How significant is this change to colleges?
The ONS decision itself is not that significant – it's an accounting change. But the DfE’s policy response to it is really quite significant. Some of that policy response was inevitable, as colleges should now comply with Managing Public Money. Other parts of the response go further than was strictly necessary to comply with Managing Public Money.
Other changes do not go as far as many would like (such as not extending some funding advantages to colleges which academies currently enjoy).
The significance of the change will vary from college to college. For some colleges which do not have senior staff paid over the threshold, which do not have significant desire to borrow, and which do not carry out many non-core activities, then there should not be a lot of change. But for those larger, more complicated college groups, there will need to be a significant shift in behaviour.
Following the decision, what are the immediate changes that colleges will need to make?
This will again vary depending on the circumstances of the college. If I were a college principal (and it is probably good news for the sector that I am not) then I would be thinking about the following:
Make sure that the corporation is well briefed.
Consider the college’s existing and future borrowing requirements and how that will now look.
Understand the range of commercial and financial issues which now require DfE consent.
Make sure that the HR team is familiar with new pay and settlement requirements.
Think about the college’s future estates needs. The ability to sell land without permission may go in 2025, so now is the time to analyse estates needs.
Keep an eye out for the DfE’s approach to insurance – there may be savings to be had.
Start to think about medium-term strategy. For some colleges, it might be sensible to consider alternative legal forms to mitigate some of these changes.
How will this limit the ability of colleges to merge, diversify or acquire assets or other entities?
We cannot be certain until we can see whether the DfE would consider these things to be: “Novel, contentious and repercussive transactions.” In the interim, I would advise erring on the side of caution and approaching the DfE for consent if there is any doubt.
For larger, more complicated college groups, there will need to be a significant shift in behaviour
Do you agree with the Sixth Form Colleges Association that reclassification, and the Department for Education's remarks on whether colleges will now be able to reclaim VAT, could push more SFCs to consider academisation?
Broadly, yes. But I would not say that it will “push” sixth form colleges, because the new restrictions on colleges are very similar indeed to the restrictions on academies. So, there is not really a push.
Instead, I would say that there is less of a “pull” to stay as a sixth form college, because some of the advantages which there were over being an academy have gone.
What is your view on the reclassification decision?
The ONS does not make policy decisions and simply categorises bodies as it sees fit. I would trust the ONS to come to the right decision, if only because I admit to being very confused by all of the analysis!
It is the DfE’s decisions which I think are more interesting, as some of them are driven by policy considerations. Even then it is not my role to judge the merits of the policy – my job is to help colleges to navigate them as well as possible.
On the whole, I would say that those people who favour more central government control of the sector will welcome these changes. Those who would prefer for colleges to be autonomous will like the changes less.
These changes have to be viewed in light of the other significant policy changes, such as to funding, Local Skills Improvement Plans, skills devolution, and funding and accountability agreements. There is a lot going on and colleges (in particular governors) will struggle to keep up with the pace of change.
Of course, if the net result of these changes is an increase in funding for the sector, then that is certainly something to celebrate. If colleges are given some more of the benefits which are enjoyed by academies, then that would also be welcome.