Squeezed margins could put more colleges on government notice  

AoC's finance guru explains why cash is up but proportion of healthy EBITDAs is down

AoC's finance guru explains why cash is up but proportion of healthy EBITDAs is down

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The number of colleges requiring government intervention could “rise fast” in the coming years as margins continue to be squeezed, a finance expert has warned. 

FE Week analysis of the Department for Education’s latest accounts database shows that cash balances grew in colleges across the sector in 2022/23, but the proportion with a healthy EBITDA shrunk. 

Cash rose 7 per cent from £1.5 billion at the beginning of the academic year to  
£1.6 billion by 31 July 2023. The proportion of colleges that met the FE Commissioner’s benchmark of 25 or more cash days in hand grew from 94 per cent in 2022 to 96 per cent in 2023. 

Those meeting the FE Commissioner’s benchmark of education-specific EBITDA of 6 per cent or more of total income – the best measurement of a college’s financial performance – fell from 56 per cent in 2022 to 51 per cent in 2023. 

Association of Colleges (AoC) deputy chief executive Julian Gravatt said cash has been going up due to big pots of capital funding from government being handed to colleges in 2022/23 but not yet spent, including advance payments of grants following reclassification. 

colleges
Julian Gravatt

At the same time margins have been getting tighter because of higher staff turnover, an upwards pressure on pay and the three main non-staff cost lines of energy prices, IT infrastructure and exam fees all rising, Gravatt added.   

He said rising inflation, which peaked at 11 per cent in the year to October 2022, coupled with the energy price spike, made colleges “justifiably cautious about setting budgets”. Total energy costs soared almost 50 per cent from £123.6 million across colleges in 2022 to £183.3 million in 2023.   

Andrew Thomas, the Education and Skills Funding Agency’s chief operating officer, told a recent AoC finance directors conference that colleges have got more cash and so their financial health ratings overall were looking “better”, but he warned that their margins were getting tighter.   

There are currently 10 colleges with a financial notice to improve from the government. Gravatt predicts that this number will shoot up over the next couple of years due to the tight margins and running down of the cash that colleges are currently sitting on.   

He warned that colleges are also dealing with a decline in the real-term value of funding, recent falls in student numbers, costs of estate maintenance and upgrades and student cost-of-living issues. 

FE Week’s analysis was based on the DfE’s college accounts spreadsheet for 2022/23 published last month. It includes accounts data for 202 colleges but is missing information for around 20 due to late filing.  

While the database is therefore not a completely full picture of all college finances, it is the best available source for sector-wide financial analysis.

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