Green shoots...?

I know unemployment is a lagging indicator, but I think we're bouncing about at the bottom of this recession rather than out of the woods yet.



It will only take one nasty surprise (sovereign default in Eastern Europe, another dodgy bank or hedge fund...) and in my view we will have another lurch downwards, given confidence is fragile at best.


Interesting FT headline today:

"Rise in UK unemployment eases"

"The number of people unemployed in the UK rose by 232,000 to 2.26m in the three months to April, up to 7.2 per cent, after a slight moderation in the rate of increase boosted hopes the rate of deterioration in the labour market is slowing down"

When the best part of a quarter of a million people (the population of a city the size of Derby) have lost their jobs in the last three months, there's not much to cheer about. The "run rate" of unemployment is now almost 1 million per annum and I'm concerned about the social and public order implications.

Next Steps

Julian Gravatt

National politics
General election, change of govt, education less important to voters than in 1997, squeeze on public spending

2009 budget
Tax income lowest since 1960s, deficit wont close until 2017, public spending growth 0.7% (if GDP back to 3% by 2011 otherwise lower). Public capital spending to be cut by 50% by 2014 (Crossrail, Olympics)

Budgeting for next year 2010/11
efficiency gains, up to 6% in Adult budget, 1% 16-18.
Post election budget 2011/12 likely to be very difficult academic year.

LSC funding 2009/10
Problems in unexpected places (T2G, extra unemployed)

Aggregate deficit predicted for colleges in 08/09 (capital write-offs)

Capital funding
Many of 200 the 200 colleges with projects will have to wait, AoC estimates sunk costs of £220m, new prioritisation process in Autumn 2009. Not clear how 16-19 will work. DIUS/DCSF capital budgets empty until 2011, few new projects after this round. Need to rely on own resources and alternative funding sources.

College expenditure:
New pressure on efficiency. Pay, pensions, productivity, procurement. End of LSC means colleges will have to take more control of own finances.

Reasons to be cheerful:
College sector reputation never been higher, political support is strong
Financial leadership and management never been more important
Denham - we will never let any college go bust (20 May 09)

Revenue Funding

Geoff Daniels, LSC Director Funding & Strategic Analysis

16-18

Additional funding for 17,500 16-18 apprentices and 54,500 FE learners
Demographics - cohort declines by 33,000 in 09/10 and further 44,000 in 10/11, doesn't bottom out till around 2018.
Final allocations to be issued June 5th.
2010/11 1% efficiency gain as yet unspecified

Adult
Allocations issued 7 April, overall 2% reduction (wide range of outcomes for individual providers), focus on priority delivery
Mid year reconciliation: growth £5m, clawback £12m, moderation - floor on reductions. Guidance changed to 5% over and under, growth capped at 110% (priority provision), clawback capped at 85%.

Response to downturn:
T2g/ESF response to redundancy, 6 month offer (FE only), 12 month + programme TBD

Employer Responsive
Management of demand is key issue (T2G), 08/09 budget increased, so 09/10 budget is lower than 08/09 i.e. brought forward within fiscal year (may still change) .
10/11 £340m efficiency saving needed across FE and skills sectors.

Samsung NC10

Just spotted David Collins (AoC President) using a Samsung NC10 netbook, he's a big fan.

Surviving the downturn...

....preparing the board for losses.

Anne-Marie Etan, Deputy Principal, Finance and Resources, Southwark College.

Southwark facing significant ALR clawback. Lots of FDs only been around for the "good times".

Unknown unknowns (Donald Rumsfeld) - we don't have crystal balls, but...

Known Challenges:
reduction in ALR (Southwark removed nearly all of developmental learning, reduced learners, led to clawback)
pressure on 16-18, funding to LAs
raising participation age
diplomas
academy and presumption school 6th forms
demography
capital projects

T2G (Southwark achieved cash target by April, 20 partner consortium)

Known unknowns
change of government
self regulation
recession (effect on ER)
globalisation
technology impact on delivery

Unknown unknowns
?

Survival kit

• manage risk & uncertainty - how have risks changed, impact on business plans, financial forecasting and scenario planning, more ad hoc consideration of risk management
  
• business planning and budgeting - be part of curriculum planning, income maximisation (course delivery hours), assess course viability (course viability report), staff utilisation, link to budgeting, contingency planning (build in central delivery contingency)
  
• review structure and cost base (strict staff costs as % income target, restructuring, efficiency savings, benchmarking)
  
• maximise funding
  
• cash management
• diversify income
  

Ideas

Department mgrs to send risk log ahead of RiskMgt Group
Flex divisional budgets after enrolment
Contingency withheld from divisions to avoid spending too fast
LSC contract benchmarking
Revise financial strategy to set income diversity targets

Preparing the board...

Speak to Chair, early warning, information, offer options, recovery plan

Adult and Employer Funding

Nick Linford, Director of Planning, Lewisham College

19+ learner responsive (ALR)

National rate +1.5%
Fee element 47.5% (was 42.5%)
Skills Accounts pilot
Pre L2 flexibilities (FLT/SfL/Developmental) - can deliver more or less than indicative figures allocated (Statement of Priorities) - but still must meet targets (?)

Overall funding desrease by 2%
Learner numbers down 10% (developmental learning down 51%)

Employer Responsive

Apprenticeships, T2G
These are considered flagship programmes, will continue to grow
Apprenticeships preferred route for 18-24s in employment

T2G L2 is fully funded, unlike 19+ apprenticeships (expectation they are co-funded by employer)
T2G rate is now 6% higher than 19+ appr.

Overall funding: Appr +9%, T2G +16%
Learners: Appr +5%, T2G +5%

Funding formula

ALR
(SLN*NFR*PF)+ALS (as current year)

T2G:
SLN*NFR*Programme weighting*Area cost uplift
Some programme weightings are changing in 09/10
Area cost uplift based on delivery postcode (not college)

Appr:
SLN*NFR*Prog weighting*Disadvantage uplift*Area cost uplift
Disadv uplift based on student's home postcode

Fee element

Funding deducted based on an assumed fee
Risen from 25% in 04/05, to reach 50% in 10/11
Applied to unweighted NFR
Lewsiham have retained loadbanding for calculating fee to give simplicity for learners

Note ALR fee element is unweighted, ER is fully weighted:
e.g. LR = 2817*47.5% = 1338
T2G L3 = 0.644*2987*1.2*1.12*47.5% = 1228 (if no remission)

LR co-funded rate: NFR-(NFR*47.5%)/PF) (so that can be calculated using standard formula)

T2G Instalments

[Planning internally increasingly important to provide profile of payments anticipated]

08/09 under 3 methodologies:
Carry in NVQs (FE)
Carry in T2G (50:50)
New start T2G (75:25)

Remaining carry in can be calculated using the PFR spreadsheet data.

NL monitors carry in (focus on completion) separately from new starts (sales focus)

New starts now require careful approach to monthly instalment profiling. If starts are earlier, get more in current year. LSC appreciate good modelling, it can affect allocations positively and justif maintaining max contract values. Need to put college in strongest possible bargaining postition as T2G finding is now scarce resource.

09/10 single rate for L2 (all higher rate, but prog weight may change, overall likely to be favourable).

New support for employed & unemployed

T2G flexibilities (trouble ahead, funding now stretched, much of 09/10 funding may go on achievement of 08/09 starts, some flexibilities already withdrawn, critical not to be over-reliant on T2G)
T2G QCF units
ALR QCF unit trials (restricted to sectors, awarding bodies, 434 eligible units on LSC website)

Skills for jobs (pre-employability, up to £1500 per learner, £750 start, £350 if job in 6 weeks, £350 if still in job after 13 weeks, then can progress to T2G, links with JCP and employers critical)
6 month offer (unemployed more than 6 months, only FE colleges with ALR and ER funding, up to £1500 per learner, of which £300 for progression into work/training)
Response to Redundancy (ESF/LSC, funded like 6mth offer, includes at risk of reducndancy)

David Smith

Economics Editor, The Sunday Times

Fascinating times economically and politically (lowest interest rates for over 300 years, first Speaker to resigning for over 300 years). Instability.

"A nasty hangover" after exuberance of the "nice" years.

2004-2007 strongest 4 year global GDP growth since early 70s.
UK 63 consecutive quarters of economic growth (but stable growth rather than a boom).
Brief rise and fall of sub-prime lending since 2000, problem was the securitisation and derivatives that magnified the default risk.
Leveraged buy-out (private equity) boom in 2007

All led to biggest financial storm in a century (events of Autumn 2008, Lehman trigger), crisis building for a year, lost confidence in counterparties.
Commercial paper spread chart, like a heart monitor for economy, spike in Autumn 08.
US house prices still sliding (this was where it started); for resolution need stability so that "toxic" debt an be properly priced by the market.
Oil price has returned to earth as have other commodities (last revenge of the markets)

World economy unusual position, first simultaneous advanced country recession since WW2.
European industry hit hard, and very quickly after financial market meltdown.

Where are the green shoots? Media looking for them now, bored with doom and gloom stories.
Equities bounced a little, now priced for a recession (rather than depression).
China's stimulus package seems to be working (sharp growth in bank lending)
3 month Libor spread is easing (but still much higher than normal)

UK Bank bailouts, initially BoE reluctant and acted slowly at first, then accelerated with dramatic reduction base rates and QE. Will take a lot of unwinding.
Are UK house prices still overvalued? Possibly, but market may be stabilising.

QE - hasn't yet fed through into lending growth, risk for inflation not yet apparent. Loss of lending capacity constraining recovery. Suppressed demand exists for residential and commercial lending.
Purchasing manager surveys improving, but still below critical 50 mark. e.g. Honda starting up production again.

IMF says global growth will return in 2010 and then recover in 2011, aligns with predictions for UK (NIESR).
Unemployment is lagging indicator and will increase for some time.

Inflation risk? Recessions usually destroy inflation and it takes some time to recover.

(Govt) Debt legacy? Moore concerning, overhang until possibly 2030s to get back to 40% GDP ceiling. Tight squeeze on public sector spending, feast to famine, new govt may go even tighter.
All govts respond to fiscal squeeze by slashing capital spending.

Time is great healer, domino effect of sovereign debt reduced.
Recoveries happen.
Oil and commodities price falls is equivalent to tax cut.
Fingers crossed.

"Skip index" - currently one in DS's street, keep counting them!

Financial Challenges

Paul McGuire, National LSC Finance Director

Objective: to maintain sector financial health whilst challenges increase

Financial Health: new methodology - Outstanding 144 colleges, Good 101, Inadequate 17
Relatively stable over recent years, but forecast to decline.

Challenges:
Allocations 09/10
Capital
Efficiency savings
MoG/LSC transfer
Economic downturn

Way forward:
LSC to work more closely with AoC, CFDG
Finance as strategic support not just operational, across the sector

David Collins - does having an AiP mean a college has a legal claim against the LSC? PMcG - not appropriate to answer, bridges away from question, he's been media trained...

ALR - ER virement seems to make sense but would require safeguards re basic skills, supported learning etc.

Costa del Hinckley

Picture of me with a palm tree growing out of my head. As you can see I'm really on the Cote d'Azur rather than in the East Midlands. Fountain behind me is more impressive than it looks in the picture, honest.
Wanted to redress the balance from my previous photo, but gosh, don't those webcams make one look fat....

Funding & Regulation after 2010

Julian Gravatt, AoC Assistant CEO.

Context:

DIUS/DSCF split June 2007
Raising Expectations March 2008
ASCL Bill expected November 2009
LSC staff allocated to new jobs November 2009:
950 to LAs
500 to YPLA
1800 to SFA (of which 400 to NAS)

16-18 via LAs, regulate 6th form colleges
Regional and Sub-regional groupings
SFA for Adult funding, regulates FE colleges

London sub-regional covers all 32 boroughs, in some other regions it is the County Council.

Party politics could get in the way (central vs local govt)

YPLA runs national formula - 168 LAs (many Conservative-controlled) and 43 sub regional groupings
Emphasis on increasing numbers of 16/17 year olds in education and training, no increase in funding per student, implies SLN per learner ratio will have to decrease (more for less).

How will allocations be determined on a timely basis? "it's going to be a complete mess".

Several major uncertainties re national/local planning, how funding will follow learners, whether there is scope for local funding variations vs national formula, tension between education and training (apprenticeships).

SFA under pressure to simplify system, support industrial policy (skills activism), emphasis on job outcomes. Simpler formula, complex ends, less money.

Funding formula possibilities:
Convergence of 16-18 with pre-16 funding? - lower programme weighting, higher disadvantage weighting, more prescriptive SLN ratios?
19+ - simpler, more funding on outcomes

Regulation:

Quality Ofsted (well respected) and FfE (not applicable to schools yet) plus other quality marks and standards

Financial GFE and SFC will have different rules.
SFA and YPLA will be charitable regulators of colleges.
Since incorporation, raft of tight national rules for colleges. How much of this will endure or be in conflict with LA rules?
AoC are pushing for a slimline national framework

Legal Corporations with charitable status, 2006 Charities Act, may be more litigation to protect funding if disputes with LAs. "My word is my bond" - lessons from capital debacle.

Problems:

Students from non-home LAs (big issue for London colleges)
SFA regulator for GFEs, but in may cases accounts for a low % of income
Who is the lender of last resort in the new funding landscape?

Immediate challenges:

Working out 2009/10 rules
20010/11 allocations at a time of economic and political change
Ensuring college focuses on core tasks

Panic over....

The trouble with those nylon backpacks they give out at conferences is that they all look the same. I had picked up the wrong one, in the process leaving behind my copy of "Le Gone du Chaaba" which is the set text for my A Level French exam on Thursday and which I am struggling through for the second time.

Just found it again and settling down for the first afternoon session.

Room with a view...?

As a no doubt welcome break from the detail of the previous posts, I thought you might enjoy this picture taken from my bedroom window here at the cunningly named Hinckley Island Hotel (yes, it's at a motorway junction and it's close to somewhere called Hinckley).

I appear to have been housed in what can only be described as a ditch, still it's nice for a London boy like me to see a bit of grass...

To avoid any reputational damage to the hotel, I would point out that the room is very nice, I even have a sofa and a huge desk, and the organisation of the conference has been very good.

Small changes, big savings

Seminar session on procurement.

Postage: 2nd class rather than 1st class significant savings for non-essential mail, use smaller envelopes to take advantage of differential postage prices. Send texts to students instead of routine mail, can automate and save time cost as well as stationery and postage

Thomas Rotherham College - energy efficiency measures (some of which EHWLC are already doing):

T5 and LED lighting
PIR sensors for lighting
Voltage optimisers
Secondary double glazing for listed buildings
Timer switches on vending machines (I particularly like this one)
Thin client PCs (MK will have a view)


Peterborough College - centrally-forced IT shutdown after 9:30pm, estimated saving £6k pa electricity

CONWEL - waste disposal: leased compactors to reduce volume of waste, saved net £5k pa

Leicester College - procurement cards, took cautious approach because of control concerns, borrowed procedures from reference site. Initial limit £300 per transaction, limited suppliers, piloted "friendly" cost centres. Now over 130 cards, usually technicians and administrators. Big change programme, some resistance, big emphasis on training one to one. Majority of transactions now on P cards. Real saving is time and effort in cost centres, redirect Purchase Ledger to other higher value added activities. Next steps to concentrate on areas with low P card use. Differential transaction limits for cost centres according to need.

Preston College - collaboration to aggregate a 200 PC order with other local colleges, combined demand over 1200 PCs led to a total £121k saving, plus improved specs.

West Notts College - vending machine contract costly and inefficient, changed model so that provider would not charge college, in provider's interest to keep machines new, full and clean etc. Saving £250k since 2005 including income benefits.

Stafford College - reverse e-auction for computer contract, saving £100K (22%) over 4 years.

Lambeth College - e-auction saved 40% on furniture for new build

Westminster Kingsway College - set up procurement team using e-procurement system (Sprinter Purchasing Manager from Bottom Line) with workflow plus outsourced invoice scanning system plus invoice data capture direct into accounts package. Automates invoice/PO matching for approval and payment, encourages staff to use the system. Need to make the right thing the easiest to do. Effectively created a purchasing team for free as the Purchase Ledger team was redeployed.

Loughborough College - move to plumbed in water coolers (not bottles) saves £14k a year plus environmental benefits. [EHWLC are moving to these]

Walsall College - negotiated with C&G re exam fees by committing to higher volumes in exchange for lower costs.

[Just realised there's a booklet at the back of the room with some of these examples, still, good typing practice for me...]

[I now have a couple of copies of the leaflet, available electronically at www.felp.ac.uk]

Questions to Speakers

1% efficiency saving, how will this affect College's financial forecasts? Not yet clear how this will be applied. HE chose to do it by reducing numbers, FE should be "more for less approach" involving procurement, shared services. (RW)

Will DIUS merge/get taken over by BERR? Conversation appears to be happening in Whitehall, don't feel new change coming, but wouldn't be averse to it. (SP)

What is right of appeal for Colleges to LAs if feel unfairly treated? Initially very complicated proposals, sent back to be simplified. (RW)

Susan Pember

Director, Skills Funding Agency set-up, DIUS


2.8m adults have done skills for life since 2001. Over 3m adults currently in learning. Colleges have exceeded PSA targets, only education sector to do so (echoes Martin Doel comment). Budget was good news, £140m of new money. But efficiency savings needed and built into budget.

Refers again to Mandelson strategic sector concept. Skills activism e.g. North Carolina transformed to high tech, hand in hand with Community Colleges.

MoG/Raising Expectations - "change will benefit learners and employers": this will be the acid test. New landscape to avoid duplication, SFA will be a slimmer body, idea is to build in more autonomy for providers to enhance community role and civic duty. Still a central role for direction, strategy. SFA to be a silent brand for learners, accessed through gateways, e.g. T2G. Colleges, National Apprenticeship service.

Congratulates AoC on influencing role to improve Apprenticeship, Skills, Children and Learning Bill.

Rob Wye

LSC Director for Young People Learning & Skills Group

YPLA system about putting learners first (sounds familiar..?). LAs take lead, to allow integration with other LA responsibilities for young people.

Not back to the future, Colleges as strategic partners not under control of LA. YPLA is a bridge between govt, LAs and providers, needs to be as simple as possible (why do I feel worried?).

Raising participation age challenge, Colleges at the heart of this. Need to be imaginative to reach last 5% or 1% of young people. Recession will affect recruitment, employers less likely to be involved with diplomas, apprenticeships, funding will be tight to deliver guarantee.

Efficiency gains (1% of DCSF budget), regardless of change of govt, funding will be tighter, more for less.

Entitlement to all diploma lines, apprenticeships coming.

LLDD, Young Offenders - how to ensure vulnerable learners are supported through transition.

Priority for transition: soft landing April 2010.

David Collins/David Pullein/Martin Doel

Welcome from AoC President David Collins. Pointed out that 3 of the keynote speakers have the word "challenge" in the title of their presentations.

David Pullein, chair of the College FDs Group - need to consolidate, rationalise, procure better, not a time for aspirational planning. FE sector and FDs are up to the challenge, strength in working together. Future needs to be about learners, shouldn't be turned away because their funding stream has dried up.

Martin Doel, CEO of the AoC - one challenge: continue to deliver successfully for learners, communities and employers.

Sub-challenges:

Financial

- Capital: astounding mismangement, initially 144 college plans on hold, now another 40 at least. Additional budget money partially used on overhang of existing projects. £750m available for next wave, estimated demand is £8bn. Needs-based criteria, ready-to-go projects prioritised. National Council 3rd June, demand from 200 colleges higher than expected, so further delay whilst these are considered and additional value for money criteria applied.

- Revenue: T2G latest (potential) train crash. Demand grew exponentially and not managed. Need to maintain reltionships with employers as we smooth the funding back to affordability. No brainer that funds should be vired between Adult and ER funding pots, particularly given state of economy and local variations in needs.
16-19 funding, growth consolidated, extra money given that more will be staying on.
Efficiency savings - built into budget announcement, addtional challenges at central and provider level. Shared services and procurement will come of age.

Organisational

AoC continue to stress autonomy of colleges, funding following learner, national funding formula. "Duty to Collaborate", IAG effective, non-viable 6th form presumptions ("vanity projects") should not be allowed to proceed.
Working ever more closely with DWP and BERR

Curricula

Diplomas - good/bad, black/white debate, but some lines work well, need to operationalise, more nunaced debate needed.
QCF opens up opportunity for unitised funding.

Musings

There is no FE Sector, but there is a College Sector, deliver public value, need to move closer to community, "of a place" with strategic scale and effect on a community.

Plan led/demand led......Mandelson, which are strategic sectors? How do we anticipate demand, prepare for recovery,

Chaos theory, non linearity, military analogy, need to be more joined up than the "enemy". Competence, capability, agility to respond, scale.

AoC Finance Directors' Conference

Sunny Leicestershire, really sunny, it's going to be around 25C today. Perfect weather for a day out in the country, somewhat less perfect for a conference somewhere close to the junction of the M69 and A5.

It probably sounds like a terribly dull affair, but for us bean counters this is about as good as it gets. Seen some familiar faces already, it's a close knit community and one I'm proud to be part of. Given the issues in the sector at the moment, I expect a good deal of whinging and letting off steam, but as ever I'll be looking out for the silver linings....

I'm hoping to do some live blogging from the conference. Hopefully the wifi will continue to work, usual ruinous hotel price for internet access I'm afraid.

Nearly time for the first session, so I'll sign off now.

Sorry about the design of this blog, I set it up quickly this morning.