Can efficiency savings in the sector deliver significantly ‘more for less’?

The further education and skills sector faces a paradox. It needs to develop confident and skilled learners who can enable different sectors to climb out of the recession, ensuring we have a broad range of competitive industries in the economy. But it needs to achieve this at a time of constrained public expenditure, delivering increasing value with ever scarcer resources.

The 53% growth in real teams since 1997 has now come to an abrupt end. The previous Government had already signalled its intention to make savings, promising a £340 million reduction in funding for 2010-11, to be delivered through a combination of cutting ‘infrastructure’ and securing efficiencies from within the sector. The new Coalition Government has committed to cutting faster and deeper than its predecessor, ushering in a new age of austerity in a bid to address the UK’s spiralling budget deficit. It has promised an emergency budget in June and has already identified £6 billion savings in the current financial year. With FE not enjoying the protection of other areas of public spending, the position for colleges is likely to become even more severe.

But how is the new Government expecting such drastic savings to be achieved, without causing detrimental impact on frontline services? There were some clues in the Conservatives’ pre-election plans, in which they listed five areas for delivering efficiencies, these being a reduction in expenditure on new IT systems; supply contracts; non-essential recruitment; discretionary spending; and better use of property.

Sector bodies such as the 157 Group believe that there is scope to achieve economies of at least £175 million in further education by cutting back on intermediary bodies and reducing costly bureaucracy, and that there are significant efficiency gains that can be made through economies of scale. Benchmarking data indicates that FE colleges could save up to £230 million a year in efficiency savings if the bottom three-quarters of colleges could spend as efficiently as the top performers when carrying out the same activities. In due course no doubt other estimates will emerge, but is this enough to enable the sector to deal with the current crisis?

Reshaping provision is one inevitable consequence of the financial pressures colleges face. The major consultancies have estimated that in the range of 50-100 FE institutions could be at serious risk in the new funding regime. Colleges in this category will need to seek either merger partners or federation models to achieve the critical mass required to succeed as an independent institution.

Another radical option for all colleges to consider is adopting a shared services model. This involves a group of colleges agreeing to pool their back-office services such as Finance, IT and HR. Benefits can include substantial cost savings, service improvement and shared investment. While this is an established model in other parts of the public and private sector, to date it has hardly been adopted at all in FE.

Spend analysis indicates that property-related expenditure is the largest element of a college’s budget after staffing costs. Since the collapse of the FE capital programme last year many colleges have had to shelve their building plans and focus on how to make do with existing facilities. They will need to take a strategic view on how to make best use of the space available. In many cases this will mean rationalising provision into fewer, larger sites to avoid wasteful spending on under-utilised resources.

Better use of management information will be key to securing financial stability. Colleges will need to understand what they are spending money on and find ways of securing greater value for money. This might mean procuring goods and services jointly with other colleges (or other local partners) to achieve economies of scale and negotiating better deals through greater purchasing power. It might mean tighter management of suppliers to ensure they deliver best value throughout a contract period. Above all, colleges will need to manage their curriculum offer intelligently. It will be essential to know which courses are losing money and take prompt management action. Understanding how the curriculum offer drives funding claims will be equally important in helping college managers take intelligent and informed decisions.

While the evidence does suggest significant room for efficiencies, securing savings on the scale now envisaged can only be achieved through more radical measures. It is going to require a change in thinking about models of further education if the sector is to manage to protect frontline services on a sustainable basis.

There is no one-size-fits all approach and solutions need to reflect local circumstances. Even if the new Government follows through with its much touted ‘bonfire of the quangos’, there can be no doubt that the sector itself will need to lead and implement major reforms in order to survive the current challenges.

John Stone is chief executive of LSN, the not-for-profit organisation focused on making learning work for further and higher education, local authorities and schools, public services, work-based learning and international organisations?

LSN offers support for colleges considering any of the areas outlined above, including shared services, procurement review, operational partnerships or merger