Download AoC North West CFDG meeting 10 Oct 2014 Julian Gravatt (PPT

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North West Finance Director’s Group
Politics, funding, pensions and finance update
10 October 2014
Julian Gravatt, Assistant Chief Executive, AoC
Julian_Gravatt@aoc.co.uk
@JulianGravatt
http://www.aoc.co.uk/term/funding-finance
Funding timetable
Autumn 2014
Party conferences, 21 September to 8 October 2014
EFA Funding Letter, October 2014 (hopefully)
AoC annual conference, 18 to 20 November 2014
Autumn statement, 4 December 2014
Skills Funding Statement, December 2014 (hopefully)
Spring & Summer 2015
Budget, mid March 2015
2014-15 allocations, by end of March 2015
Easter, 7 April 2015
General election, 7 May 2015
College finance conference, late May/early June 2015
Spending review, June to October 2015 (hopefully)
Politics and funding
Before the election
2015 election and shape of further govt uncertain
Decisions on 2015-16 allocations made before the election
Departmental budgets fixed up 31 March 2016
Autumn statement may add or remove money
“Devo Mancs” and “Northern Powerhouse”
After the election
Post-election 2015 spending review (budgets from 2016-17 onwards)
Demography: More children now + more old people = post-16 squeeze
Cross-party agreement: closing deficit, cutting taxes & protecting NHS
Spending likely to dip around 2018
The bigger spending picture
800
Government plans
Big ticket spending rises
Pensions, interest, NHS etc
Deficit reduction via RDEL cuts
700
600
500
Unprotected departments
9.1% of GDP (2013-14)
7.8% of GDP (2015-16)
5.4% of GDP (2018-19)
Spending cuts c30-40% to come
Loans may be a safe haven
Taxes
400
PSCE
RAME
RDEL
300
Deficit
200
100
0
-100
x
The DFE budget after 2015
DFE’s cash crunch: too many schools, pupils & promises
2015 to 2020: 11-16 pupils +10%, 16-18s population -8%
Pressure for devolution (councils, combined authorities or LEPs?)
Core 16-18 funding system continues until a new one is in place
EFA 16-18 funding, 2015-16
Process
16-18 funding letter due shortly
Same systems (rates * lagged numbers * historic funding factors)
ILR data vital (R15 in October, R04 in December)
EFA will confirm allocations by March 2015
Issues
EFA needs to fund costs of study programmes (more FT students)
If cuts are necessary, EFA has to cut rates, numbers or weightings
New A-levels, new Tech Levels in 2015-16
Various implementation issues (GCSE Maths/English, free meals, large
programmes, sub-contracting etc)
BIS budget
BIS budget in 2015-16
£14 bil Student Loans
£13 bil DEL
HEFCE + Grants + Science
£8 bil
19+ FE/Skills budget
£3.5 bil
Various contradictory options are in play
1: Devolve skills & DWP budgets to local govt or LEPs
2: Employer-routed funding for apprenticeships3
3: Expansion of FE loans to 19 year olds & Level 2
4: New earn-or-train options for under 21s on benefit
5: New SFA funding approach
SFA funding, 2015-16
Process
Skills funding statement due in December 2014
SFA decisions needed on 2013-14 reconciliation & 2014-15 requests
Devolution may start to apply (councils or LEPs)
Core SFA funding system continues until a new one is in place
Issues
BIS may need further cuts to SFA and/or HEFCE budget in 2015-16
Apprenticeships continue to be the first priority
Trailblazers will be in their second year (well-funded in 2014-15)
Traineeship funding approach may be revised
Various implementation issues (ESOL, online learning, 24+ loans)
Pensions and budgets
Cost of employing a teacher to rise by 5% plus any payrise
Now
By 2016
TPS employer
14.1%
16.48%
NI employer (approx)
10.4%
13.8%
Employer on-costs
26%
33%
Staff cost ratio
63%
?
Now
By 2016
TPS members (avg)
9.6%
9.6%
NI employee (approx)
10.6%
12%
TPS
15 year recovery period
Lower discount rate
High pay growth assumption
2015 reforms don’t save enough
Costs Colleges 1% of income
National insurance
DWP simplifying state pension
Removal of an NI relief
£5 bil extra NI
Costs Colleges 2% of income
Pension income and pension tax
Tax limits on saving
Annual (AA) £40k
Lifetime (LTA) £1.25mil
16* salary in DB scheme
Pension reforms now
Tax relief could change
TPS or
LGPS
Individuals
State
pension
State pension
SPA rises to 67 by 2028
New state pension in 2016
No contracting out = higher NI
New public sector schemes
Career average entitlement
New accrual & indexation
Post-reform service link to SPA
Pre-reform service protection
New cost-sharing arrangements
Limited college choice
Financial health
College finances
Deficits in 2012-13 (48% operating deficits, 10% cash based deficit
Ofsted-related spending + capital projects = short-term deterioration
Staff costs 60-65% of income
Rising costs & falling income
How Colleges need to respond
Understand your position, your environment and your risks
Relationships with SFA, EFA, Council, MP and your bank
Cashflow management, risk management & financial analysis
Governing bodies responsible for solvency & viability of college
Use AoC’s ETF-funded governance support programme
Think about opportunities and what comes next
On a more positive note...
Opportunities
Colleges have friends and allies
Education and skills matter both to the recovery & to society
Government will still be spending £70+ billion on education in 2020
Income generation opportunities exist
Quality counts
Productivity improvements from IT only partly realised in education
There are some relatively simple things that can still be done
Two reminders
AoC Winter Finance Conference, 9 December
http://www.aoc.co.uk/events/aoc-winter-finance-conference-leeds
Information on funding, accounting, CFDG etc
http://www.aoc.co.uk/term/funding-finance
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