Select Committee on Education and Skills Minutes of Evidence

Supplementary Memorandum from Margaret Hodge MBE MP (DfES 17)

  I promised to write with more details about the Learning and Skills Council's administration budget following my attendance before the Education and Skills Select Committee on Wednesday 12 December.

  When the LSC became operational in April 2001, it took over many of the functions previously carried out by the Further Education Funding Council (FEFC) and Training and Enterprise Councils (TECs). It also took over a number of activities that had been the responsibility of the Department for Education and Employment (DfEE) and Government Offices (GOs).

  The original 2001-02 administration budget for the LSC was set in 1999, based on the best information available at the time about the operating costs of the predecessor arrangements. We now know that the operating costs of the predecessor organisations had increased during recent years, and that our original assumptions were therefore under-estimates.

  At the Committee, a figure of £150 million was quoted for TEC administration costs. This is not correct and it is difficult from the TEC accounts to establish the actual spend on a comparable basis to the way the LSC is required to account for administration. The total shown in the consolidated TEC accounts for 1999-2000 under the heading "administration" is £192 million. However, this is misleading in that different TECs had different definitions of "administration" within their individual accounts—some TECs did not include any expenditure under this heading at all, so it does not represent the full extent of TECs' operating costs. To illustrate this, within the same consolidated TEC accounts, expenditure on staffing totalled £261 million, and this is just one element (albeit a significant proportion) of total administrative expenditure. Of course this staffing figure also includes expenditure on activities which have not passed to the LSC, so we have undertaken more detailed analysis to identify the actual operating costs of those functions which the LSC have taken on.

  Our most recent estimate is that the predecessor organisations spent in total between £270 and £280 million on administering the functions which are now the responsibility of the LSC, with the bulk of this (broadly estimated to be upwards of £240 million) being spent by TECs. Some £16 million was spent by the FEFC with the remainder (£20 million) being spent by DFEE and Government Offices.

  In addition to the tasks it inherited, the LSC has also taken on a number of new responsibilities, such as specific action to raise basic skills; active intervention to raise standards in the further education and work-based learning sectors; follow-up of area inspections; and managing a 9 per cent real terms increase in programme budgets in 2001-02 (compared to 2000-01), including new initiatives such as Centres of Vocational Excellence. The LSC takes on significant further responsibilities in 2002-03, including the funding of school sixth forms and a further real terms increase in its programme budgets; and it will need the capacity to take decisions at local level about the allocation of funds for young people's and adult learning provision.

  In the light of these new responsibilities, more up-to-date information about the cost structure inherited by the LSC we agreed to a £25 million increase in the administration budget of the LSC for 2001-02 and 2002-03, to £213 million and £218 million respectively. This also takes account of the LSC's VAT status which is less favourable than that which applied to TECs. TECs were able to recover all of the VAT they incurred whereas the LSC is only able to recover VAT incurred on its taxable supplies, which are minimal, so the LSC cannot provide for as much expenditure from a given administrative budget as TECs used to.

  These arrangements deliver the commitment given to Parliament during the passage of the Learning and Skills Act that there would be administrative savings of at least £50 million in cash terms compared to previous arrangements, and provides good value for money in the delivery of the Government's ambitious post-16 education and training remit.

Margaret Hodge MBE MP

January 2002

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