Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 40 - 59)



  40. In terms of the graph I have here. I am referring to a briefing you will not have seen. I am looking at a graph that shows the percentage of colleges in poor financial health and it shows the percentage is increasing from 1999 to 2000. Are you denying those figures?
  (Professor Melville) From 1999 to 2000. The current figure is an increase on the 1999 figure.

  41. What is happening then?
  (Professor Melville) We have yet to finalise the equivalent figure for 2000. The figure we reported in 1999 was 65 and we are now at 72. Those are the figures you have before you. It does not alter your question.

  42. There is no great evidence that we are getting a grip on this, is there?
  (Professor Melville) The evidence is that improved financial provision for colleges is the main issue and that helps them to keep out of financial difficulties. I think the evidence for getting a grip on the problem comes from the amount of time spent by colleges in financial Category C and how long they take to recover. We understand that the reasons they go into Category C is adverse financial circumstances blowing them off course and having very little in the way of reserves, and the sector is only then moved into positive reserve, as Figure 4 shows you, in 1997/998 for the first time. If there are adverse circumstances, if there are recruitment problems, then that tends to push the colleges in the worst financial health category. We are finding that colleges that went into that category in the last couple of years are coming out in a much shorter time.

  43. Good. We know that there are key elements of good management practice that can improve the financial health of the college. As we know this, are you ensuring that these good management practices are being carried out in all of the colleges?
  (Professor Melville) We apply a good deal of advice to colleges on the whole issue of management and governance practices. One of the important issues, as I indicated earlier, is that we review what is going on in colleges on a much more regular basis. That has been taking place from the point where we saw the turnaround in those figures. We do look more carefully at colleges who are in this category and we require them to produce recovery plans and we require them to review what is going on. What is important is we have had the standards fund from 1999. That fund has enabled us to produce a training programme for managers, 96 college principals have been trained during the last year and financial management and strategic management is a very important issue. We expect to train a further 200 college principals and a number of aspiring principals.

  44. Are you looking at any ideas for further merger and rationalisation to try and reduce costs?
  (Professor Melville) Merger and rationalisation has been a specific policy of the new Government since 1997. In addition to our encouragement of mergers, certainly when colleges are in trouble, we require them to consider merger as an option, and we provide financial support for that process. The number of mergers since incorporation is 48, and since the change in policy it has been running at round about ten per year, so-three-fifths of them have in fact been taking place in the last three years.

  45. What sanctions do you have against the heads of colleges who allow their colleges to fall into poor financial health? Does anything happen to their career, or, being in the public sector, do they just carry on to bigger and better jobs?
  (Professor Melville) Generally not. I think that the most straightforward measure is colleges where they have been judged to be a grade 4 or 5 in our inspection of management. That is the comprehensive measure of management quality. The judgement includes, of course, college financial health. In almost all cases the principal has either left the college voluntarily or in some cases has left involuntarily.

  46. Are you satisfied that academic quality is not being sacrificed as you pursue the drive for budgets to be balanced in these situations?
  (Professor Melville) The fundamental considerations for further education are not financial, I have to say, they are in terms of arrangements and the quality of that provision. That is very clear. Obviously financial issues come in, because one cannot do that without sound finances. The quality is the number one priority, and we have established in the last two years a quality improvement unit which has focused particularly on the whole issue of levering up quality. We are seeing improvements in quality in a range of areas, and that is fully reported in our Chief Inspector's annual report. We have the Standards Fund which is aimed largely at colleges that are having difficulty in improving their quality. Every college after inspection is required to produce a post-inspection action plan. Where they have a grade 4 or 5 in any subject, or any cross-funded sort of area like management, then they are required to be re-inspected within 12 months. We find in almost all cases that they improve to at least two or three.

  47. As I represent a rural area, can I ask you about paragraph 2.4 and the type of college—agriculture/horticulture colleges? These colleges are significantly more likely to be in poor financial health, and the report says that "agriculture as a sector has suffered a decline in income;" and these colleges "tend to have higher fixed costs than other colleges; their retention and achievement rates are lower and they have a higher proportion of more expensive courses." Agriculture is going through a very difficult time at the moment, so can you just talk around this a bit, because I would not want to see these colleges being offered up on the altar of cost cutting?
  (Professor Melville) I think that is quite right. The history of agriculture colleges, of course, is that there was broadly one for each county, a county agriculture college was established. I think in the general decline in the industry, the demand for agricultural education, the number of farmers and farm workers, has decreased and therefore there has been a decline. So there are recruitment difficulties.

  48. Recruitment in staff or pupils?
  (Professor Melville) Recruitment in term of students. We carried out a very thorough review, both in terms of the quality of provision and also the range and the number of colleges, and concluded that there were too many agriculture colleges. So the issue of numbers, I think, has to be one that has to be tackled. Also a number of them were very small and not terribly good. So we have encouraged merger in a number of cases, whereby they can maintain the provision, and viable provision, but sheltered in a college that has greater diversification. One of the difficulties of agriculture colleges is that diversification is difficult for them. Presumably one reason is their history, but very often their rural location is difficult. It is all very well putting a college a long way from the population areas, but it is not very attractive. So we have had a number of mergers with general FE colleges; three I believe have merged with higher institutions, universities. So we maintain the provision in that way. You are quite right, with the downturn in the industry for all kinds of reasons—BSE, pig prices—all of those have affected colleges because they gain some of their income from farms, they run practical farms. For this reason we introduced the five per cent uplift in their overall funding, so they are now receiving the five per cent premium on top of the general funding. That is going to be increased, or is planned to be increased, to ten per cent next year, and I hope the Learning and Skills Council will implement what we would have intended in that regard.

  49. We know that they have a higher proportion of more expensive courses, that is obvious. It is a lot more expensive to teach horticultural/agricultural good practice than to stand in front of a blackboard. Can you reassure me that these expensive courses are not going to be sacrificed in cost-cutting exercises?
  (Professor Melville) Absolutely. Let me go back to the Funding Council's primary responsibility about this provision, and therefore funding is not exactly the primary issue. It is important that we have a viable agricultural sector. If I can turn to the future, one of the important developments is that the national training organisations will be much more involved with the Learning and Skills Council. The land-based national training organisation is a particularly effective one and is already working together to look with the colleges at the overall provision. We have been encouraging colleges to collaborate to make sure that between them they secure that provision. I think the whole issue of fixing the rates for colleges, fixing cost-weighting factors for provision, will take account of the issues you have talked about. Our most recent review increased the agricultural one to the highest level, so it is 2.2 compared to business studies which is one. So there is a 120 per cent premium on top of the cost for business studies. Our highest cost-weighting factor is higher than engineering, and I hope that if that proves to be inadequate, then our successors will continue to review their level of funding.

  50. As my last question, in Lincolnshire, because we had the old county structure that you talked about, we had our fair share of mergers and subsuming into universities and all the rest of it. I am prepared to accept that. Can you convince me and reassure me that as agriculture picks up again, the courses will be available to potential students of the highest possible quality, quite as good as anything they have enjoyed in the past?
  (Professor Melville) Certainly in terms of the quality. Some of the agriculture colleges have higher quality than many other colleges, so the quality is there. Now not all of them are as good as the half-dozen or so, but we have been encouraging them to disseminate good practice. Yes, I can reassure you that this will continue to be a focus. Yes, I can reassure you that it will not simply be a matter of costs that will determine the level of agriculture and horticulture provision in the future.

Mr Steinberg

  51. Is it true to say, Professor Melville, that from 1997 to 2001 the FEFC will have received substantial more money from the Government?
  (Professor Melville) Yes, it is.

  52. It is true. So why have the actual number of students gone down?
  (Professor Melville) The number of students declined in the year 1997/98 first of all. That was before the additional money kicked in from the new Government. The new Government provided an additional £80 million in that year, but that barely offset the previous reduction when the demand-led element was removed. We were still in a time when there was large efficiency squeezing, but in addition there was a policy of withdrawing from franchising. You will recall that franchising had been a considerable issue for discussion. There were 600,000 students who were franchised from further education colleges. That number dropped to 400,000 over that same period, and that almost corresponded one to one to the reduction in students over that period[7].

  53. In my life before this Committee I can remember that you actually encouraged franchising, did you not?
  (Professor Melville) The Council and the Government of the day was encouraging franchising. Let me make clear the point, it is still going to be present, it is described as subcontracting in the Learning and Skills Council, but the issue is not franchising per se, it is actually distant franchising, the practice has led colleges to focus on, rather than their local communities to focus, on communities at a distance, because that was where they could find students. It is really that sort of change.

  54. You are talking me down a road I did not want to go down. If you are encouraging franchising on the one hand and changing the rules halfway through the game, it is a bit tough on those colleges. (Professor Melville) The advice that we gave to colleges was that they should withdraw from franchising in an orderly way. That is, that there was no requirement for them to withdraw immediately from franchising. It was not outlawed, it was not banned; we simply prevented colleges from engaging in new franchising. Where they had it, we encouraged them to withdraw in a way that they could—

  55. You are really taking me down the road that I did not want to go. That is not accurate, is it? My understanding is that colleges that were prevented from franchising, you did not recompense.
  (Professor Melville) I did not suggest in my response that we recompensed the colleges.

  56. That is my question, though. The point I am making is that if you encouraged colleges, or you instructed colleges to come up with franchising agreements, then they lost considerable amounts of money because of that and then you did not recompense them, you put them in a very difficult situation, did you not?
  (Professor Melville) We made it clear to colleges that if they withdrew from franchising, as they withdrew they should ensure that they replaced the distant provision with provision in their localities. We encouraged them not to do it overnight. In fact, the best colleges are withdrawing from franchising over a period of three or four years.

  57. You have really taken me down a road I did not want to go. One of my local colleges lost £160,000 which they got no recompense for. In fact, they made an application for it and you turned them down.
  (Professor Melville) I assume that this is Bishop Auckland?

  58. No, so that is another college. That is two.
  (Professor Melville) You will have to be specific.

  59. East Durham.
  (Professor Melville) There were specific circumstances associated with both of those colleges both of whom were for an extensive franchiser. The issue was simply that the franchising was largely funded from the demand-led element that was an open-ended commitment by the previous Government.

7   Note: See also Evidence, Appendix 2, page 20. Back

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