There has been much debate in the education press about the implications for further education colleges of the new powers they have under the Education Act 2011 which came into force on 1 April 2012. Indeed those new powers have been described as, effectively, the privatisation of FE colleges. Is that the case?
Under the Act colleges are now able to:
1. amend their instrument and articles of government (ie their constitution). Thus colleges can adopt a governance structure and constitution specifically tailored to its needs (eg colleges could introduce the Carver model); and
2. colleges can convert to a different legal form such as a company limited by guarantee or shares.
Neither of those events now require the consent of either the Secretary of State or the SFA. However since the SFA will still have a financial memorandum with a college determining the basis on which public funding is provided to a college the SFA will still be able to exercise a significant degree of control over a college.
In addition the Secretary of State has retained his powers, in extremis (eg a financially failing college) to intervene and wind up that college.
However it is true that FE colleges now have powers in excess of those of higher education corporations so that FE colleges are able to operate with a degree of freedom unknown in the HE sector.
It could be a key driver for significant organisational and managerial change in the FE sector”
Changes to the constitution
We believe that a large number of colleges will use their powers to amend their constitution to the needs of that institution.
We might see the emergence of different governance models, less nominated members and perhaps smaller governing bodies.
Colleges will update their constitution to permit them to use electronic communications, internet and extranet sites which the current constitution does not allow.
In addition actions between meetings (for example chair’s action) may become commonplace.
Whilst this may be a general interest to the private sector it is unlikely to create many opportunities for them.
Conversion
It is in the area of conversion from an FEC to a company that we may see the development of new models of interest to the private as well as public sectors. The Act allows an FEC only to convert to a charitable company.
It is possible for a charity to be part of a for profit group or in the future to give up its charitable status. However the tax benefits that colleges get by being charities (particularly business rates relief) means it is unlikely that many colleges will wish to give up charitable status even if they could.
The creation of a company will allow the development of groups. It may be possible, for example, for a college company to be the parent company in a group. That parent might, eg, act as a hub for a federation of other colleges and also higher education and schools companies.
In this way the parent company would set the policy and strategy for the group whilst the operational matters around colleges could be run at a subsidiary level.
In addition it will be possible for that parent company to run for profit subsidiaries either itself or in joint venture with the private sector.
The ability to attract private sector capital and/or to float that subsidiary may prove to be attractive ways of helping a college to realise its mission.
Such a group could also form a cost sharing group and take advantage of the new VAT rules to be introduced in the Finance Act 2012.
Such structures could also be used as a vehicle for the creation of employee ownership, social enterprises and mutuals.
No doubt there are many other opportunities available.
Thus it is unlikely that the Act will turn out to be a damp squib; in fact we believe it could be a key driver for significant organisational and managerial change in the FE sector whilst also allowing the public sector to partner with the private sector in more effective ways than it has been able to do so to date.
Glynne Stanfield is a partner within Eversheds LLP’s education team
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