A Simplified Further Education and Skills Funding System and Methodology

1. A Simplified Further Education and Skills Funding System and Methodology Mark Ravenhall, Director of Operations

2. Building on the 2010/11 changes • [Some] simplified budget lines • Removal of Summary Statements of Activity • Training organisations paid on actual delivery in arrears • Colleges paid on monthly profile with no in year reconciliation • ‘This has set a clear direction of travel...’

3. Scope Post 19 but consider funding approach across age groups by working with DFE and YPLA • Funding & eligibility policy: who, what and how • Setting funding rates and the funding methodology: How the rates are set…. • Allocations, procurement and contracts • Performance management, payment, data collection and audit

4. New System ‘should’ • Allow flexibility to meet needs • Minimise processes of justification • Establish single account management • Streamline funding system • Remove statutory / regulatory constraints • Overhaul the performance management regime

5. Funding Policy • Single budget • Improvement support • The needs of customers • Simplified fee structure • Public follows private • Learner subsidy and learning support

6. Funding Policy: single budget • Combined Adult Learner Responsive and Employer Responsive budgets • Single budget for post-19 Employer Responsive provision • Budgets for provision through other Departments would remain outside a single budget approach • Support delivery and performance possibly through a funding envelope

7. Funding Policy: improvement support • A fully sector-led approach • Funding is given to the Learning and Skills Improvement Service (LSIS) • Extending market choice through provider accounts…

8. Funding Policy: the needs of customers • Encourage colleges and training organisations to meet the needs of all learners • Unemployed, people with LDD • Work with JCP • Incentivise providers to meet the needs of all • Pupil premium for the unemployed? • Course premium for short, flexible, targeted

9. Funding Policy: simplified fee structure • Make clear what the government will support and what requires individual contribution • A transparent system, informative to both the individual and the employer • Encourage larger businesses to contribute more than smaller businesses

10. Funding Policy: public follows private • Support the choices of individuals and employers • Recommended that employer cash contributions should be matched by public investment • Measure co-investment at an institutional level

11. Funding Policy: learner subsidy and learning support • Simplify co-investment approach • Support disadvantaged learners • Prioritise support effectively • Provide information to the learner on what support they are entitled to • Ensure vulnerable groups of learners are funded

12. Comparison of proposed funding approach to how it works now

14. Funding Methodology • Simplified rate setting • A move away from funding inputs to funding outcomes • Maximising new technology in delivery • Rate setting • Pricing model options • Programme weighting • Reviewing rates • Rate setting for apprenticeship frameworks • Reviewing the use and composition of provider factor

15. Funding Methodology: simplified rate setting • Introduction of the Qualifications and Credit Framework (QCF) • Ensure value for money and reflect new flexibilities • Solve inconsistencies of current model • Change the basis for setting rates • Simplify through having fewer rates

16. Funding Methodology: A move away from funding inputs to funding outcomes • Current approach is overly complex and difficult to navigate • Require a more personalised strategy • Focus on the quality of outcome secured • Move the system of pricing • Ensure a more transparent approach in terms of co-investment and public contribution • Possible introduction of a price tariff model

17. Funding Methodology: maximising new technology in delivery • With a single budget approach and greater flexibilities offered by the QCF, it is possible to remove the separate rates • Drive for greater efficiency and effectiveness • Aim for simplification

18. Funding Methodology: rate setting • Requires close work with the sector • Consider the balance between simplification and a system that is sensitive to the needs of the individual

19. Funding Methodology: pricing model options • Option 1 – Bands based on size of qualification • Option 2 – Bands based on learner characteristics • Option 3 – Bands based on both size of qualification and learner characteristics

22. Funding Methodology: programme weighting • Reflect higher cost subjects • Develop a standard weighting system for each sector subject area • Make programme weighting more transparent so the learner or employer is fully aware of their qualification and the amount the state contributes to it

23. Funding Methodology: reviewing rates • Ensure the Skills Funding Agency work with the sector to determine how customers are responding to this method of pricing • Annual discussion • Sector and other representative organisations

24. Funding Methodology: rate setting for apprenticeship frameworks • Consider whether it requires a separate approach • Need to be consistent with rate-setting • Co-funding would continue • Link between cost of delivery and price set per framework

25. Funding Methodology: reviewing the use and composition of the provider factor • Ensure simplification, efficiency and broader policy ambitions • Lack of clarity in the provider factor

26. Comparison of proposed funding methodology approach to how it works now

27. Allocations • Allocating funds • Minimum contract levels • Subcontracting • New provider (or employer) process

28. Allocations: allocating funds • Assign a funding envelope • Each college or training organisation determines what it can deliver for the money • Continue with cash allocation for adult budget

29. Allocations: allocating funds • Option 1 – Overall budget for college or training organisation is dependent on previous year’s success and delivery rate • Option 2 – Core and marginal funding

31. Allocations: minimum contract Levels • Skills Funding Agency has contracts with over 1,300 colleges and training organisations • Complex and often bureaucratic approach to contract management • Support by a fair and transparent approach to sub-contracting

32. Potential Impact of Introducing Minimum Contract Levels for post 19 contracts

33. Allocations: subcontracting • Skills and Funding Agency will have fewer direct contractual relationships • Have a robust and transparent approach • Increased collaboration • Reduced figure actually spent on delivery • Risk to colleges and training organisations if they engage with poor quality providers • Announce clear agreements

34. Summary of proposed approach compared to how it works now

35. Allocations: new provider (or employer) process • Clear and consistent approach to bringing in new providers • Establishment of Approved College and Training Organisation Register (ACTOR) • ACTOR will assess new providers

36. Performance Management • Accountability • Volume and frequency of data collection • Payment and reconciliation • Audit

37. Performance Management • Move away from in-year reconciliation • Move to quarterly performance management • Apply Minimum Levels of Performance (MLP) • Focus funding allocations on colleges and training organisations who are delivering high quality provision • Increased flexibilities

38. Performance Management: accountability • Current complex bureaucratic system, but maintains transparency • Increase simplification, freedom and flexibility • College freedom to assess and respond to local need • Require colleges’ regular publication of information • Set of outcome measures, benching marking and value for money assessment • Retain a contractual approach to training organisations • Provide a strong competitive test of the efficiency and effectiveness of colleges

39. Performance Management: volume and frequency of data collection • Reduce the Individualised Learner Record (ILR) • Simplify the separate data collections • Allow greater freedom for colleges and training organisations • Increase transparency (and therefore publication) of data in key areas

40. Performance Management: payment and reconciliation • Colleges will be paid monthly • Training organisations will be paid on delivery, with quarterly reviews • Automated payments to and performance management • Establish clear criteria for the re-allocation of under-spend (for post-19 provision and 16-18 Apprenticeships)

41. Performance Management: audit • Ensure the appropriate use of public funds • A significant amount of college and training organisation time is spent responding to multiple audits • Change of pricing model • Single adult budget • Explore the potential for a single audit framework

42. Consultation questions

43. Q1. We welcome views on whether these are the right principles for a streamlined FE and Skills system - are there any others? Q2. We welcome views on whether there are other areas of the wider FE and skills system that should be focussed on to simplify systems and processes and reduce burden? Q3. We welcome views on the benefits of extending the current approach to a single post-19 funding stream and whether there are alternative models to consider. Q4. Would a funding envelope covering the Spending Review period support improved delivery and performance - if so to what extent?

44. Q5. We welcome views on how the sector should take the lead in determining the funding allocated for LSIS and the broad parameters of how this is spent. Q6. We welcome views on how we can ensure the funding system supports the sector in responding to the needs of the most disadvantaged. Q7. We welcome views on whether the approach to public subsidy should be differentiated. Q8. We welcome views on whether employers should be accommodated through different measures within the funding system based on their size

45. Q9. We welcome views on the practical implications of taking into account the need for optimising co-investment and the need for simplification. Q10. We welcome your views on streamlining the way in which we currently support learners’ additional needs including what (if any) aspects of current arrangements should remain. Q11. We welcome views on targeting funding where it will have the most impact; what elements of the Qualification and Credit Framework should be eligible for funding and why?

46. Q12. We welcome views on the benefits of moving to a more price-driven system; including how we would mitigate against the risk of focusing too much on a single outcome at the expense of the quality and relevance of the learner experience. Q13. Are there any other barriers to the sector delivering more efficiently and effectively? Q14. We welcome views on whether there are alternative approaches that could be considered (including maintaining the status quo) which meet the principles of simplification and value for money; if so, how might they work?

47. Q15. We welcome views on how this might be achieved, and whether its benefits would justify the change Q16. Should there be a different approach to setting rates for post 19 Apprenticeships? Q17. We welcome views on whether there are other elements of the provider factor that could be removed / simplified in light of the proposed approach to allocations, rates and funding? Q18. We welcome views on the options – including how we could use the approach to marginal funding to reward good performance in delivering quality outcomes in response to learner and employer needs.

48. Q19. Should some areas of provision and/or types of provider be exempt from minimum contract levels? Q20. We welcome views on what the “right” minimum level might be. Q21. We welcome views on the risks of greater sub-contracting, what can we and the sector do to minimise those. Q22. Do you think it would be reasonable to expect this information to be publicly available on a monthly or quarterly basis?

49. Q23. We welcome views on the extent to which the proposals in this document help to reduce the burden of data collection? Are there other areas that need attention? Q24. We welcome views on whether there are other changes that would promote simplification and better value for money. Q25. We welcome views on the existing aspects of the audit approach that would need to be included in a framework for use by external auditors? Are there alternative approaches to build on existing practice?

50. Q26. We welcome views on whether there are any other areas not covered in the document that could realise significant efficiencies if we simplified or streamlined. Q27. Are these changes suitable to be taken forward specifically for 19+ provision? Q28. We would welcome your views on the key considerations that we need to take into account when implementing any changes.