Stop depleting your cash reserves, Legrave tells colleges

FE Commissioner also calls on leaders to better understand severance payment rules

FE Commissioner also calls on leaders to better understand severance payment rules

The FE commissioner has urged colleges to stop running their cash reserves down “too fast”.

Shelagh Legrave spoke to FE Week about the key trends her team found when investigating the reasons behind the latest batch of government financial notices to improve.

Rising costs have had an impact, as have restrictions imposed on the FE sector from reclassification to the public sector, namely the ban on revolving credit facilities. But the main cause leading to intervention is cash flow pressures caused by poor strategies.

Legrave said: “The key reason is a lack of focus on cash. Colleges have run their reserves down too fast and then something unexpected happens and they don’t have a contingency.”

She pointed out it’s also not only small colleges working on the tightest margins that are running into trouble.

Warwickshire College Group (WCG) with a turnover of £50 million was hit with a notice to improve this year due to “serious cash flow pressures”.

The FE Commissioner’s team will publish their report after investigating the reasons for WCG’s issues in the coming months. Legrave said the college’s financial strategy was “interesting” and “wouldn’t be one that I would have followed”.

Revolving credit ban

She also told FE Week that one of the biggest challenges she sees is capital cash, and restrictions on using a revolving credit facility from a bank has “really hurt colleges”.

Legrave said the Department for Education had “done its best” by introducing the college capital loans scheme to fill this gap, but admitted this is not a “proper lending facility”.

The FE Commissioner acknowledged a lack of pay settlement for FE was also an issue as there is a “necessity” to pay certain teachers “a lot of money” in skills shortage areas.

“Very high” agency costs are a related problem. She said: “They [leaders] can’t persuade the individuals to come on to the books of the college, but at the same time, it’s costing them an enormous amount.”

Legrave said her message to colleges seeking avoid financial intervention would be: “Try to ensure you have a reservoir of cash that you won’t go below. Also ensure that you are very clear on your financial strategy. If you combine both of those you should be OK. If you’re really worried about it, please ask for help early.”

Severance pitfalls

The commissioner also called colleges out for falling foul of severance agreement rules, imposed as a result of the 2022 public sector reclassification.

Approvals must now be sought for severance payments of £50,000 or more, where they are equal to three months’ salary or more, an exit package of £100,000 or more, or where the employee earns over £150,000.

FE Week reported earlier this year on how waiting times for approvals from the Treasury were taking months longer than expected.

Legrave suggested that some colleges are confused about when to apply for severance approval and have run into trouble with the government.

She said: “If the severance payment is over and above three months’ salary, then you have to get Treasury clearance for it.

“I know as a previous principal that you have tricky cases occasionally, and it could be somebody, let’s say a teaching assistant who is earning quite a small amount of money. So if you multiply three months, even if it isn’t a huge amount of money, you still need to get approval.

“It’s just understanding the rules. Where some colleges have fallen foul, they didn’t read the financial handbook and realise that they needed approval before they did it. Lack of knowledge isn’t a defence.”

Latest education roles from

Principal (Harrow College) – HRUC

Principal (Harrow College) – HRUC

FEA

Deputy Director of Apprenticeships

Deputy Director of Apprenticeships

Manchester Metropolitan University

Independent Non- Executive Director (INED)

Independent Non- Executive Director (INED)

League Football Education

Initial Teacher Training Programme Lead

Initial Teacher Training Programme Lead

Scarborough Sixth Form College

Sponsored posts

Sponsored post

Supporting the UK’s Transport Decarbonisation Plan Through Skills

The UK Government’s Decarbonising Transport: A Better, Greener Britain strategy sets a legally binding path towards a net-zero transport...

Advertorial
Sponsored post

Project power: ASDAN expands its qualifications portfolio

From 2026, ASDAN’s planned Foundation and Higher Project Qualifications will sit alongside its Extended Project Qualification[CM1] , creating a complete...

Advertorial
ATAs

Spotlight on excellence: Nominations now open for the Apprenticeship & Training Awards 2026

Nominations are open for the 2026 Apprenticeship & Training Awards, celebrating outstanding employers and providers with national recognition, a...

FE Week Reporter
Sponsored post

Funding Adult Green Skills

New sources of funding are available to finance the delivery of green skills to all learners. Government policy is...

Tyler Palmer

More from this theme

Colleges

Governors Havant a clue about college’s finances going South

FE Commissioner reveals financial crisis at Hampshire college came 'out of the blue' for board members

Billy Camden
Colleges

Principals scratch their heads over new improvement teams

FE leaders warn Labour’s regional improvement teams risk duplicating oversight already performed by the FE Commissioner

Josh Mellor
Colleges

Weston freed of ‘traumatic’ NTI – but finance probe continues

College out of intervention after strengthening governance procedures

Anviksha Patel
Colleges, Skills reform

Skills England urged to confront government on FE funding

Joint AoC and UUK report also calls for 'excessive' competition to be challenged

Josh Mellor

Your thoughts

Leave a Reply

Your email address will not be published. Required fields are marked *