Reclassification: An era ends and an unclear future lies ahead

The Office for National Statistics (ONS) decision on the reclassification of 228 colleges from the private sector side of the UK national accounts to the public sector is a ground-shifting one. But what really matters for colleges today is the department for education’s decision to introduce new treasury controls with immediate effect.

As of today, the ONS has decided that further education colleges, sixth form colleges and institutes of adult learning are again public sector organisations. Slightly bizarrely, the change means they have been since 1993 – at least in respect of their books. ONS keep the score in the UK national accounts and will now need to go away to restate 30 years’ worth of data.

In the meantime, in a policy document and a letter to college accounting officers, the DfE is asking college leaders from this week to ask for its permission to carry out transactions in 16 different cases. Some of these are occasional, infrequent areas such as write-offs of larger debts. But one area – control of borrowing – represents a major reversal of government policy on the funding of colleges.

DfE control of borrowing appears to be linked to a wider objective to reduce private debt and replace it with public money. To this end, DfE is reversing the stupid decision made back in 2004 to delay payments to colleges. Instead, they are bringing up to £300 million forward to plug the long-standing gap in March which explained why no FE commissioner team could ever go on holiday at Easter.

The government’s new insight seems to be that banks charge higher interest rates than government can obtain. The question for colleges is whether this policy reversal is accompanied by adequate capital funds for the needs of the future.

Colleges are already working through these new controls at a busy time of year; other parts of self-government remain firmly in place. Colleges were, are and will be self-governing charities with their own governing bodies, budgets and relationships with staff, students and suppliers. They decide which courses to run and they control admissions, albeit within an increasing set of constraints created by government policy.

Like academies, they’ll keep their reserves, their surpluses and be responsible for deficits. Indeed, many of the 16 new controls are copies of those that apply to academies, but colleges will retain full responsibility for capital spending and existing commercial activities.

And although the borrowing pipe is now constrained, they won’t need to ask DfE for permission if they can scrabble enough money from cash, land sales and third-party grants.

But it is a change. And, in the long term, a big one.

This year is the 30^th anniversary of the transfer of colleges out of local government ownership. Incorporation removed colleges from the public sector, created a new category of corporations and a new national infrastructure of funding, inspection and data collection to oversee a new set of self-governing institutions.

The accounting judgement that new colleges were in the private sector was made by the Central Statistical Office and led to a lot of talk about privatisation at the time, but public sector organisations operated in a more fluid environment with less rigid treasury controls. As time has gone by, this has changed and a rigid architecture of financial guidance governs every step taken by public sector accounting officers.

Colleges have been at the receiving end of a lot of these changes and have seen their funding agreement expand from a few lines of do’s and don’ts to 130 pages of instructions. And from now on, they are inside the public sector rather than just beyond the boundary. The most significant decision from ministers today is to show no intention of seeking a reversal.

Today, reclassification mainly affects people in the sector with finance jobs but it ushers in a longer re-positioning of colleges within the education system. The short-term impact is mainly negative and the long-term hard to read.

But the fact that colleges have public sector status now puts them firmly in the frame for reform, either after the next election, or the one after that. In the meantime, the future remains ours to shape.