Government officials forced a major bank to halve a £40 million unsecured loan after threatening to put a college into insolvency.

In a highly unusual move, Lloyds Banking Group agreed to slash Bradford College’s debt to £20 million in return for halving the write-off costs with the Department for Education.

The details of the last-minute deal, struck at the end of March just before the DfE’s “restructuring facility” closed, are secretive and complex but the college has said it is “grateful” to both the department and bank for being kept afloat as it tries to find a further £3.5 million in savings.

Any future negotiations will take place under the shadow of the administration process

Latest accounts for Bradford College, where more than 130 jobs are currently at risk, shows it had a total of £40 million debt, all of which was due to be repaid within one year after it breached one of its banking covenants.

Knowing this repayment deadline could not be met, negotiations began and FE Week understands the ESFA argued that the unsecured loan had been irresponsible lending on the part of Lloyds and used the threat of insolvency to strike a deal.

Rather than potentially losing the entire £40 million if the college went bust, which is allowed to happen following the launch of the FE insolvency regime in April, Lloyds agreed a financial arrangement with the ESFA’s transaction unit.

This meant the college was given £12.8 million by the ESFA to pass on to the bank and the bank gifted an equal amount of £12.8 million to the college, in what they called “debt forgiveness”.

These payments resulted in the loan halving to £20 million, repayable over 15 years, and also covered the £5.6 million loan break costs.

In addition, the ESFA also wrote off its own £9 million loan with the college and provided £5 million for infrastructure improvements, making a total payment to the college of £26.8 million, excluding the £12.8 million passed on to the bank.

A financial advisor to the college sector told FE Week they understand the gift by the bank to be the first such significant debt write-off for a college.

When covenants have been broken in the past, banks would typically renegotiate quickly and change the loan to very high interest rates – knowing the DfE would have to bail the college out if it ran into further trouble.

A spokesperson for Lloyds said a financial arrangement was offered to put the Bradford College on a “stronger financial footing”.

“In conjunction with the EFSA, we agreed a refinancing to all parties’ satisfaction and which allows the college to move forward with a more confident future,” he added.

“This was a standalone transaction and reflected a very specific set of circumstances for Bradford College.”

The college’s bank loans had been taken out to fund a number of capital projects.

Julian Gravatt, the deputy chief executive of the Association of Colleges, explained that Bradford “missed out on capital funding when that budget was cut in 2009, so they used their own funds and a bank loan to redevelop their campus to meet student needs”.

Asked if he thought the insolvency regime might give more colleges a stronger hand when renegotiating loans in the future, Gravatt added: “Any future negotiations between a college and its bank will take place under the shadow of the statutory education administration process. We’re finding out right now how this works.

“There is a bigger point that government has assumed colleges will borrow when allocating capital but has failed to provide adequate revenue funds. Funding colleges properly would avoid the time, effort and money lost in individual financial interventions.”

Minutes from a January board meeting stated that current staff costs at Bradford College have increased compared to previous years and now sit at £33.5 million, which “is not sustainable”. It is now consulting on cutting 132 jobs.

The college’s income for 2019-20 is predicted to fall by £3.5 million for three reasons: its 16-to-18 budget has dropped by £2.5 million, it has lost £800,000 via adult education budget funding in Manchester due to devolution, and has suffered a £200,000 decline in higher education provision.

The job losses will lead to “significant financial savings and ensure the future sustainability of the college”, the Bradford College spokesperson said.

Bradford College went for more than a year without a permanent boss until March 2019, when former Ofsted grade one Barnsley College principal Chris Webb became its chief executive.

The college’s last permanent boss, Andy Welsh, resigned at the end of the 2017-18 academic year after the college received both a financial notice to improve and an Ofsted grade three in quick succession.

An FE commissioner report, published in March 2018, revealed that the college’s dire financial position had come as a surprise to the governors.

Last month, education giant City & Guilds raised a few eyebrows by calling for the creation of a new independent body to oversee skills policy in the UK.

Not convinced that a new quango is what the sector needs, FE Week editor Nick Linford sat down with the organisation’s chief executive to see if he could persuade him otherwise. Here’s how it went.

City & Guilds has a long history, not just in terms of being the most recognisable name in the vocational education space for 140 years.

They have also for many years invested in commissioning research and advising governments around the world, rarely holding back from presenting potentially unflattering views.

This has continued under their current chief executive, Chris Jones, who since 2008 been at the helm of the group that last year turned over £144 million, employing nearly 1,400 people.

Jones has not shied away from a bit of Department for Education bashing, being regularly critical on social media on whether T-level reform represents value for money to date and most recently “highlighting the urgent need for more considered policy development that is based on substance, not style”.

And with reference to the recent level 3 and below qualification consultation, he accused the DfE of “sadly” having “no track record” when it comes to having “clear outcome
measures established at the outset”.

One solution to the FE policy failures, Jones told me in a broad-ranging interview, was to establish another quango, to be called the Skills Policy Institute.

Reviews are applauded, debated, then shelved and forgotten about

This is not the first time Jones has proposed a new organisation to “hold the government to account by scrutinising skills”.

The recommendation featured in the first City & Guilds Sense & Instability report in 2014, and again in the 2016 update.

However, the “body with independent oversight” was not given a name and was at that point compared to the Office for Budget Responsibility.

So now, in the third Sense & Instability report we have the proposed name, Skills Policy Institute, and this time the Education Endowment Foundation is used as a comparison – a research organisation established with £120 million of public money.

There had been some disquiet on social media about the idea of another quango – to add to the myriad organisations with oversight of just apprenticeships that featured in the National Audit Office’s most recent report into the sector.

Jones has been critical of constant policy change, so he wants to be clear that his idea of a new “quango is not necessarily being designed or considered as a way of saying to driving more change in policy.

“So it’s not saying, ‘Let’s create something that is independent, and more policy for the sake of policy’. It about getting the policy right and making sure the policy that is put in place gets delivered well.”

A new Skills Policy Institute would build institutional memories – what has worked and what has not

My challenge back to Jones was to ask him: why create another quango with all the associated bureaucracy when the government can instead commission research or high-profile independent reviews, such as Wolf in 2011, Richard in 2012, Sainsbury in 2016 and most recently Augar, as task-and-finish groups?

But Jones dismisses reviews “that can be applauded at the time they are published, much debated, but then potentially be put on the shelf and forgotten about.

“And I think that, for me, is one of the risks that what we have here is something that typically sees lots of research reports being commissioned with lots of recommendations, but do they all make sense over time? Do they connect with each other? I would argue perhaps not.”

Instead, he insists a Skills Policy Institute would build “institutional memories, the basis of what has worked and what has not”.

He goes on to say that it could be “quite small. About 10 to 15 people. So it’s not substantial. It doesn’t have to be. This is not about creating bureaucracy for the sake of it. It’s about creating something that has substance in what it says and does.”

Intriguingly, before I ask where the money would come from to pay for this new quango, Jones offers up the apprenticeship levy.

“We are talking about something that could be funded with a relatively small proportion of the levy and arguably could be a very good use of a very small proportion of the levy,” he says.

What then follows is a rather critical view of the Institute for Apprenticeships and Technical Education (IfATE), a quango that is in fact funded from levy receipts and has quickly now grown to around 150 staff.

“I don’t see anything yet that is coming out of the IfATE that has been research-led. Looking closely at the specific outcome measures it needs to be putting in place, it’s filling a slightly different purpose at this moment in time.”

This strikes me as the first time I’ve heard Jones or City & Guilds criticise the relatively new IfATE, and when I point out that they have researchers, he is quick to express a “hope” that they would consider value for money.

“If the IfATE is there to help administer apprenticeship policy, it is essentially a ministry of apprenticeship policy,” he says.

I think they [the IfATE] should be doing more

When asked whether the IfATE was meant to be independent, Jones says: “That was the idea. Do we see that coming through? I don’t see enough evidence of that, personally, coming through of this being something that has genuine independence. I haven’t seen them publish a report about the future of the workplace in 2030 and how the apprenticeship strategy must evolve to support that. Funding has to move from A to B, we need to have these standards… I haven’t seen that.”

Jones claims he hasn’t given up on the leadership at the IfATE, “I just don’t see what they are doing today as fulfilling the role of what we see in terms of the Skills Policy Institute. They (the IfATE) are administrating policy. If they believe they should be doing more, that’s for them to determine what they should do. I think they should be doing more,” he adds.

During the course of the interview Jones compared his proposed Skills Policy Institute to the small National Infrastructure Commission and even the UK Commission for Employment and Skills, shut down in 2017 but described by Jones as “forward thinking, beginning to look where some of the potential interventions might need to be over time, thinking where and how employers can begin to shape the policy to a greater extent than they perhaps are at this moment in time”.

My experience was that the UKCES had few fans before being shut, few mourned its passing and it is now rare for it to be mentioned on the FE policy circuit. 

So Jones has failed to persuade me that a new quango is part of the solution for avoiding poor policymaking or to stop good policies failing.

No matter how independent a Skills Policy Institute would claim to be, its income and thus survival, along with the actual decision making, would be in the hands of the democratically elected officials.

And frankly, the skills sector is not short of quangos, policy influencers and talking shops, at both a national and regional level.

Put bluntly, moving deckchairs around or adding new ones will not stop the sinking feeling.

What we are really short of is sufficient investment in the delivery of further education and skills.

Colleges underspent their original funding allocations awarded through the controversial 2017-18 adult education budget (AEB) procurement by a huge 26 per cent, new FE Week analysis has shown.

In stark contrast, all other providers exceeded their initial contracts by 31 per cent.

On top of this, four of the 19 colleges that won in the tender failed to deliver any of their procured AEB funding, and admitted that their non-procured contracts were sufficient to meet demand. Despite this, all four were awarded much larger procured contracts in 2018-19.

Perhaps it’s time the NAO took a hard look at what’s going on

The findings will be frustrating for the many private providers who were given much smaller than expected AEB contracts, or denied them altogether, following the tender.

“How much evidence does the government need that the current system of AEB funding is totally discredited and delivering poor value for the local communities that the programme is meant to support?” said Mark Dawe, chief executive of the Association of Employment and Learning Providers.

“As the latest FE Week analysis once again shows, independent training providers have no problem using up their allocations in full, and when they hear that the Department for Education hands back to the Treasury over £300 million in underspends from various budgets, they get doubly frustrated.”

Independent providers were told in 2016 their AEB contracts would come to an end in July 2017, rather than being automatically renewed as normal, and they were forced to take part in a procurement process for a pot worth around £110 million.

Colleges did not have to take part in the bidding war, as their contracts were to be automatically renewed, but they were allowed to tender to gain additional funding.

Nineteen colleges subsequently won £5,071,369 between them.

FE Week’s analysis compared figures showing the ESFA’s final 2017-18 funding year values with the first contract allocation for November 2017 and their final allocation for June 2018.

By June, their combined final allocation dropped slightly to £5,063,495.

Figures published last week show the colleges actually ended up spending £3,999,962 – which means they missed their year-end allocation by 26 per cent compared to November, and 21 per cent compared to July.

Just four colleges achieved or overspent their year-end allocation.

The DfE said the funding that was not utilised was taken back and then recycled into the next year’s allocations budget, which is then distributed across all AEB providers. 

Non-college providers were awarded £81,964,837 between them in November 2017, but their allocations increased to £115,705,143 in July 2018. Final figures show all non-colleges spent £107,609,652 by the end of the academic year, which is 31 per cent up on their original allocation but 7 per cent down on their July figures.

The four colleges to not spend any of their procured contracts in 2017-18 were: Abingdon & Witney, Middlesbrough, South Gloucestershire and Stroud, and St Helens.

A spokesperson for Abingdon & Witney College said: “In 2017-18 our non-procured AEB allocation proved to be sufficient to meet the demands of the local market. However, in 2018-19 we will fully utilise our procured contract.”

The DfE extended the contracts it procured for 2017-18 to 2018-19 and maintained funding levels.

However, it said allocations could have increased for several reasons, including: the previous year contracts were only for nine months following delays with procurement, and growth funding available in 2017-18 was consolidated into the following year.

Abingdon & Witney College was given a £230,679 procured AEB to use in 2018-19 – a 250 per cent increase on the £65,869 available to it in 2017-18 that it failed to spend.

A St Helens College spokesperson said following its merger in December 2017 with Knowsley Community College that it “revisited all business plans and as a result, the additional procured allocation was deemed to be no longer required”.

It has been given £328,208 procured AEB for 2018-19.

Zoe Lewis, principal of Middlesbrough College, said when her college bid for procured adult education budget funding in 2017-18 that it was in the process of setting up “sector-based work academies to expand our work with unemployed people”.

But this took “longer than we’d anticipated and we therefore did not use our allocation last year”. 

However, Middlesbrough College’s new academies are “now established” and it is “on track” to spend its procured contract for 2018-19, which amounts to £416,974, as well as “exceeding our AEB contract delivery by more than 3 per cent”.

South Gloucestershire and Stroud College, which has £263,674 procured AEB to use in 2018-19, declined to comment.

The DfE said it was aware of non-delivery issues but would not comment on specific cases. It added that options for future contracting of AEB are being reviewed.

Dawe said giving bigger procured contracts to institutions who didn’t deliver on their previous ones “just adds insult to injury”.

“Perhaps it’s time for the National Audit Office to take a hard look at what’s going on here,” he added.

The Education and Skills Funding Agency has officially begun inviting non-levy employers and providers to test its digital apprenticeship system.

An expressions of interest went live yesterday and closes on 5 July, with the trial planned to get underway the following month.

To apply to test the system’s functionality, small and medium sized employers must have an apprenticeship vacancy that will result in an apprentice starting, in September, August or October 2019.

The ESFA said as this is a test phase, the training provider should already have a contract with agency for supporting employers that do not pay the apprenticeship levy, and have money left in their non-levy funding allocation.

Currently, only big employers with an annual total pay bill of over £3 million who pay the levy can use the online apprenticeship service to access training funds generated through the policy.

Small employers were originally expected to be added to the service in April 2019, but was delayed for another year to “ensure a more gradual transition”.

After the delay was announced in August 2018 the ESFA extended contracts for providers delivering training for small employers until March 2020, which is how non-levy-payers train up their apprentices.

But as FE Week revealed in February, training providers’ non-levy funding is running dry and some have even had to turn apprentices away. Many fear the same will happen in 2019/20 as their allocations will not be big enough to meet demand.

From August to December, a small number of employers who do not pay the levy and their associated providers will be able to set up accounts on the apprenticeship service through the first test phase.

The ESFA said providers not involved in the initial test phase will “not be disadvantaged when we further roll out the service and no new funding is available through this functional test”.   

The trial will test a “modest volume” of apprenticeship starts.

The applicants who take part in the development will be allocated on a “first come, first served basis; the ESFA will not be able to guarantee an apprenticeship start until the selection has been made and applicants have been notified”.

Applications should be submitted as a joint bid between employers and providers, the latter of which must be on the ESFA’s register of apprenticeship training providers.

A second window for employers and providers to submit an expression of interest to take part in the trial, who have starts in November and December 2019, will open “later in the summer”.

Through the apprenticeship service employers can: manage their apprenticeship funding, select a suitable apprenticeship standard and an end-point assessment organisation, as well as advertise an apprenticeship and select a suitable provider to deliver their apprenticeship training.

They can also give real-time feedback on the quality of training provision they receive, have control over the amount of apprenticeship funding paid to their training provider on their behalf, and provide government with apprenticeship “demand data to ensure an valuable apprenticeship market place”.

The Institute for Apprenticeships has called for the assistance of the government’s exams and HE watchdogs in devising an “optimised” external quality assurance system for
apprenticeships.

Sir Gerry Berragan, the institute’s chief executive, wrote letters in April to the chief regulator at Ofqual, Sally Collier, and the chief executive of the Office for Students, Nicola Dandridge.

Berragan explained that since January of this year, the IfA has been delivering a “programme of work that will improve the delivery of EQA”, which includes a “strengthened operational framework and a digital service, both of which will allow us to better exercise our statutory duty and bring greater consistency”.

The letters, obtained by FE Week, reveal that the IfA has been asked to provide the Department for Education with an “appraisal of the best method of delivering EQA through a simpler system”.

“One important part of this is retaining the role of professional bodies (employer groups and professional entities) in the system,” Berragan said, adding that he would “value” the
views of Collier and Dandridge on how their organisations “might work with professional bodies – either directly or indirectly – under an optimised system”.

Despite the institute previously pledging to become more transparent, a sizeable portion of Berragan’s letters to Collier and Dandridge were redacted.

Currently, there are 18 EQA bodies which monitor the end-point assessment organisations (EPAOs) that run examinations for apprentices.

The job is done by a mix of professional bodies, employers and quangos such as the IfA and Ofqual – which between them run EQA for over 200 standards.

Ofqual is the second biggest provider in this space, but the OfS isn’t on the EQA register, which raises questions as to why Berragan asked the higher education regulator for its views.

The OfS was approached for comment but did not respond at the time of going to press.

Many in the FE sector have been critical of the current EQA system, complaining that it is too complex.

The IfA’s letters hint that Ofqual will, in future, be the lead body for it, something that would be welcomed by the chief executive of the Association of Employment and Learning Providers Mark Dawe, who said: “Finally, common sense is biting. The sooner this process of transfer is complete, the better.

“It is great to have professional bodies involved across all sectors, but Ofqual should have overarching responsibility.”

Collier told the House of Commons education select committee in March that her organisation would like to expand its role in monitoring apprenticeship EPAOs.

She argued her organisation has done a “good job in proving that, as the regulator, we can do this job and can do it well” and they are “ready to take on a larger role”, following an October 2018 report by the committee on apprenticeships, which recommended Ofqual should be given total responsibility for EQA.

Collier agreed with committee chair Robert Halfon that it is “unnecessary” to have so many different bodies doing apprenticeship regulation.

The lack of a single EQA body for apprenticeships has contributed to a “ridiculous variability” in the amount that is charged EQA, according to Tom Bewick, the chief executive of the Federation of Awarding Bodies, which represents EPAOs.

FE Week revealed in February that EPAOs can be charged between nothing and £179 per apprentice for EQA.

When shown this analysis, Graham Hasting-Evans, group managing director of NOCN, an EPAO, told FE Week he was “very concerned” about the high level of EQA charges, which are “up to 10 per cent of the EPA cost in some cases”.

The IfA’s new EQA framework is due to go live from July 1.