UK VET Funding Final by j2ZmtbA

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									Further education
funding in England

A report produced for the Australian Workforce and Productivity Agency
October 2012


Introduction                                                                             1
Abbreviations for further education in England                                           2
Background to further education funding in England                                       3
What is the rate per GLH?                                                                4
How is this GLH rate established?                                                        6
What is the rate made up of?                                                             7
How does the rate vary by subject?                                                       8
How much is co-contribution (learners/employers)?                                        9
When are rates set and when are there competitive bids?                                  10
Are public and private providers treated the same?                                       11
Strengths and weaknesses of funding in England                                           12
Useful websites                                                                          14
Further reading, with links                                                              14




                                    Introduction


The Australian Workforce and Productivity Agency (AWPA) is an independent statutory
body, providing advice to the Minister for Tertiary Education, Skills, Science and Research
on Australia’s current, emerging and future workforce skills needs and workforce
development needs. AWPA’s advice covers a broad range of areas that affect the demand
for and supply of skills, including (but not limited to), migration, the tertiary education
system and the effective use of skills in the workplace.

A key priority for AWPA is to drive ongoing reforms to the tertiary education system
including priorities for the investment of public funds. AWPA is interested in the funding of
tertiary education both from the perspective of the quantum of funds expended from
public and private sources and in terms of allocative processes. By answering eight
questions posed by the AWPA, this report describes current post-16 funding formula and
allocative processes used in England. It concludes by considering the merits of current plans
for reform of the post-16 funding system in England.

The author, Nick Linford, is a leading expert on the post-16 further education funding
system in England. He was Director of Planning and Performance at Lewisham College for
six years, in which time he was a member of the Learning & Skills Council Technical
Funding Advisory Group, established a popular workshop and conference programme.

In 2009 Nick joined Pearson Plc to set-up their education think-tank, leaving in 2011 to
establish Learning & Skills Events Consultancy and Training Ltd (Lsect), publishes FE Week
(www.feweek.co.uk), the only newspaper in England dedicated to further education.

Nick is also author of the Hands-on guide to post-16 funding and the Hands-on guide to
post-16 performance and data (both published by Pearson). In September 2012 he
published The complete guide to funding apprenticeships (www.fundingguide.co.uk).




                                                                                                1
       Abbreviations for further education in England

Abbreviation          Definition
ASB                   Adult Skills Budget
AELP (formerly ALP)   Association of Employment and Learning Providers
AFO                   Apprenticeship Framework Online
ALN                   Additional Learning Needs
ALS                   Additional Learning Support
AoC                   Association of Colleges
APL                   Accredited Prior Learning
ASCL                  Association of Schools and College Leaders
ATA                   Apprenticeships Training Academy
AV                    Apprenticeship Vacancies online
BIS                   Department for Business Innovation and Skills
CSV                   Comma Separated Values: file
DfE                   Department for Education
EFA                   Education Funding Agency
ER                    Employer Responsive
ER App                Employer Responsive Apprenticeship
ERR                   Employee Rights and Responsibilities
FE                    Further Education
GLH                   Guided Learning Hours
HEFCE                 Higher Education Funding Council for England
ILR                   Individualised Learner Record
LARA                  Learning Aim Reference Application
LIS                   Learner Information Suite
LSIS                  Learning and Skills Improvement Service
MCL                   Minimum Contract Level
MCV                   Maximum Contract Value
NAO                   National Audit Office
NAS                   National Apprenticeship Service
Ofqual                Office of Qualifications and Examinations Regulation
OLDC                  Online Data Collections System
PFR                   Provider Financial Report
PLTS                  Personal Learning and Thinking Skills
PSV                   Pipe Separated Values: file
PWF                   Programme Weighting Factor
QCF                   Qualifications and Credit Framework
SASE                  Specification of Apprenticeship Standards for England
SFA                   Skills Funding Agency
SFR                   Statistical First Release
SLN                   Standard Learner Number
SME                   Small and Medium Enterprises
SOA                   Super Output Areas
SSC                   Sector Skills Councils
TPS                   Trainer Provider Statement
UKCES                 UK Commission for Employment and Skills
UKRLP                 UK Register of Learning Providers
ULN                   Unique Learner Number




                                                                              2
    Background to further education funding in England

Further education (FE) might be defined as all education, with the exception of that
typically delivered by schools and universities. FE funding rates and methodology are
unique to England, and this would include publicly funded full and part-time academic and
vocational classroom education, as well as apprenticeships and other workplace assessment
and training.

Post-16 education

Compulsory education ends at the age of 16, although legislation has been passed to
increase this to 17 by 2013 and 18 by 2015. Therefore, technically FE funding is available
from the age of 16. The academic year starts on the 1st August and ends on the 31st July.

Two government departments, each with their own funding agency

In June 2007 the government split the Department for Education and Skills, and there is
currently a Department for Education (DfE) to fund learners under the age of 19 and
Department for Business Innovation and Skills (BIS) to fund learners aged 19 and over.

At the time of the departmental split the FE funding agency was the Learning and Skills
Council, which has been replaced by the DfE’s Education Funding Agency and BIS’s Skills
Funding Agency. For information, higher education is also the responsibility of BIS, and
continues to be funded by the Higher Education Funding Council for England (HFCE).

The EFA and SFA are primarily responsible for implementing government policy through the
allocation and performance management of FE funding. They also lead the development
and management of the FE funding eligibility, rules, rates and formula.

FE providers

Throughout this report the term used for organisations that deliver education and training
is ‘providers’. In England there are 341 colleges, of which 219 are general FE, 94 are sixth
form colleges (mainly 16-18) and the rest are specialist (according to the latest figures from
the Association of Colleges). There are approximately 600 private training provider
companies with their own contracts, and over 1,000 that operate as subcontractors. Other
FE providers include universities, local government, large employers and charities.

Funding allocations for 2012/13

For the 2012/13 academic year the EFA allocated £4,070,973,484 to providers and the SFA
allocated an almost identical £4,071,244,807 (a total of $12.6bn AUD)

Funding formula reform

A new national funding formula for England was introduced in 2002/03, which was replaced
in 2008/09, and there are plans for two new ones (16-19 and adult) for 2013/14. The
current funding formula, when introduced in 2008/09, was known as ‘demand-led’, and is
based around the concept of a Standard Learner Number (SLN) rate for the qualification, an
annual National Funding Rate (NFR) based on affordability and a series of weightings, such
as for programme type and delivery location. On each occasion, the rationale for replacing
the funding formula has been to remove complexity and introduce ‘simplification’.

The vast majority of FE funding is allocated and paid using the national funding formula.
However, there is also a relatively small adult and community learning fund, as well as
other sources of non-recurrent FE income, such as from the European Social Fund.




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           What is the rate per Guided Learning Hour?

The funding rate for classroom learning is expressed in the form of a funded Standard
Learner Number Guided Learning Hour (SLN GLH). This was introduced in 2008/09 as part of
a new funding methodology; known as the ‘demand-led’ formula. (The concept of a Guided
Learning Hour (GLH) is very similar to what is known in Australia as Annual Hours
Curriculum (AHC) or Annual Student Contact Hours (ASCH).

Listed SLN GLH values
The vast majority of qualifications in England have ‘listed’ SLN GLH rates. This means the
Education Funding Agency (EFA) and Skills Funding Agency (SFA) have assigned an SLN GLH
value, which is typically based on the recommended GLH published by the awarding
organisation. For example, a typical AS level qualification is funded for 150 SLN GLH. An
equivalent Level 3 vocational qualification would be the BTEC Extended Diploma, which
over two years has a listed rate of 1080 SLN GLH.

The EFA and SFA can and do set different listed SLN GLH rates for the same qualification.

Listed SLN GLH rates are fixed, regardless of how many GLH the provider plans or actually
delivers the course.

Workplace learning, such as the apprenticeship scheme, also uses listed rates. However,
these are set on the basis of ‘activity cost’ research, not on the basis of GLH.

Unlisted SLN GLH values
In a limited number of cases particular qualifications and non-accredited provision have
unlisted SLN GLH values. This occurs when the funding agencies have been unable to
identify a common delivery pattern, therefore the SLN GLH value is equal to the actual
course duration. In other words, the provider records the timetabled GLH, which is then
applied within the funding formula as the SLN GLH. For example, English and maths
qualifications typically have unlisted SLN GLH rates.

Unlisted SLN GLH rates are becoming increasingly uncommon, but where they exist the
funding rate is equal to the actual delivery GLH for the enrolment.

Locating a qualification SLN GLH
The Data Service, part of the Skills Funding Agency, manage an online database known as
the Learning Aim Reference Application (LARA).

LARA is the definitive source of information used in the calculation of funding values,
including the classroom-based listed SLN GLH. If a qualification has an unlisted rate then
the SLN GLH field in LARA is left blank. LARA can be searched interactively online (no
password required), or downloaded in a variety of formats from
https://gateway.imservices.org.uk/sites/LARA/Pages/AimsSearch.aspx

Converting the SLN GLH into an SLN
The funding formula applies an SLN value, which is simply the SLN GLH rate divided by 450.
In the case of the AS Level this would be 150 SLN GLH / 450 = 0.3333

Converting an SLN into funding
If the SLN were thought of as a currency, the exchange rate would be the National Funding
Rate (NFR). This is set each year by the EFA and SFA on the basis of affordability. The
classroom NFRs for the 2012/13 academic year are:


                                                                                             4
16-18 year-olds :       £2,920     or   $4,575 AUD at current exchange rate of 1.56664
19+ fully funded:       £2,615     or   $4,097 AUD
19+ co-funded:          £1,308     or   $2,049 AUD

Converting an SLN into a rate per GLH
The NFR represents the funding for one SLN, and one SLN is equal to 450 SLN GLH.
Therefore, by dividing the NFR by 450 we can establish the funding rate per GLH.

Age                        NFR           Rate per GLH           NFR        Rate per GLH

16-18 year-olds           £2,920             £6.49            $4,575           $10.17

19+ fully funded          £2,615             £5.81            $4,097            $9.10

19+ co-funded             £1,308             £2.91            $2,049            $4.55



Government plan to scrap the funded GLH for 2013/14
The Education Funding Agency plans to scrap funding per enrolment in the classroom, and
instead introduce a funding per learner programme. Plans are still being finalised, but for
full time learners this is likely to require a minimum of 540 GLH. Much of the detail has yet
to be published, and providers are being offered three years of protection from the impact
of such radical reform.

In June 2012 the Skills Funding Agency published their third version of plans for a new
funding methodology. Whilst the formula and weighting will remain broadly the same,
there will be no reference to GLH. Instead, unweighted qualification rates will be based on
a very limited number of listed values (as few as five), based on the qualification size in
terms of Qualification Credit Framework (QCF) credits. The funding rates therefore
represent a credit number band, such as 1-4. The pre-2008/09 funding methodology also
adopted banding (although based on GLH). This was criticised for the unintended
consequence of incentivising delivery that was located at the bottom end of a band.

Other things to note
Listed funded SLN GLH rates incentivises providers to reduce their course durations. This is
because the actual funding per GLH (efficiency) rises as the course duration shortens.

Unlisted funded SLN GLH qualifications have by definition a direct relationship between the
cost in the form of delivery time and income. Despite this the number of unlisted SLN GLH
qualifications has been steadily decreasing as the government are trying to phase out the
use of actual GLH for funding purposes (which is not, for example, recorded by 16-18 school
sixth forms). As stated above, based on current funding formula reform plans, there will be
no provision with unlisted rates from August 2013.

Providers can deliver as many qualifications as they like, but 16-18 classroom funding is
capped at 1.56 SLN (702 SLN GLH) per learner in 2012/13 and 19+ classroom funding is
capped at 1.75 SLN (787.5 SLN GLH) per learner in 2012/13. There is no cap on workplace
16-18 or 19+ funding per learner per year.

Workplace qualifications, such as those that form part of an apprenticeship framework,
have listed SLN rates which are not based on a GLH value. The workplace NFR values in
2012/13 are £2,805 ($4,394) for 16-18 year-olds, £2,615 ($4,097) for 19-24 year-olds and
£2,092 ($3,277) for those aged 25+.




                                                                                                5
                   How is this GLH rate established?

There are two parts to the question of how the GLH rate is established, as the rate includes
a National Funding Rate (NFR) as well as individual SLN GLH rates for each qualification.

Establishing the National Funding Rate
The NFR was first introduced in 2008/09, and replaced cash rates published for each
qualification. For example, there is one NFR across England in 2012/13 for 16-18 year-olds,
set at £2,920. This figure would have originally derived from modelling the previous funding
formula, and then being increased or decreased each year based on affordability. (The
NFRs for 2012/13 can be seen on the previous page.)

The NFR benefits from being part of a formula which is applied to calculate the funding for
all qualifications. This means the government can increase or decrease the NFR in the
knowledge that the funding for all qualifications will increase or decrease by exactly the
same percentage. Therefore, only the NFR needs to be adjusted once each year (such as to
take account of inflation), rather than every individual qualification rate.

In previous years the 16-18 NFR would typically rise a few percentage points each year
whilst the 19+ NFR fell (as greater efficiencies were required). For 2012/13 the NFR
remains the same as in 2011/12 (with the exception of the 16-18 apprenticeship NFR, which
fell 2%).

The NFR is typically announced by the EFA and the SFA shortly after the government have
published their budgets (this year on 5 December)

Establishing the SLN GLH
With new qualifications, the relevant funding agency will typically set the SLN GLH value
equal to the awarding organisation recommended GLH. If the recommended GLH is a range,
the agency typically set the rate at the mid-point. This may differ if the funding agency
consider the qualification to be part of a family of qualifications, in which they should all
have the same rate.

In the rare cases where there are no recommended hours, the agencies will find an
alternative method to set a SLN GLH rate, such as using the QCF credit value as a proxy
(where one credit is equal to ten hours of learning time).

Each year the agencies review the actual delivery GLH supplied in the data from providers,
and if the average actual GLH is significantly different from the listed SLN GLH they have
the option for the following year to increase or decrease the SLN GLH value. If there is no
common pattern in terms of delivery duration, the agencies have the option to unlist the
rate. In previous years this happened for several hundred qualifications, but there appears
to be a move away for adjusting rates for individual qualifications.

If a qualification has an unlisted SLN GLH, but historical provision shows a fairly reliable
single delivery pattern, then increasingly the funding agencies will set a listed SLN GLH
value based on the actual delivery evidence.

One of the criticisms of the current system is that it has taken up to six months, after a
qualification has been approved for use by the regulator (Ofqual), for an SLN GLH to be set.
This is in part because so many people and organisations are involved in determining if it
will be fundable, then at what rate, and finally making it available with a rate on the
database known as LARA. This process may be sped-up in future, if, as planned, all
qualification funding rates are based on published credit bands.




                                                                                                6
                       What is the rate made up of?

The rate for fully-funded qualifications is intended to cover all of the costs associated with
delivery. This includes the direct costs of a lecturer and materials, as well as indirect costs
such as management, heating and lighting.

The rate should cover all standard costs
In fact, providers are not permitted to charge fully-funded learners anything. The 2012/13
SFA funding rules state:

    “Where the Agency has made a full contribution to the costs of a learner’s
    programme, Providers must not make compulsory charges to employers or learners
    for any delivery of the learning activity funded by the Agency.

    This includes: administration, registration, assessment, materials or examination
    costs whether incurred directly by the Provider or charged by other organisations
    such as awarding organisations. This includes charges for identification passes,
    uniforms, tools and material where without them, a learner cannot complete and
    achieve their learning aim.”

Some learner specific additional income
There is additional but limited funding, which forms part of the annual allocation, for
exceptions costs associated with identified learners. These include Additional Learning
Support (ALS), which might be used for dyslexia support and Learner Support Funding (LSF),
which might be used for childcare or travel.

Very limited extra capital income
The funding rate is also expected to cover the costs of capital programmes, ranging from
large structural projects to the upgrading and purchasing of IT equipment. However, the
government do infrequently tender for access to additional funding, such as for a necessary
small or very large capital programme.

Profit encouraged
Colleges are expected to complete and submit their annual accounts each year, which are
published on a single spreadsheet by the Skills Funding Agency. Typically colleges call
income above the direct and indirect costs the ‘contribution’, and plan courses and group
size targets on the basis of an average of 20-30% contribution. Some colleges have many
millions of pounds saved in the bank, others are in debt. Training providers operate as
private companies and without limits on the use of the income or size of dividends.

Expenditure unlimited
Essentially colleges and training providers can use the funding earned to spend as they see
fit. For example, many courses that under-recruit will be, knowingly or not, cross-
subsidised with income from those that over-recruit.

The importance of class-size
Funding is paid on the basis of enrolments to qualifications, therefore a classroom of no
learners would generate no income. This puts a lot of pressure on increasing class-size, as
the marginal cost of an extra learner is very small. Although not published anywhere, it is
generally accepted that a well planned course would be a success in terms of income with
between 14 and 16 learners attending.


                                                                                                  7
                      How does the rate vary by subject?


The current ‘demand-led’ funding formula has remained unchanged since its introduction in
2008/09, and whilst the values differ, it is broadly the same regardless of age or whether
delivered in the classroom or the workplace location. The demand-led funding
formula




Programme Weighting (PW)
The PW is designed to increase funding for those subjects that are relatively expensive to
deliver, typically based on their occupational sector. The PW value expressed as a letter
can be found on LARA, alongside the qualifications SLN GLH rate.

Programme Weighting Factors for 2012/13 (incl. example)
A       1          Business Admin
B       1.12       Health and Social Care
C          1.3         Beauty Therapy
D          1.6         Construction (classroom)
E          1.72        Agriculture
F          1.4         Basic Skills (16-18)
G          1.92        Equine Studies
H          1.2         Health and Social Care (workplace non-apprenticeship)
J          1.25        Health and Social Care (apprenticeship)
K          1.5         Construction (workplace)


For information: The Disadvantage Uplift (DU) and Area Cost Uplift (ACU)
The DU is based on the learner’s home postcode. These are mapped to 27 per cent of the
most deprived Lower Layer Super Output Areas (SOAs) in England (equivalent in terms of
population and learners to 15 per cent of English wards) based on the Index of Multiple
Deprivation (IMD) 2012. If a learner’s home post code is in one of the most deprived areas
then a value of between 8 per cent and 32 per cent DU is recorded by the provider in their
individualised learner record (ILR) field ‘Disadvantage uplift factor’. For example, the DU
for post code SE10 8JA in Greenwich is 1.0887.

The ACU is ‘intended to reflect the variations in the cost of delivery based on location’.
Essentially, it is a south east of England weighting, which increases to a maximum of 20 per
cent when the delivery location is in central London. Unlike Australia, there is no additional
funding on the basis of the delivery taking place in a remote location.

Plans for 2013/14Despite plans to introduce a new method of setting qualification
rates, very little change is planned regarding the PW, DU or ACU.

     How much is co-contribution (learners/employers)?

There is no government requirement for learners and employers to make any financial
contribution to a course. The government sets rules concerning who is eligible for funding


                                                                                                 8
(such as based on immigration status) and which qualifications are eligible (for example,
many vendor specific qualifications, such as from Microsoft, are not eligible for funding).

For example, a learner may be fully-funded on the basis that they are in receipt of income
support in the form of Job Seekers Allowance (JSA). Equally, a learner may be in
employment and a millionaire, but are fully-funded on the basis that they are undertaking
a basic English or maths qualification.

Government contribution at 50%When a learner and their qualification are
fundable, but not at the fully-funded rate, then the ‘government contribution’ is
approximately halved.

To be exact, in the case of classroom learning the unweighted funding is halved, and this
value is deducted from the fully-funded weighted amount.

In the case of workplace learning, the weighted funding is halved, although for
apprenticeships the English and maths qualifications are only reduced by 17.5%. For
2013/14, as part of the funding formula reform, the government plan to reduce the
weighted funding by 50% for all co-funded learners. However, there remains no plan to
force either learners or employers to make a financial contribution.

Are co-funded learners and employers charged?
There was an independent review in co-funding conducted by Chris Banks three years ago,
known as the Banks Review of Fees. This found it very difficult to evidence what was being
charged, along with what was actually being collected.

Typically colleges are charging something (not always as much as the 50 deduction) for
classroom provision, but it was much less clear in the workplace. It is understood that in
some sectors, such as customer service and retail, employers are not being charged
anything and providers are delivering the provision on half the full-funding.

During the last few years the government have warmed to the idea of fee targets and
sanctions for not collecting fees. However, it seems that this is no longer a priority, and
there are even plans to remove the data fields where fee information is expected to be
recorded.

If a classroom learner was charged a tuition fee to match the co-funded deduction, then
the fee would work out at £2.91 or $4.55 AUD per hour (see workings below):

      £2,605 NFR / 450 = £5.81 per glh fully funded x 0.5 = £2.91 per hour co-funded

FE loans (from 2013)

The government will be replacing all funding at level 3 and above for learners aged 24 and
above with a loans facility to mirror that used by higher education learners going to
university. Essentially, from April 2013 learners will be able to apply to a government
agency (the Student Loans Company) for a loan, and if successful the provider will deliver
the course funded at SFA rates but by the Student Loans Company. The learner will then be
liable to interest charges and have to make repayments to the Student Loans Company on
completion of the course and once they are earning over £21,000 ($46,667 AUD) per
annum.
When are rates set and when are there competitive bids?
All funding for 16-18 year-olds is funded using the national funding formula with
transparent and published rates, although there are a number of specialist schemes which
are tendered for, and pay national rates but for non-qualification bearing outcomes (such
as the delivery of employability skills or progression into training and or work).


                                                                                              9
In terms of adults and workplace delivery (including 16-18 apprenticeships) the Skills
Funding Agency have allocated £4,071,244,807 or $6,378,174,964 in 2012/13. Of that,
£3.5bn (85%) will be paid to providers based on the national ‘demand-led’ funding formula,
applying the national funding rate and SLN GLH or SLN values published on the LARA
database.

Competitive bids in the minority
The remaining 15% includes non-recurrent (one-off) grants, such as for European Social
Fund (ESF) sponsored schemes. These are typically two year contracts, which involved
competitive tendering, and the tender specification determines the basis on which funding
would be earned. Typically, the national funding formula will be used as a basis on which to
set rates, but often in a more simplistic way (such as not including the disadvantage uplift
and area cost uplift).

More competitive bids?
There is some evidence to show that competitive tendering is proving more popular with
the government, particularly when they want new providers to enter the market. For
example, there is a view in government that employers should have more control over the
funding that is spent on training and assessing their employees. This has led to a £250m
employer ownership pilot, to which employers submitted their bids and co-funding plans. If
this proves to be successful then it could mark a significant shift away from setting national
rates. It might also lead to other unintended consequences, like a lack of transparency and
a risk of selecting bidders on the basis of price before quality.

Combining national rates with negotiated rates
One way to retain the national funding formula whilst still tendering and negotiating on the
price, is to apply a percentage discount to the funding generated. The national data set
that every provider must submit each month to be paid includes a ‘proportion of funding
remaining’ field, which by default is set to 100%. However, were a provider to offer to do
the delivery for 20% less than the national rate, then this field could be set to 80%.

Typically this discount is applied when a learner has already achieved part of the
qualification, and thus avoiding a double payment. However, on occasions, when a provider
has a particularly efficient delivery model (such as through distance learning, or there is
prior learning) this field is used to reduce the funding.

Plans for 2013
Over the last five years the process of bidding has become more efficient and understood,
with many providers now on a list of pre-qualified providers, requiring a less bureaucratic
and quicker online application for the relevant invitation to tender. However, the funding
agencies have seen a significant reduction in their own staffing levels, and as a
consequence have been looking to reduce the number of direct contracts they hold.
Probably as a consequence other agencies, such as the UK Commission for Employment and
Skills (UKCES), who have taken on the role of an commissioning body, as is the case for the
employer ownership pilot. Therefore it seems that the benefits of a tendering exercise
have the risk of creating a new, expensive and burdensome processes.

     Are public and private providers treated the same?

Colleges (public) and independent training providers (private) are increasingly being
treated in the same way.



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Access to funding and inspection regime – yes
The government recently introduced a process for new providers to enter the 16-18
delivery market, and two years ago the single Adult Skills Budget was established. As such,
it remains a government priority to remove many of the barriers that private training
providers had when wishing to enter or expand into the post-16 market for education and
training. All direct funded providers are inspected by Ofsted.

Funding formula and rates – yes
Both public and private providers are paid the same amounts for doing the same work,
using the same national funding formula and rates.

Data requirements and paperwork – yes
Both public and private providers submit monthly data following the same national
specification, as required by the Information Authority.

Payment on delivery – No
With the exception of 16-18 apprenticeships, colleges are paid based on a monthly profile,
as outlined in the contract. They will be paid these monthly amounts regardless of whether
they are over or underachieving during the year. This stability is also reinforced by the fact
that their funding weightings and deductions for withdrawals and non-achievers is based on
a historical average. Private providers on the other hand will be paid each month on the
basis of their data submitted and the national funding formula and rates.

I understand this in-year funding approach is required for the private sector as the
government is not permitted to pay them until the work is evidenced.

Reconciliation – No
Colleges that have under-delivered against their allocation do not always have the funding,
which was paid on the basis of the plan, ‘clawed-back’. Typically they have been able to
keep some of the under-delivered funding, depending on government affordability. These
reconciliation rules can be quite generous. For example, the SFA have recently announced
that colleges that under-delivered by up to 90% will be allowed to keep more than half of
the 10% that was not delivered. Private providers on the other hand are paid in-year based
on actual delivery. Therefore unless it later transpires they were paid for something that
was not done, there would be no reconciliation.

New legislation declassifying colleges as public bodies
There has been some very recent legislation which technically removes colleges from the
government estate. It is not yet clear as to the full ramifications, but it does mean for
example that colleges no longer have to get permission from the government to merge.

In the longer term it is likely to mean the line between public and private becomes blurred.
In fact, many colleges have bought private training providers in the past, although we may
be a little way off a private provider buying a college that is considered to be part of a
local community.
        Strengths and weaknesses of funding in England

The national funding formula in England was significantly reformed in 2002/03, in 2008/09
and will be again in 2013/14.




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On each occasion the over-riding ambition was to create a simpler system, free from the
need for funding consultants and a heavy reliance on complex rules and data.

A huge amount of time and energy was put into modelling and implementing the more
simple reforms, and on every occasion it was quickly deemed to have failed some of the
original basic tests. Fundamentally, the reform process has consistently followed the same
cycle, typically every 3-4 years:

Design new simple funding formula
        Model impact on existing providers
               Find huge winners and losers from the modelling (unfair)
                       Add numerous extra elements to cushion and dampen impact
                               Introduce the reform (with all the related costs of change)
                                       Conclude still too complicated, even if fair
                                               Design new simple funding formula

The reality is that the funding formula and methodology is complicated in England because
it is trying to match the right level of public expenditure to the likely level of cost. Pay too
little and you get no delivery or poor quality. Pay too much and it would be wasting public
money as well as not stretching a limited budget as far as possible.

The rules and formula are also trying to provide a variety of financial incentives to
prioritise a limited resource, only adding further to the complexity.

Consistently the UK government has been persuaded to reform the system to reduce
complexity, but as the illustration below shows, it comes at the cost of fairness.




                 Fairness




                                               Complexity

So, if there was an easy and obvious way to funding all courses in England I believe it would
have been found in the last 10 years of trying. From my experience, the system is better
complex and fair, than simple and unfair. Also, history has shown that as soon as the FE
sector has become accustomed to a new complex funding system it is reformed. The cost of
change is huge, and should be better understood when deciding whether implementation is
the right way forward.

In reality, the ‘demand-led’ funding formula, in my opinion, is a fairly good and well
established one. It seems to include a well rounded mix of duration, learner, location and
subject variables. The fact that the fundamental elements will remain in the SFAs new
regime for 2013 adds weight to this argument.

Benefits of using rate based on GLH




                                                                                                   12
If a classroom based funding system is to set rates relative to cost, then I can see no better
way of doing it than using GLH. Providers, particularly in the classroom setting, will be
keeping a register of attendance as part of a timetable plan, and therefore it seems
reasonable to fund on this basis without significant additional data or audit burden.

Workplace funding is more complicated, as without groups of timetabled learners the cost
base differs so greatly. Rather than try an align rates with classroom funding (as is being
attempted in England), I would retain existing or similar listed rates, and then negotiate
use of the discount field in the data where it is clear that additional efficiencies can be
gained.

Main weakness in the current system is constant change

Typically the longer a system has been in place, without change, the fewer problems are
presented. In reality, the rules and eligibility criteria have changed every year in England,
and the formula will have changed three times in 11 years. This turbulence creates huge
financial and emotional costs, and after a few years many remaining staff forget why past
systems failed, only to repeat the mistakes.

Perhaps the biggest problem in England is that after splitting responsibility for 16-18 and
adult education into two different government departments, they now have their own
funding agencies. Each are implementing very different and new funding formulas for 2013,
which for the average college will mean two new funding systems going in very different
direction.

My recommendations for an FE funding system

       Accept that complexity is a natural consequence of a fair funding regime in FE

       Classroom and workplace delivery have a very different cost base, so they need a
        different method of setting funding rates – even for the same qualification

       Classroom rates should rely more on GLH (not less, as per current reform in
        England)

       Workplace delivery should rely more on negotiating lower rates where achievable

       Streamline system wherever possible, particularly by age (unlike current reform in
        England)

       Avoid changes to rules, eligibility and the formula if possible. Stability a huge
        advantage.

       Beware of the unintended consequences. For example, don’t just model the impact
        of change on current delivery, but consider how provider behaviour might change
        for future delivery




                                  Useful websites

 Website                                       Description

 www.afo.sscalliance.org                       Apprenticeship Framework Online


                                                                                                 13
www.aelp.org.uk                            Association of Employment and Learning Providers

www.thedataservice.org.uk                  Data Service

www.bis.gov.uk                             Department for Business Innovation and Skills

www.education.gov.uk                       Department for Education

www.feweek.co.uk                           FE Week newspaper

www.theia.org.uk                           Information authority

www.lsect.com                              Learning & Skills, Events Consultancy and Training

providers.lsc.gov.uk                       Learning Aims Reference Application

www.apprenticeships.org.uk                 National Apprenticeship Service

www.ncfe.org.uk                            NCFE Awarding Body

www.ofqual.gov.uk                          Office of Qualifications and Examinations Regulation

www.providers.lsc.gov.uk/dcs               Online Data Collections System

register.ofqual.gov.uk                     Register of Regulated Qualifications

www.skillsfundingagency.bis.gov.uk         Skills Funding Agency

www.ukces.org.uk                           UK Commission for Employment and Skills

www.ukrlp.co.uk                            UK Register of Learning Providers



                         Further reading, with links
Current young peoples’ FE funding documents
16–19 Funding Statement, Young Peoples’ Funding Agency, December 2011:
https://www.education.gov.uk/publications/eOrderingDownload/16-
19_Funding_Statement.pdf

16–19 Funding Statement Q&A, Young Peoples’ Funding Agency, December 2011:
https://www.education.gov.uk/publications/eOrderingDownload/16-
19_Funding_Statment_QA.pdf

16–19 Funding Statement Key Messages, Young Peoples’ Funding Agency, December 2011:
https://www.education.gov.uk/publications/eOrderingDownload/Funding_Statement_Pres
entation.pdf

Funding Statement 2012-13 - National Provider Briefing, Young Peoples’ Funding Agency,
December 2011: https://www.education.gov.uk/publications/eOrderingDownload/nat-
Provider_Briefings-Funding-Statement.pdf

Funding guidance for young people 2012/13 Rates and formula, Education Funding
Agency, June 2012:



                                                                                           14
http://media.education.gov.uk/assets/files/pdf/e/efa%20funding%20guidance%20rates%20
and%20formula%202012-13.pdf

Funding guidance for young people 2012/13 Funding regulations, Education Funding
Agency, June 2012:
http://media.education.gov.uk/assets/files/pdf/e/efa%20funding%20regulations%202012-
13%20v1.pdf
16-19 funding allocations: FE allocations for 2012/13, Education Funding Agency, October
2012:
http://education.gov.uk/schools/adminandfinance/financialmanagement/b00204972/16-
19-allocations/fe-2012-13

Current Adult FE funding documents

Skills Investment Statement 2011 – 2014: Investing in a World Class Skills System,
Business Innovations and Skills, December 2011:
http://www.bis.gov.uk/assets/BISCore/further-education-skills/docs/S/11-1374-skills-
investment-statement-2011-2014.pdf

Funding Rules 2012/13, Skills Funding Agency, July 2012:
http://readingroom.lsc.gov.uk/SFA/Funding_Rules_-_Version_3_-_30_July_2012.pdf

2012/13 Provider Performance Management Guide, Skills Funding Agency, August 2012:
http://readingroom.lsc.gov.uk/SFA/2012-
13_Provider_Performance_Management_Guide_August_2012.pdf

Final 2012/13 Allocations Methodology briefing note, Skills Funding Agency, March 2012:
http://readingroom.lsc.gov.uk/SFA/SFA-
skillsfundingagencyfinal201213allocationsmethodologybriefingnote-30mar2012.pdf

2012/13 funding allocations, Skills Funding Agency, August 2012
http://readingroom.lsc.gov.uk/SFA/Updated_201213_Allocation_–_August_2012.xls

Future FE funding – reform plans

16-19 funding formula review, Education Funding Agency
http://www.education.gov.uk/childrenandyoungpeople/youngpeople/studentsupport/fundi
ng/a00210682/funding-formula-review

A New Streamlined Funding System for Adult Skills, Skills Funding Agency:
http://skillsfundingagency.bis.gov.uk/providers/FundingSimplification/

Draft Funding Rules 2013/14, 24+ Advanced Learning Loans, Skills Funding Agency,
October 2012:
http://readingroom.skillsfundingagency.bis.gov.uk/sfa/draft_funding_rules_loans_october2
012.pdf

Employer Ownership pilots, UK Commission for Employment and Skills
http://www.ukces.org.uk/employerownership




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