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The Minister for Skills and Enterprise (Matthew Hancock)
It is a great pleasure, Mr Williams, to respond, under your chairmanship, to a forthright debate. I am grateful for the opportunity to set out the context and some of the issues surrounding our decision, which was not an easy one to take. Many of the points raised were not quite accurate, so I hope to provide some reassurance on them, and on how we will deal with the impact on individual colleges, not least because several hon. Members raised the concerns of colleges that are particularly hard hit; I am looking at the hon. Member for Croydon North (Mr Reed). At the moment, we are confirming with colleges the individual allocations.
Before we get to the meat of the debate, let me say that the process for making the decision was completely in line with the process for making such funding decisions under this Government and the previous Government. Say that following the overall allocation in a spending round, it becomes clear that savings have to be made in the Department for Education, outside the ring fence for education for 5 to 16-year-olds; the overall funding policy for the following academic year should be set out before Christmas, in December, in a letter from the Education Funding Agency. That is the normal way of doing things. Someone implied a criticism of the EFA, but there should be absolutely no criticism of the EFA over this, because such decisions rightly rest with Ministers. In February, normally, we come up with the allocations for individual colleges. That is the process we are going through: we are looking at the impact on colleges. We have estimates of those impacts, but we need confirmation from each college. That is the normal process, followed by the previous Government as well as this one. There has not been a problem in the process, but we can go into the individual decisions.
Nic Dakin
First, earlier information about a cut would have been helpful and welcomed by colleges. Secondly, although the process described by the Minister is accurate, for the first time that I can remember, a decision will affect people already enrolled on courses. If they are on a two-year course, the cut will impact on them and, because of the lagged funding, that is particularly difficult.
Matthew Hancock
I will certainly respond to that point. The irony for those already in education who are affected by this decision is that the funding is being returned to the 2012-13 level that it was at when they enrolled. An important piece of context has not yet been mentioned: the decision, which regrettably had to be made because of pressures on the public finances, changes funding for 18-year-olds back to the 2012-13 level. I understand and appreciate the pressures on the budgets of FE colleges, but in 2012-13, pupils were funded for 450 hours, and we raised that to 540 hours—an increase of 16 and two thirds per cent.—and we are now debating a cut of 17.5%, which is of almost exactly the same order of magnitude. The discussion about the impact on colleges and the conversations with college principals need to happen in the context of the fact that this changes the funding rate per pupil for 18-year-olds back to 2012-13 levels, which was only last year.
Rehman Chishti (Gillingham and Rainham) (Con)
I accept that the Government have done a lot of good work in the FE sector. The Minister says that further discussions will take place with specific colleges. For the record, MidKent college, which will lose £800,000 and have 1,000 students affected, is being told that it will get a cut of 3.4%, and yet there are high levels of deprivation in that area. Will the Minister have discussions with the college to see how things can be taken further?
Matthew Hancock
I will absolutely ensure that that happens. In fact, I will ensure that such discussions take place with all colleges. It is important, however, to set out why we took the decision we did.
We were faced with a cut across Government to make savings to reach our goals on reducing the budget deficit. I need not stress the wider argument about the necessity of reducing the deficit, but life would be easier for a Minister and throughout our country if we did not have a budget deficit of £100 billion, and if we had not had an even bigger deficit three years ago. We all know who is responsible for that. There is tension on the Opposition Benches between those who recognise and acknowledge the need to deal with the problems left by the Labour Government and the others. Not least, I recognise the reasonable approach taken, and the suggestion of alternatives, by the hon. Members for Hackney South and Shoreditch (Meg Hillier) and for Rochdale (Simon Danczuk); that is in contrast simply to complaining about things and saying, “Aren’t we in a terrible mess?” It is difficult being a Minister when there is no money left, but we all know whose fault that is. I will not stress that any more.
I care about the individual impact on colleges. For example, I would be delighted to visit Cambridge—I think I have a campaigning visit in the diary. According to our figures, which we are in the middle of confirming with colleges, as a result of the decision, Long Road sixth-form college will have a reduction in funding of 0.7% and Hills Road college of 0.2%. Those figures are to be confirmed with the institutions, but that is the scale in those instances. The impact assessment sets out the effect for types of colleges.
The reason for our decision is partly that it is in tune with other things that we are trying to do, not least raise the participation age. Many people have talked about NEETs, and I bow to no one in my support for FE colleges and their work in reducing the number of NEETs, but the biggest impact comes from the level of education at the age of 16, and from those who are in FE at 16 and 17 and whom we have to keep there. We are raising the participation age up to 18 years, with cross-party agreement, and are insisting that everyone stays in some form of education up to that age. We are focusing the funding on that.
The reasons underpinning the funding decision, therefore, are the decision to return funding for 18-year-olds to last year’s levels; our raising of the participation age; the need to do so much work to ensure that people stay in education at 16 and 17; and the fact that on average—this is not the case for everyone—18-year-olds spend less time on their education, even when it is full-time education. Furthermore, as the impact assessment says—this ought to be recognised in the debate—those who are 18 in education are no more likely to be disadvantaged than anyone else.
Matthew Hancock
I am well versed in the VAT issue and recognise the argument. Removing the VAT anomaly would cost £150 million, which is the same amount that we have had to save through the measure we are debating, so I am afraid that I simply have to plead having no money to deal with it. All I will say is that I fully acknowledge the argument.
A sixth-form or FE college has a private sector designation from the Office for National Statistics that leads to the VAT charge, but it also gives the college much more power over borrowing. On the one hand, a sixth-form or FE college has much more power to manage its finances, but on the other hand, it has to pay VAT. I note that in the past couple of years, there have been two new sixth-form colleges. Yes, there have been new 16-to-19 free schools, but there have also been new sixth-form colleges, so some people have taken the decision, even though they know that they will have to pay VAT, to go down the sixth-form college route, because they get extra flexibility in managing their finances. I completely acknowledge the VAT issue, but there is a flip side to the argument, which is why some people go for paying the VAT, even though they might not need to do so.
Eric Ollerenshaw
The Minister is explaining himself extremely well, but there is a bit I do not get. Why did he make the commitment to colleges that they could have 540 hours, which they then budgeted for, only to take it away, leaving them with a problem?
Matthew Hancock
My life would certainly have been easier had the decisions been taken together, and had that not happened. I am simply putting that forward as an explanation of the context we need to think about when considering the size and scale of the cuts.
We are looking at the individual implications. I am happy to ensure that the EFA and my team talk to any college that is concerned. We need to recognise, however, that the reason for the decision was that savings had to be made across Government. There is also a policy explanation: there is the fit with other things on which there is consensus across the House. I am not looking for adulation over this policy decision; I am looking to explain myself as well as I can. I am happy to talk to colleagues and colleges further, because my goal is to support colleges and education to the best of my ability.