at a “crucial time when skills are vital to delivering the government’s missions for growth and opportunity”.

By the time Thinnesen officially takes over from current FE Commissioner (FEC) Shelagh Legrave, the new Ofsted inspection regime should be in place, the government will have set out November’s Budget, and the long-awaited white paper on post-16 education and skills should be published.

College and sector leaders say each of these issues will shape Thinnesen’s tenure as FEC at the same time as colleges battle mounting staffing, capacity and financial challenges. 

The announcement came months after a national leader of FE, part of the FEC team, was parachuted in to support the interim principal of Burnley College after Ofsted inspectors found the college had “misled” students by inflating achievement rate data.

The incoming FEC will inherit an intervention caseload including South Devon College, which recently required a £1.5 million loan to ease cash pressures, and Weston College, which is under investigation for historic financial irregularities.

Legrave’s legacy

The FEC role first appeared in the 2013 DfE strategy document Rigour and Responsiveness in Skills as the government’s chief troubleshooter for underperforming colleges. Ministers empowered the post to demand “rapid”, “rigorous” and “decisive” improvements to struggling colleges’ financial management and/or education quality or face serious sanctions.

Since then, the role has evolved, with principals welcoming the current FE Commissioner Legrave’s focus on pre-emptive action and support services to avoid formal intervention.

Colin Booth, chief executive of Luminate Education Group, said the commissioner’s office must retain the supportive and approachable reputation it gained under Legrave.

Legrave

“I think Shelagh’s made the FE Commissioner’s office something you can go to for support and help. It’s much more approachable. There isn’t another part of the DfE that is almost entirely populated with people who used to run colleges,” he said.

Booth also valued Legrave’s visibility in the sector, particularly her frequent college visits, and hoped that will continue.

Alun Francis, CEO of Blackpool and The Fylde College and the government’s social mobility commissioner, agreed.

He told FE Week: “I think Ellen’s a really good choice. I’m particularly pleased to see somebody whose experience is in northern colleges and post-industrial towns. Having that perspective is helpful.

“What I would say about my experience of the last two FE commissioners is we’ve seen a real evolution in the way they’ve worked. They’ve made the role focused on the right kind of approach, which is early intervention support, less crisis intervention, more about helping people navigate the challenges of FE in a successful way.”

Stop. Collaborate and Thinnesen

While the FEC role has evolved, its core function remains turning around underperforming colleges. It’s not clear how one central intervention trigger – the ‘inadequate’ overall effectiveness Ofsted grade – will apply under the inspectorate’s proposed new inspection model, which does away with the headline overall grade and introduces up to 20 individual grades for colleges.

College finances are now overseen directly by the DfE following the closure of the Education and Skills Funding Agency.

David Hughes, chief executive at the Association of Colleges, said the relationship between the FEC, Ofsted and DfE was ripe for a “reset” and should be “set out clearly”.

Hughes added that the commissioner should avoid sliding back into a “punitive intervention regime”, and called for notices to improve on quality improvement to be issued “sparingly rather than liberally”.

He said: “I think there’s a reset moment I’m hoping Ellen will help lead, because what we don’t want is a return to a sort of punitive intervention regime. We want a balance, and intervention only where it’s the last resort.”

Booth mused that the upcoming white paper could call upon the FEC’s expertise beyond colleges, noting that crackdowns on subcontracting and talk of area reviews, mergers and insolvencies in universities mirror proposed solutions to colleges’ financial struggles over the past decade.

Francis believes the commissioner’s office should push harder on collaboration.

“Some of the new challenges for colleges are going to be how do you collaborate with neighbouring colleges, and with other partners like HE,” he said. The FEC, he added, is well-placed to spread good practice on curriculum efficiency, governance and leadership.

But Francis was clear that college staffing should be a top priority for Thinnesen.

“There’s a real challenge around wellbeing of our staff, not just recruitment and retention. I think that’s going to be an important theme over the next few years,” he said.

Reshuffle: Two-bosses Smith stays on skills

Jacqui Smith has been re-appointed as minister for skills in Keir Starmer’s ministerial reshuffle.

Number 10 confirmed today Smith will stay on as minister for skills, but will work in the Department for Work and Pensions as well as the Department for Education. 

It’s means Smith now has two bosses, education secretary Bridget Phillipson and new work and pensions secretary Pat McFadden. 

Smith told FE Week: “I’m delighted and proud to have been appointed as minister for skills working across DWP and DfE.

“Skills are critical for our plan for change, to ensure lifelong opportunity and now even more clearly at the heart of the Government’s growth mission.”

McFadden replaced Liz Kendall last night and took the “skills” brief from Phillipson. However it’s not clear what “skills” policy will move to DWP and what will stay in the DfE.

Phillipson said last night: “Delighted to remain in post as education secretary and minister for women & equalities in this Labour government.

“Now, we redouble our efforts to break the unfair link between background and success by giving children growing up in our country the best start in life.”

Schools minister Catherine McKinnell has left the government after declining a different ministerial role.

Her resignation letter to the prime minister said: “whilst I was honoured to be offered a role to remain in government, I have made the decision to resign during this reshuffle. I hope in the future I may be able to serve again in a role through which I can make a difference.”

Janet Daby, who was minister for children and families and represented Smith on FE, HE and skills in the House of Commons, has also left the government.

Stephen Morgan, who was minister for early education, has been redeployed to the whips’ office.

New ministers

Former council leader Georgia Gould has been appointed a minister of state at the DfE and Josh MacAlister and Olivia Bailey have become parliamentary under-secretaries of state (junior ministers).

Gould, Bailey and MacAlister were all first elected to the House of Commons in last year’s general election.

The government is yet to confirm the individual portfolios for these new ministers and who will speak on FE, HE and skills in the House of Commons given Smith sits in the House of Lords.

Reshuffle: Skills brief to move out of DfE

The government is planning to pull the skills brief out of the Department for Education and move it to a new department.

Prime minister Keir Starmer is understood to be moving the skills brief to the Department for Work and Pensions, under a new secretary of state, Pat McFadden.

This brings to an end nearly a decade during which policy for education and skills was managed together under one government department.

A new reported ‘growth department’ will be formed from the current Department for Work and Pensions and will include skills.

Pat McFadden, formerly of the Cabinet Office, moved jobs in today’s cabinet reshuffle following the resignation of Angela Rayner.

Skills minister Jacqui Smith will continue in the role across both the DfE and DWP. It is not clear whether responsibility for 16-19 education, universities or apprenticeships will be moved along with adult education.

Education secretary Bridget Phillipson remains in post. Liz Kendall, who was work and pensions secretary, has been appointed secretary of state for science, innovation and technology.

Skills is no stranger to being bumped around government departments.

Government policy for employment and skills last sat together between 1995 and 2001 at the Department for Education and Employment (DfEE).

Then the last Labour government split DfEE, creating a Department for Education and Skills (DfES) and a Department for Work and Pensions.

Skills was moved to a Department for Innovation, Universities and Skills (DIUS) in 2007 until 2009 when it went to the Department for Business, Innovation and Skills (BIS).

Then prime minister Theresa May moved FE and skills to the DfE in 2016.

Colleges reclaim £2.8m ahead of landmark VAT case 

Four colleges have won tax rebates worth more than £2.8 million ahead of a Court of Appeal battle over VAT rules that will affect the entire FE sector. 

The appeal, scheduled for June next year, is the latest round in a dispute between the Colchester Institute and HMRC over whether colleges can claim VAT discounts on the cost of large building projects started before 2010. 

If the Colchester Institute wins, colleges could reclaim VAT on payments for projects used for teaching a mix of fully-funded and fee-paying students. 

However, most FE colleges may also face significant increases to their tax bills after losing charitable reliefs, including a zero-VAT rate for new-build construction projects and 5 per cent tax rates on fuel and power costs. It could result in FE colleges paying millions more in tax, experts believe. 

VAT advisers told FE Week an estimated 20 to 30 colleges could benefit from a victory by Colchester Institute as they have tax claims on similar building projects. 

But if HMRC wins, it is understood colleges will retain the right to VAT reliefs and those following Colchester Institute’s example could have to repay any VAT adjustments they have already claimed. 

The new rulings 

News of the Court of Appeal date was confirmed last month in a series of rulings from a judge in the First-Tier Tribunal Tax Chamber, which deals with the first stage of appeals against HMRC decisions on VAT bills. 

The four colleges are Colchester Institute, Portsmouth College, Cornwall College and Derby College Group. Derby won a £1.9 million VAT adjustment based on spending between 2016 and 2018. 

In the rulings, the judge said he was “bound” to rule in favour of the colleges, in line with a more senior tax court’s ruling in the dispute between Colchester Institute and HMRC that was issued in 2020. 

Stuart Savage, tax director at RSM UK, said: “These cases, on their own, aren’t particularly important other than to those parties involved; but the issue more broadly is massively important to the sector.” 

He added that, given that HMRC appears committed to pursuing the case to the Supreme Court, the Colchester Institute case should “resolve” the uncertainty around the VAT rules in this area, but warned that this “might not be for some years to come”. 

The dispute 

The Colchester Institute made a series of claims for VAT it paid on a large building project started in 2008 using a rule known as the ‘Lennartz mechanism’. 

In 2020, the Upper Tax Tribunal, whose decisions set a precedent for other cases, ruled in Colchester’s favour. 

The decision changed the way grant-funded education is treated for tax purposes, switching it from a “non-business activity” to a “business activity”, which excluded it from VAT reliefs. 

However, soon after the 2020 ruling, HMRC said it acknowledged the court decision but would not impose the new rules on colleges while it mounted a new “test” appeal. This is the appeal scheduled next year. 

In the meantime, HMRC left FE colleges with the choice of applying tax rules in the same way as Colchester Institute, which Portsmouth College, Cornwall College and Derby College Group did, or continue to follow tax rules as they stood before 2020. 

Savage said the tax authority was “trying to do the right thing” by giving colleges the choice, as losing VAT reliefs would be a “real issue” for most colleges. 

How much is at stake? 

James Hurst, VAT adviser at Johnston Carmichael, said the cost for colleges could be worth “many, many millions”. 

He told FE Week: “I’d say the vast majority of our FE colleges don’t have Lennartz claims and they are probably more concerned that on an ongoing basis they might lose their VAT reliefs, especially around fuel and power.  

“If the Colchester decision is upheld it’s a massive additional cost for them. We are seeing HMRC start to pay more attention to how FE colleges are applying the Colchester decision or not right now, and making sure they’re consistent in that point. 

“And for me, the sooner it can get to March 2026, and get to conclusion, the better. 

“Rather than ‘pick a lane’, let’s get a long-term determination on where that is, and that would make the point simpler for everyone.” 

An HMRC spokesperson said: “We are challenging the Upper Tribunal’s decision in the Colchester Institute case in an upcoming hearing in the Court of Appeal, which is relevant to the Derby College Group appeal and others.  

“It remains our position that the funding given to the colleges is not payment for the free education they provide.” 

 The spokesperson added that HMRC will await the outcome of the appeal process before reviewing the tax treatment of FE colleges. 

An ‘unusual’ case 

HMRC’s decision to tell colleges they can “ignore” the binding 2020 ruling has led to a “long period of uncertainty”, said Socrates Socratous, VAT adviser at Buzzacott. 

While the agency has given colleges the “flexibility” to decide which tax route to follow, the final court decision could lead to “subsequent adjustments” which could be backdated several years. 

Socratous added that the HMRC withdrew permission for colleges to use the Lennartz mechanism in January 2010, meaning Colchester Institute and its adviser VAT Angles have secured a “one-off win”. 

He said: “If they are successful, yes they’ve achieved the short-term win of getting repayments, but in the long term they’ve removed the ability of colleges to have buildings zero-rated for VAT. Is that a good or bad thing for the sector, if they can’t claim other VAT expenses?” 

MOVERS AND SHAKERS: EDITION 505

Val Shawcross

Chair of Governors, Croydon College

Start date: August 2025

Previous Job: Chief Executive, Crystal Palace Park

Interesting fact: Val was leader of Croydon Council in the 1990’s, and a London Assembly member in its formative years. She went on to become Deputy Mayor for Transport until she retired from full time politics in 2018.


Ben Treloar

Chair, Natspec

Start date: July 2025

Concurrent Job: Head, Treloar College

Interesting fact: Ben was once a professional jazz musician. Useful grounding for responding to unexpected changes to SEND policy.