Balancing the books

29th October 2004 at 01:00
November is the time of year when education ministers and Learning and Skills Council chiefs look ahead. The start of the Parliamentary year, the annual grant letter from the Secretary of State to the LSC and the Association of Colleges conference all mark the start of something new.

Autumn is the time when summer promises are converted into costed initiatives and annual budgets.

This November, there will be some new twists to a familiar cycle. Next year's general election overshadows the timetable. Elections force politicians to weigh every promise they make very carefully and induce a certain caution about short-term change. At the same time, the process of producing a manifesto creates an appetite for doing something different.

For colleges, the election makes change more difficult in 2005-6 but more likely in 2006-7.

This is the context in which the Government's FE review will be launched.

Ministers are due to announce the terms of the reference and chair of the review in the coming weeks. However, the details are less important than the process. The existence of a review makes it possible to ask more fundamental questions about the learning and skills sector. Even if, in the end, the exercise produces no change, it might help clear the air and make the choices for government and colleges more explicit.

Finally, this November sees a major new initiative from the LSC. At some point during the month, the council will issue a national statement of priorities for 2005-6. This is part of an attempt to make planning run more effectively. It assumes new significance because of the LSC's budget position. The 2004-5 budget was balanced late and with difficulty. Without a cash injection from the Government and delays in payments to colleges, the budget could not have been balanced at all. It will be even harder in 2005-6. The targets keep getting higher, which makes the budget choices tougher. A resolution may require sizeable cuts in LSC spending on certain activities.

Adult learning and skills look most at risk. These plans and events put the LSC funding system in play. Mark Haysom, chief executive of the LSC, stated this in a letter he wrote in August. In this he acknowledged that some principals had called for a root-and-branch review of the funding systems and stated that the LSC would respond. It is tempting to dismiss this latest exercise on the grounds that it's been tried before - there have been five fundamental reviews of college funding in the last 15 years. But cynicism is misplaced. It's wrong to miss an opportunity to ask what the LSC funding system is for and whether it can be improved.

The central problem with the current system is that it is mind-numbingly complex. Hundreds of pages of guidance about the funding, audit and data collection rules need to be absorbed. Systems need to be created to collect and check the data. Software needs to be configured to deal with daily changes to a learning aims database, which contains a price list for tens of thousands of qualifications. Staff need to be drilled to do the right thing when interacting with students. You don't have to be mad to specialise in this sort of work, but it probably helps.

The complexity creates unpredictable risks for the LSC and colleges in an attempt to deliver fairness and responsiveness. But simplification is not an easy solution. The LSC's role in its own funding system is so all-encompassing that any change is difficult. The LSC sets the prices and the targets for colleges on a top-down basis. LSC rules limit the scope for colleges to deviate from a particular way of doing things. LSC planning powers create barriers to exit. It is difficult for colleges to close uneconomic courses. Most subsist on low margins. Each year, a sizeable minority of colleges gets into financial difficulty. Even the best managers find it hard to overcome the combined impact of low prices, unpredictable enrolments and complex rules. This, in turn, forces the LSC to intervene to protect the learners in the area.

It is possible that the current funding system is so complex because too much is expected of it. The Further Education Funding Council invented the system to be the machine to implement its policy because it didn't have the staff, the legal powers or the inclination to do much more. FEFC funding used the system to implement a variety of policy steers as well as to pay colleges for eligible costs. The LSC inherited a working machine from the FEFC but, over the 10 years since 1994, numerous levers have been added to enforce hundreds of policies. These were formulated in response to events.

The frustration at the centre is that the levers don't always work.

The trouble for colleges is that the system negates effective local decision-making. The key to moving forward is to work out how to make the system simpler and more effective. The prize is less intervention from the centre and less waste.

Julian Gravatt is director of funding and development of the Association of Colleges

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