Reclassification of further education corporations, sixth form colleges into public sector, announces ONS

FE Colleges and sixth forms are redefined as public sector today

Further education corporations, sixth form college corporations and designated institutions in England will all be classified to the central government subsector of the public sector, for National Accounts and other statistical purposes, the Office for National Statistics has announced in its latest monthly classification update.

This is due to several considerations. These include a recent change in international statistical guidance, which now treats the existence of legislation that allows a government to step in to appoint or remove members of a governing board of a further education institution as public sector control of those bodies if the extent of these powers determines corporate policy, even if the powers are not actually exercised. In England, such legislation already existed, allowing the government to intervene in cases of mismanagement, giving powers to step in in a broad range of circumstances. New legislation in the Skills and Post-16 Education Act 2022 has also extended the power to intervene to cases where the education or training provided does not adequately meet local needs.

Taken together, these factors, which apply to all further education providers in England, mean that the whole sector is now considered to be under public sector control.

The impact of this decision on public sector net borrowing is expected to be small, because the majority of the further education sector’s revenue is currently recorded within government expenditure as grants. The impact on the public sector balance sheet, including on public sector net debt, has not yet been assessed.

For more details on our decision, please see our update article here.

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Sector Response

David Hughes, AoC Chief Executive said:

“Colleges work best when they are able to act independently in the interests of the communities they serve. The ONS decision to reclassify should not impact that, but these changes on their own risk making colleges less fleet of foot in meeting the needs of their students, employers and communities.

“The new arrangements borrow from the academies model which was built with schools in mind and is not a good starting point for managing the relationship with colleges which are very different institutions by size, role and character. Colleges are not simply big schools. They are anchor institutions within their localities acting as a conduit between the supply and demand of skills within local labour markets and in doing that they need freedoms to act and invest.

“We pressed officials to use this change as an opportunity to accelerate the funding and accountability streamlining that DfE promised in the Skills Act earlier this year. They have responded in part with new rules leaving colleges in control of their budgets, reserves and capital projects. Still, we advised against bringing in the other controls in the middle of the financial year and without consultation. It is helpful that DfE will be distributing the remaining funds from the three-year capital budget via a formula in the spring and also bringing forward revenue payments to March 2023 but we need to see whether these fully compensate for the new borrowing restrictions.

“AoC has discussed these issues with DfE and colleges over the six-month duration of the ONS review and we will continue to push for the best outcomes for everyone.

There are five key steps DfE could take immediately:

1. Implement VAT changes for colleges akin to those for schools
2. Act as Local Government Pension Scheme guarantor for colleges as they do for schools
3. Support teacher recruitment, as they do for schools
4. Add colleges to its centralised buying schemes like business rates, licences, insurance etc. which are all funded for schools
5. Provide capital funding to compensate for borrowing restrictions and help colleges save energy by winter 2023.”

Professor Tom Bewick, CEO of Federation of Awarding Bodies said:

“Today’s decision by ONS to make colleges a part of central government is predictable and a long time in the making. 

“It’s almost a complete reversal of the Further & Higher Education Act 1992, which not only ended the binary divide between polytechnics and universities, but also removed the funding and oversight of FE colleges from local government control. 

“At the time, Conservative ministers said this was to unleash the potential of colleges by incorporating them and getting rid of local bureaucrats who it was felt stifled innovation and inhibited progress. There is a certain irony that it has taken another decade of Conservative government to end college’s private sector status. 

“From an historical perspective it is hard not to conclude that in 30 years of FE, that we’ve simply come full circle, from the meddling hand of the Town Hall to the dead hand of Whitehall. 

“That’s the real significance of today’s announcement. The customer for colleges is now undisputedly central government officials, not local communities. Like other parts of the public sector, we will see energy taken up in rows about pensions, borrowing powers, budgets, governance and funding designations. 

“It’s such a pity that colleges have been led to this point. But it’s not unexpected either. “

SFCA Chief Executive Bill Watkin said:

“The ONS decision to reclassify colleges as part of the public sector comes as little surprise. However, the government’s response to reclassification is very disappointing.

“The Department for Education has missed a golden opportunity to address the long standing and indefensible inequalities that exist between colleges and other providers of 16-19 education. For example, the imposition of VAT on sixth form colleges will continue to act as a tax on learning that redirects funding away from the frontline education of students.

“There is very little in today’s response that will benefit students, but a great deal that will tie up college staff in bureaucracy and red tape.  We will be pressing the Department for Education to revisit the inequalities that exist between college and non-college providers and make the implementation of reclassification as smooth as possible.

“Alongside this, the Department needs to adopt a much more flexible approach to academy conversion. Today’s announcement will encourage more sixth form colleges to consider the academy option and it is more important than ever to remove some of the longstanding barriers to conversion”.

Aidan Relf, skills consultant, said:

“It’s only a week or so ago that West Midlands mayor Andy Street came down to London to negotiate with Michael Gove on new devolved powers for West Midlands and Greater Manchester with post-16 education at the top of his list of priorities. 

“But at the same time, it is not really a surprise that the DfE hasn’t mentioned devolution in its response today.  The department’s antipathy towards devolution is hardly a secret and in fact it is trying to make the combined authorities more ‘accountable’ for adult education funding and delivery. 

“Nevertheless at some point perhaps after the general election and with both main parties fully committed to continued devolution, this is a nettle which the DfE will have to grasp and FE and sixth form colleges may end up under mayoral control.  Some scars still run deep from the Area Review process and the mayors will want proper control.”

Ian Pretty, CEO, Collab Group:

“The ONS has decided to reclassify FE colleges as public sector organisations. This does not come as a major surprise, given the previous decision in 2012 was an evenly balanced one and the new powers of intervention extended to the Secretary of State since 2012 have tipped the balance toward a return to a public sector classification. 

“For Collab Group Colleges, returning to the public sector now raises several serious questions around the future of the college sector in an increasingly challenging economic environment where we are already seeing some smaller colleges heading into financial distress and no new money for the sector coming out of the Autumn Statement. These include immediate concerns around: 

• minimising the disruption and displacement time for colleges as we migrate to the public sector.
• long-term capital funding arrangements for estate and to ensure equipment is industry standard – the £150 million for next year announced by Government today is simply a replacement of one funding source with another and is a consequence of the reclassification.  The sector needs a robust long-term approach to capital investment.
• the continued ability to attract talent and high-quality leaders to run what is the UK’s vocational sector and critical to the country’s future economic success.
• ensuring an effective college governance framework which remains independent of Ministers. 

“Collab Group stands ready to engage with the HM Treasury and the Department for Education to tackle these challenges and unlock the potential of our members to level up skills and productivity across the country.”

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1. This ONS classification assessment is undertaken for the purposes of compiling the UK National Accounts, the Public Sector Finances and other economic statistics. Questions regarding administrative or policy implications should be directed to the policy department, the Department for Education.
2. In the case of further education corporations and sixth form college corporations in England, this is a reclassification from the non-profit institutions serving households subsector, part of the private sector; and this is a new classification in the case of designated institutions in England.
3. For further education corporations in England, the reclassification is backdated to 1 April 1993, the date on which they were formally established via Statutory Instrument. For sixth form college corporations in England, it is effective from 1 April 2012, the date on which the relevant legislation came into force. The classification of designated institutions in England is effective from 1 April 1993, the date on which they were created through the Education (Designated Institutions in Further Education) Order 1993.
4. A designated institution concentrates on further or higher education, is grant-aided or eligible to receive funding as grants and its governance is subject to fewer legislative requirements than other institutions in the sector.