The Struggle for Survival

From Leader Summer Term 2019 issue

As an increasing number of colleges struggle for survival,  Dr Anne Murdoch summarises the government's new support and intervention policy and argues that the focus must shift to funding colleges properly to prevent them getting into difficulties in the first place.
 

Support and intervention are terms that tend to be bandied about but what does this mean for colleges responsible for their own recoveries amid under-funding and complex regulation?

The government published its new policy College Oversight: Support and Intervention in April, suggesting that the purpose of the ‘oversight regime’ is to improve the financial resilience and quality of FE colleges by incentivising and supporting them to recognise issues and take early action, well before they get into serious difficulty. However, what the document doesn’t do is provide any type of assurance to leaders that support will be available even if they have done everything possible to try to prevent weak or declining financial health. And, as reported in the media, one college has gone into Education Administration in 2019 with five others close to this position. 

The policy was published following the implementation of insolvency legislation for colleges. There is now no longer a restructuring budget (this ended 31 March 2019) and exceptional financial support is likely to end. The government wants a preventative approach, that is, governors and leaders to act early, but is doing so without providing any financial support to colleges.  

When a college gets into financial difficulty, the speed at which blame is focused on individual leaders and the public shaming that follows does little to demonstrate support, especially as the ‘way out’ of intervention is usually to merge or change the leader, or both. In addition, colleges that have been or are in intervention (110 at the time of writing this article), cannot be anything other than a systemic problem that the government should be seeking to rectify by dealing with the funding crisis that underpins the current post-16 education and skills system. 

The ‘support’ approach to prevention and then intervention would have had far greater impact on the sector if the government were to acknowledge that funding for FE is inadequate and that the main risk to colleges is the reducing resource for learners at all levels.

The four stages

A summary of the main points of the ‘college oversight’ policy comprises four stages:

Stage 1 Prevention

This encourages leaders to contact the Education and Skills Funding Agency (ESFA) early on when financial difficulties arise, and means that ‘support’ available is to help identify risks before they become problems. Prevention requires an ever-vigilant approach by leaders and if prevention of intervention is not possible, then the FE Commissioner reviews will involve diagnostic or intervention assessment, commissioner-led structure and appraisals, or local provision review.

At this stage, governors are responsible for a college’s viability and quality performance. The ESFA may request data from colleges and meetings with leaders, but the involvement of the FE Commissioner and the diagnostic assessment that this involves is voluntary.

Stage 2 Early Intervention

If prevention is not possible, triggers for early intervention will be evident. Such triggers for early intervention are weak or declining financial health, cash or cash flow problems and other financial concerns, an inspection grade of ‘Requires Improvement’ or apprenticeship grade 4 (achieved twice in succession) and weak education performance. The main feature of a college at the early intervention stage is that it has weak or significantly declining finances.

New triggers for early and formal intervention include greater financial concerns, low inspection grades and weak performance. The ESFA may request a recovery plan, undertake a review of progress and require increased skills among governors, and the FE Commissioner may carry out a diagnostic assessment. An Independent Business Review at the early stage of intervention is voluntary.

Stage 3 Formal Intervention

At this stage, there is strong and formal intervention for colleges that cannot improve. The FE Commissioner is likely to undertake a Structure and Prospects Appraisal, a Local Provision Review and an Independent Business Review. The college would be supervised by the ESFA and merger partners will be sought if this hasn’t already been instigated during early intervention.

Formal intervention triggers include inadequate financial health, cash concerns, audit issues, poor financial practices, non-compliance in subcontracting, late accounts and adverse diagnostic assessment.

The ESFA will no longer offer financial support, although emergency funds may be on offer, subject to conditions yet to be clarified, but possibly subject to agreement to merge, change leaders, increase governor skills, undertake an Independent Business Review or all of these. 

Stage 4 Restructure and exit

Here, FE Commissioner tools for finding a structural solution are engaged. There will be an up-to-date diagnostic assessment led by the FE Commissioner, if this is not already in place, and a new principal is likely to be appointed. There will be a Commissioner-led Structure and Prospects Appraisal and stakeholders such as local authorities, LEPs, banks, if relevant, and the Office for Students, are likely to be informed of a college’s situation. 

Should a college reach this stage in intervention, it is now unlikely to be heading for release, even though, in the past, a few colleges have come back when exceptional funds or land sale receipts have become available. For those colleges where merger is still possible, there may be a way out, but, if not, the outcome is likely to be insolvency.

The hard facts

There are 253 colleges in the UK (https://tinyurl.com/yxgerczq). By 2017/18, the ESFA had placed 110 colleges in early intervention and, by the end of that year, 40 colleges had left intervention, the others having merged or still be working through their problems. Ten colleges have been placed in intervention so far in 2019 – most because of financial concerns and one because of weak quality. This number of colleges in difficulty can only be described as shameful – a systemic rather than an individual failure.

Recently, the ESFA published the names of 34 college receiving exceptional support up to July  2018, both as loans and grants.  While the total support provided  was £270.5 million, £116.7 million  of that was support in grants and loans. In a time when post-16 funding is significantly challenged, turning around a weak financial situation is a major achievement. However, when financial support is only available in ‘exceptional circumstances’, the outcome for colleges under the government’s new policy may be very different in the future.

Colleges in weak and declining financial health will now need to get to grips with and have difficult conversations about the landscape that faces them, without exceptional financial support. Formal intervention and insolvency are both potential and real outcomes for those that cannot escape intervention. ‘College oversight’ is a new era for FE but there is, arguably, no reason to be satisfied when many colleges will undoubtedly struggle to survive.

If you are an ASCL FE member and you have concerns about any aspect of the support and intervention regime, please contact the ASCL Hotline on 0116 299 1122 for advice as soon as possible.

Colleges in weak and declining financial health will now need to get to grips with and have difficult conversations about the landscape which faces them…


Dr Anne Murdoch OBE
ASCL FE
@ASCL_UK

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