The pursuit of value for money hindered by barriers to entry

Private and not for profits put off running Colleges  by pensions

Comment .

KPMG LLP was  commissioned by the Learning and Skills Council (LSC) to undertake a review of Further Education (FE) colleges’ current delivery models, and, to identify with the sector, potential new ways of shaping the delivery infrastructure in a way which could provide better value for money (VfM) for individual colleges, and for the sector as a whole.

The report published  last month (May) ‘ Delivering Value for Money through Infrastructural Change’ comes at a time when the financial climate within the public sector means that all FE  colleges are under pressure to achieve, not just quality provision, but value for money i.e. delivering ‘more for less’.  The report says that ‘ The current economic downturn and the resulting pressure of tightening government budgets, has the capacity to test the FE sector’s resilience in ways it has not experienced ever before.’

This is taking place against the backdrop of significant changes in the sector. The Machinery of Government Changes (MOG) which establishes the Skills Funding Agency (SFA) the Young People’s Learning Agency (YPLA) from 1st April 2010 changes established funding routes for colleges and gives a range of new responsibilities to Local Authorities (LA). A new statutory sixth form college sector has been  created from 1 April 2010 and will become part of the LA “family”. These fundamental changes will require the FE sector to develop new ways of working with each other, with existing partners and with a range of new partners. In addition to which we have a new Coalition Government with its own priorities for the sector to ease up the supply side and allow FE colleges to better respond to demand.

The report concluded ‘ collective action with a range of partners (other colleges, schools, local authorities, HE, vocational providers, the voluntary and the private sector) will be vital to increase the VfM of the FE college sector. Our review indicates that the current legal and regulatory framework for FE colleges militates against the success of shared services and federations’

On the barriers which prevent colleges being innovative in improving value for money, the report stated ‘A fundamental cause of many of them is the impact of the legal and regulatory framework for colleges which imposes a limit to the flexibility of strategic partnerships. The influence of this framework, which emphasises risk, exacerbated by an implicit tendency towards competition between colleges, has created less tangible but equally, in some cases, impenetrable cultural barriers which discourage innovation.’

KPMG also crucially referred to ‘acknowledged factual barriers, such as the current tax rules, pension and OJEU issues which are all a particular disincentive to involving private and voluntary sector providers who wish to invest in the sector.”

The report found extensive ‘latent’ or ‘pent up’ demand for greater involvement in FE provision evident amongst PVTPs, with many noting that they would like to become more involved in delivering FE services. At present though  there are no PVTPs responsible for delivering FE on a college-wide scale. The barriers are seen by the PVTPs as the main reasons for them not focusing on FE more thoroughly. The over-whelming response was that until ‘competitive neutrality’ can be developed, then the potential for VfM that greater competition for whole or part provision that the PVTP may bring to the FE sector will not be realised.

Referring to regulatory barriers to entry and potential innovation, the report   found that by far the most important of these are the rules governing VAT and TUPE (the transfer of undertakings, ie. the requirement to offer ‘broadly comparable’ terms and conditions to staff on taking over a service previously run by  another organisations), particularly pensions. For many private sector providers, pensions are the ultimate barrier to them becoming more involved in FE. The CBI, which represents PVTPs, has raised these issues in their work on competitive neutrality. They cite a lack of consistency in pension costs and VAT treatment between the public, private and third sectors as, “barriers to better quality public services and better value for the taxpayer.” But they have been  making this point to the Government for years without substantive action being taken to address the issues, first raised several years ago  in a PriceWaterHouseCoopers Report on the state of the  Childrens Services market, commissioned by the Government but then largely ignored.

The KPMG report  recommends a radical overhaul of the FE sector as its financial situation is deteriorating rapidly.


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