Written Evidence by Etio (FES0104)

Education Committee

Further Education and Skills

About Etio

Etio is a specialist consultancy that has been providing education services to governments and organisations in the education sector for over 25 years. We offer Financial Benchmarking and the International Student Barometer to the Higher Education (HE) sector globally. In the Further Education (FE) sector, we work closely with institutions to analyse financial sustainability, cost structures, and operational efficiency. Our submission to the Education Select Committee’s inquiry into Further Education and skills is based on our extensive research and engagement with the sector. We aim to highlight key financial challenges facing FE colleges and suggest solutions that ensure long-term sustainability and effectiveness.

1.       Financial Sustainability: A Systemic Issue

The Institute for Fiscal Studies (IFS) recently reported that “funding per student in FE colleges is 11% lower than in 2010-11”[1] which followed a theme of the 2024 Autumn Budget Statement[2] that outlined the significance of the financial challenges the FE sector continues to face.

The AoC reports that there have been 82 “college-to-college mergers” since 2015[3] and several other types of mergers, conversions, and closures; the FE college landscape has altered significantly. The narrative that supported some of the actions taken was, as described by the National Audit Office (NAO)[4]  “partly designed to improve colleges’ financial stability” and the area reviews that took place between 2015 and 2017 were “likely to have helped limit the financial deterioration of the sector”.

FE colleges’ financial sustainability is closely monitored yet over half of general FE colleges returned a deficit in 2022-23.

2.       The Efficiency Challenge in FE Colleges

Through providing colleges with access to independent and objective benchmarking insight for over 25 years, Etio can demonstrate that FE colleges have maintained a stable core operational cost base relative to income since 2010-11. As the IFS identified, funding has reduced, but Etio have recorded that colleges have managed to adjust their cost bases. However, this doesn’t reflect a wholesale drive towards greater financial efficiency, but more a reflection of ‘needs-must’.

Proportional spend on teaching delivery, support, management, and administration was on average equivalent to 54% of core income in 2010-11; this reduced to closer to 52% in 2024 and represents a £1.2mil reduction in teaching spend for a £60mil FE college. The challenges colleges face with managing this cost profile have been threefold:

1. Increasing pay
2. Funding changes such as the significant reduction in the Adult Education Budget, static 16-19 funding levels, and the changing landscape of programme types and government agenda
3. Learners that require increased support post-Covid.

To mitigate for a rise in costs, colleges have increased teaching financial productivity levels and moved towards more cost-efficient delivery mix profiles that rely less on Lecturers and utilise Instructor-type roles more, and is less managerial. Generally, group sizes have increased, course length has been closely monitored (i.e. optimising the amount of teaching hours per programme), and evidence of remission (reduced teaching hours to allow non-teaching activity) amongst teaching staff is now scarce. Teaching financial productivity (the amount of tuition income received per teaching delivery FTE) increased by 15% between 2010-11 and 2021-22 resulting in colleges using fewer delivery FTEs relative to the same volume of tuition income.

Proposed pay awards and ongoing requests for greater parity in pay between colleges and schools will only further increase the pressure on colleges to increase teaching financial productivity further, which will likely result in the loss of less popular courses and further restructuring programmes.

3.       Addressing the Needs of Disadvantages and High-Needs Students

For those colleges that have a high volume of disadvantaged funding or learners with high needs, the challenge is further exacerbated by the greater volume of teaching support required. Disadvantaged and High Needs funding equated to almost 30% of 16-19 funding in City of Bristol College, and was about 25% in colleges such as Kirklees College, Bolton College, The Oldham College, and Bradford College[5]. When 16-19 funding reflects around £6 out of every £10 of operational income, the need for financial prudence elsewhere in college is increased due to regulatory requirement that determines that High Needs funding must be spent in accordance with DfE regulations[6] (i.e. colleges must spend that funding on supporting those students).

Etio’s benchmarking work continues to identify that those colleges with a high volume of High Needs income mitigate for higher teaching support costs by reducing the proportional spend on professional services and business support activity. Etio find that colleges commonly spend about 41% of core income on non-teaching activity, whereas those colleges with a high volume of High Needs activity come in around 37%. In some cases, this may be because of financial efficiencies, but in others it is because the college has had to cut the budget and hope service quality isn’t detrimentally impacted.

Impact of the Energy Crisis on FE Colleges

To add to the challenges colleges face, the energy crisis has resulted in an increase in Estates non-pay spend and has brought sharp focus on the quality of some college buildings. In 2010-11, Etio were commonly recording less than £14 of Energy cost per owned square metre, whilst in our most recent assessments some colleges are spending more than double that amount.

Recommendations

The challenges in FE are not going to be resolved by a short-term quick cash injection. There is a need for a thorough review of how much it should actually cost to run an FE college. This needs to account for changing student profiles, geographical impact, and curriculum make-up.

1. A More Agile Funding Formula: Funding models should be more flexible, allowing colleges to respond to local and national skills demands.
2. Infrastructure Investment: Many FE college buildings are inefficient and require substantial investment to improve sustainability and reduce maintenance costs.
3. Investment in Technology and Staff: Colleges need the capacity to invest in both people and technology to modernise education delivery.

While the additional £300 million is welcome, it serves only as a temporary solution. A long-term funding strategy is needed to address structural challenges in FE.

Etio welcomes the opportunity to contribute to this inquiry and is willing to provide further insights and data to support policy development.

ENDS.

April 2025

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