Education and Skills Committee

Meeting date: Wednesday, November 16, 2016

Official Report 521KB pdf

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Pre-budget Scrutiny 2017-18 (Scottish Further and Higher Education Funding Council)

The third item of business is the second of four pre-budget scrutiny sessions. We heard from Skills Development Scotland last week and we will hear from the Scottish Qualifications Authority and Education Scotland later this month. Today, we are looking at the Scottish Further and Higher Education Funding Council. I welcome from the funding council Dr John Kemp, interim chief executive; Dr Stuart Fancey, director of research and innovation; and Lorna MacDonald, director of finance.

Before we start, I would like to put on record the committee’s thanks to the SFC for arranging a visit for Liz Smith and Colin Beattie last week.

I understand that Dr Kemp wishes to make a short opening statement.

I thank the committee for the opportunity to meet it today.

The Scottish funding council is the national strategic body for the funding of further and higher education in Scotland. We fund, support and care for 25 colleges, 19 universities, 470,000 students across those colleges and universities and nearly 50,000 full-time equivalent staff, and we spend a total budget of around £1.6 billion.

Our ambition is that Scotland will be the best place in the world in which to educate, learn, research and innovate, with colleges and universities making a major contribution to Scotland’s social, cultural and economic development. Our task is to care for and develop the whole system of colleges and universities, and their connections with and contribution to Scotland’s educational, social and cultural life.

In our written submission we have provided a summary of progress. We think that, across a broad range of measures, our colleges and universities are doing well, but neither sector can stand still. There has been a great deal of change in the college sector in recent years and there are shared aspirations for change in both sectors on widening access, developing the young workforce, developing new learner journeys and implementing phase 2 of the enterprise and skills review.

The SFC looks forward to working with colleges, universities, the Government and others on all those issues. We also look forward to discussing them with the committee, and we will be happy to answer members’ questions on those matters or on the legislative consent memorandum that the committee considered earlier.

Thank you very much. We will come to the LCM later in the session.

Johann Lamont will ask the first question.

Thank you for coming along and for providing so much information.

An issue that emerges from the submissions to the committee is the extent to which people value the fact that your organisation is at arm’s length from the Scottish Government and is able to represent their voice. Indeed, you have just said that your job is to care for and develop colleges and universities. However, you say in your submission that any advice that you give to ministers would be given in private. Therefore, in what circumstances would we know that you were concerned about the Scottish Government’s policy or budget decisions?

That is a tricky question. When we speak to ministers, we speak to them in private, because that is the correct way to give advice. However, from looking at the funding council’s work across a broad range of areas, it is fairly clear what our view is on many things and how that intersects with Government policy. When we meet ministers to advise them, the sectors are sometimes there with us. A good example of that is the discussions on the spending review, in which we give advice to the Government with our stakeholders—the higher education sector and the college sector—present.

I think that what we mean by the statement in our submission that we generally give advice in private is that, when we write to ministers with advice, it is given in private.

So if, for example, you advised the Scottish Government that it was ill advised to undertake the regionalisation of college boards and to cut budgets for part-time courses, you would not say that in public and we would not know what your view was.

Regionalisation was an issue on which we co-developed the policy with the Government. We worked very closely with the Government and the sectors on producing and implementing “Putting Learners at the Centre”. That is an issue on which we were in exactly the same position as the Government. That is how our relationship with Government works—our advice feeds into policy documents, which then feed into what we implement.

The Government and the funding council also worked together quite closely on the prioritisation of full-time courses. That was part of our response to the economic downturn in 2008-09. We looked extremely closely at how we should respond to what at the time was a very sharp increase in demand for full-time college places for young people. As with regionalisation, we worked closely with the Government on that.

So we can work on the assumption that, if you agree with the Government, we will know, because you will say so. We could have an argument that would last all day about how disadvantaging people who want to do part-time courses helps us to deal with an economic downturn, but that is a separate matter.

You are saying that, when you agree with the Government, you are quite happy to say publicly that you are working on things together. Our difficulty in scrutinising budgets is that we do not know when you do not agree with the Government. The advice that you receive from the sector covers issues that we do not know about, because you will not tell us, so how can we possibly take a view on whether you think that the budget that has been given to you to do your job is sufficient? Is there a danger that, on one level, you have become an organisation that is simply a distributor of funds on behalf of the Government and that the aspect that the institutions presumably welcome—your distance from Government—is becoming blurred? We will come on to discuss the proposals that might result in its becoming further blurred.

The view of the sectors is that we are much more than just distributors of funds from Government. As I said, the sectors are often with us in discussions around issues such as the spending review, which is the very issue that you raised.

10:30  

But we—Parliament and the people of Scotland—are not there. You are having a conversation with Government about budgets and, presumably, if you are not happy with the outcome, you are not going to say so.

We are here. Ask us. Our views on the budget are what we are here to talk about this morning. We happy to answer any questions about our views on the budget.

So, if I were to ask you what your advice to the Scottish Government would be on merging the funding council with other bodies through the enterprise review, you would be able to tell us what you think.

Our input to the review on that matter has been made public. There was an open call for evidence as part of phase 1 of the review. In our submission, we highlighted several issues relating to co-ordination and closer working on innovation and aspects of the skills system. We have been quite public about the fact that we are enthusiastically looking forward to working on phase 2 of the review. There is a lot of detail to be worked out at that stage. In our submission for today’s meeting and in our previous submissions we have set out clearly the value that we see in a body such as the Scottish funding council.

Universities Scotland says:

“The SFC should have the capacity and confidence to initiate policy itself … this is the aspect of SFC’s role that has diminished in recent years.”

Do you agree with that?

With regard to the self-denying ordinance to be private in your advice to Government, would it be helpful if the Scottish Government were to say that it would be good for people to see the challenge and debate that goes on at the heart of Government?

In recent years, some of the ways in which policy has been developed have involved the Government, the sectors and the funding council working together rather than separately coming up with solutions and then choosing one of them. That is a good way of developing policy.

On the issue of whether our advice to Government should routinely be made public, I would point out that, on some issues, it is made public. We respond to public consultations and so on, and our views are quite well known in that context. I think that the suggestion that you make would change the nature of the advice that we give to Government and would reduce the value of our body. We are a body that works with the sector and works with Government and other bodies. If you were to go too far one way or the other, it would reduce our value.

You will appreciate that, when the Scottish Government says that the funding council agrees with it, that strengthens its position. However, there will not be a set of circumstances where we can see that the funding council does not agree with the Scottish Government. That means that some of the challenge and debates that should be broadened out are not opened up as part of a direct face-to-face discussion between your organisation and the Government.

I accept that there is a balance to be struck with regard to the transparency of our advice to Government but I would contend that, on most issues, it is fairly clear what our view is.

Dr Kemp, you have offered to be direct in answering questions that the Parliament and this committee might put to you. I would like to ask you about phase 2 and the proposed board merger with Scottish Enterprise and Skills Development Scotland. Do you agree with Universities Scotland’s concern that the Scottish funding council would be put in an increasingly political role, with a minister in the chair?

There is a lot of detail to be worked through in phase 2. Universities Scotland’s submission highlights many of the issues that will need to be addressed in phase 2 as we come up with a structure that is appropriately transparent and is also focused on the broad range of things that a single board would have to do. We look forward to working with the Government and others on phase 2. I acknowledge that we need to address many of the issues that Universities Scotland raised.

Are you concerned that the Scottish funding council’s role in a merged body might be more political?

We would have to see what the nature of that body was and who the members were. We are already a non-departmental public body. We have a letter of guidance from the Government and work closely with it. I would not necessarily see that changing if that board had a similar nature to ours. As Universities Scotland highlighted, there is a set of issues about how we deal with a board that would be so diverse and might be focused on enterprise and skills as opposed to the wide range of things to do with the south of Scotland, the Highlands, research and widening access.

When Colin Beattie and I had the privilege of going to Queen Margaret University last week, an interesting comment was made that the Scottish funding council is a bit removed from the Government but not terribly far. Are you comfortable with the view that your role is increasingly political?

I will add to the questions that Johann Lamont was correct to ask you about scrutiny. The Parliament and the committee have to scrutinise the work that you do. In its recent report, Audit Scotland was reasonably comfortable with what is happening in the short term, but it had lots of questions about the long-term strategy, on which it felt that there was a lack of transparency and insufficient scrutiny. Are you entirely comfortable with how the Scottish funding council is running?

Yes. We spend £1.6 billion-worth of public money on colleges and universities. It is right that we reflect the will of Parliament and the Government in the spending of that money. We receive a letter of guidance from the Government. We exist not only to care for the system of colleges and universities but to ensure that they deliver what that £1.6 billion-worth of public funding aims to provide.

Do you dismiss Audit Scotland’s concern that there is a lack of transparency on the longer-term, overarching strategy and that our ability to scrutinise it is therefore somewhat compromised?

On the way into the committee meeting, I was reflecting that, with committee appearances that have already happened, including today’s, and some that will happen tomorrow and between Christmas, I will have appeared at seven committees between summer and Christmas, so the level of scrutiny of the SFC is fairly clear. We are open, transparent and available for scrutiny by Parliament.

On what issue was Audit Scotland concerned about the longer-term strategy?

The concern that Audit Scotland expressed in its recent report was about the way in which you are asked to implement Scottish Government policy alongside the institutions. It is relatively comfortable about outcome agreements but, on the longer perspective about what the process involved, it felt that there was a lack of transparency and, because of that, it was more difficult for us to scrutinise the process. Audit Scotland made a fair point. If we combine what Johann Lamont asked about and what I am asking now, a question mark is raised.

We are perfectly happy with any level of transparency. If we can do detailed things to make our work more transparent, we will be happy to work with the committee or any other committee to do that.

Universities Scotland said:

“Policy teams that might have previously had the capacity to concentrate on widening access or knowledge exchange policy have found themselves increasingly stretched after an organisational restructure to focus time on the outcome agreements process.”

Is that accurate?

The Scottish funding council’s number of staff has been reducing in recent years. The public spending climate has been tight, so our staff numbers have been going down. At the same time, we have been focusing on outcome agreements, which were a major change for our organisation a few years ago.

However, I will push back slightly on Universities Scotland’s point. We used to have large policy teams that worked on widening access, skills and research, for instance. We now have people who work as outcome agreement managers but are also sometimes part of an access team, for example. That is a useful way of using their skills so that they have not only an outward-focusing experience of what is going on in institutions but some policy expertise. We need constantly to think about the balance of that and we have been doing that. When outcome agreements were new, the teams were expanded quite a bit, because the agreements took a bit of bedding down. As time goes on, that balance is changing. However, I accept Universities Scotland’s point that the focus of the funding council’s staff has changed.

If it is true that your staffing has been reduced, the remaining staff must by definition be doing more work, particularly given the extent of the work that is now required in the HE and FE sectors.

The work is different as well. The sectors have changed quite a bit, and we have been changing funding methods. We have not been staying still.

Does that mean that the casework for the people who remain has increased? Does that have any implications for the quality of their work, because they do not have as much time?

We would not overload people to the extent that quality was affected. It is important that we work to a very high standard. We are addressing Universities Scotland’s point that our policy teams are not as large as they used to be and that they often involve people who are doing a mixed task of outcome agreements plus policy work.

We are working closely with Universities Scotland to implement the work of the commission on widening access, for example. That is a good way to ensure that we are close to the sectors on how to implement such things. A different way of working is involved, but there is pressure on all parts of the public sector to operate more efficiently and to get better outcomes by working more collaboratively with others.

If there are fewer people in policy teams and fewer policy developments, are you entirely comfortable that the Scottish funding council’s important advisory role with the Scottish Government is as effective as it used to be?

Yes. The recent major changes in the college sector have very much involved the funding council working closely with the Government in an advisory role. We will be very much involved in advising the Government on how to address some of the forthcoming challenges on the learner journey, for instance, where the Government has set out an aspiration to change things, along with partners in other parts of the world, in schools and in other organisations. I do not think that we have in any way diminished our capacity to participate in that kind of policy change.

I have a couple of questions on the theme of an NDPB being independent of Government or simply being an arm of Government. There are 55 paragraphs in the 8 February guidance letter from the minister—Dr Kemp mentioned those letters—and they are by any standards prescriptive. I note from the RSE’s submission to the committee that that is one of its concerns. Do you accept that that has changed quite a lot in recent years, and that you—I do not mean you personally; I mean the organisation—are under much more direct and prescriptive direction from ministers?

I have been at the funding council for about 16 years, and I am trying to remember the length of guidance letters over those years. They have varied up and down and that has often depended on the minister’s style. That time covers several Administrations.

I am not sure that there is a direct relationship between the length of the letter and the prescriptiveness of the Government. I contend that 55 paragraphs for £1.6 billion is reasonable. It is possible to be very prescriptive or less prescriptive within that.

I have not perceived a huge change in the prescriptiveness of Governments. As I said, I have been at the funding council for about 16 years. That has covered quite a few ministers and Governments. They have all had aspirations for change in colleges and universities, and they have all expressed those aspirations through guidance letters.

The letter of 23 March has a section on widening access. You have raised that, and I happen to have it on screen in front of me. I choose, for example, the sentence where the minister says:

“I want to see no diminution in efforts to widen access.”

By any standards, that is a very clear ministerial intent. We can go through all 55 paragraphs in the 8 February letter and find such language. You have no room for manoeuvre at all as an organisation. You are being told exactly what to do.

10:45  

I will pose a counterfactual. Imagine a funding council that wanted to diminish its efforts to widen access, which would be clearly against what I perceive to be the wishes of pretty much every party in the Parliament and those of the Government. In that case, I think that you would say, “We voted you £1.6 billion, but you’ve chosen not to carry forward a policy that is agreed by all parties in the Parliament.”

To go back to Johann Lamont’s question, many of us disagreed with changing the arrangement for college funding so that there were fewer part-time courses and fewer women were able to take college courses. There was no political agreement about that. Forgive me for being unable to find the reference at the moment, but the minister basically said, “Get on with it.” There was no agreement on that one.

There was not. However, the funding council and the Government agreed on that, because we advised the Government way back in 2008-09 that there were a lot of very short courses that did not lead to recognised qualifications and which we felt could be deprioritised in order to have more part-time courses. I am trying to think of an example of where we have been directly told to do something that we did not perceive would reflect the Parliament’s will or which was not closely related to our strategic plan or aims.

I am not really making such an argument or trying to pick that kind of hole. I am just saying that it strikes some of us that there is much more direction now.

Colin Beattie and I spent an inordinate amount of time on college governance in the Public Audit Committee in the previous parliamentary session, so you will understand why I ask a question about the issue. Under the heading “College governance”, the Auditor General’s letter to the committee states:

“The SFC’s role in regulating college governance is not clear.”

The obvious question is why.

That is a question for the Auditor General. I perceive her to mean—I followed this up with her staff when they were writing the report—that, with regard to some of the failings in college governance over the past couple of years, it had not been clear exactly what our role was, as opposed to the role of others, and how we should have handled the situation. Since the events at Coatbridge and North Glasgow colleges, the Government has established a good governance group and we have been working with other stakeholders on clarifying our role. I hope that, as that is worked through, our role will become clearer.

There are aspects of college governance that lie properly with the boards of colleges as charities, aspects that rely on the Government’s powers and aspects that are our responsibility—we need to be absolutely clear on that.

I will complete the loop by going back to one of Johann Lamont’s questions. Logically, have you just made the case that having an SFC board with responsibility for college governance is the right way forward? Such an issue would never get the attention of the superboard that will be in charge of everything that all the colleges do.

The Auditor General’s report referred to dealing with that as part of the enterprise and skills review. One of the things that need to be looked at in phase 2 of the review is how to retain the capacity in the new structure of an organisation that deals with all those different issues.

Colin Beattie has a short supplementary question, and he will be followed by Richard Lochhead.

It is not so much a supplementary question.

We will come back to it later, then.

It strikes me that political parties spend a lot of time calling on ministers to intervene in further and higher education funding decisions, so the argument that the funding council is too close to the Government is intriguing. On how close you are to the Government, how does your model compare with models in other countries?

The most immediate parallel is with the Higher Education Funding Council for England. The committee discussed the Higher Education and Research Bill, which would change HEFCE into something that is very different by establishing an office for students that would be separate from the research parts of HEFCE.

It is hard to do the comparison that Mr Lochhead asked for, because further and higher education systems vary a lot around the world. We are quite unusual in that we fund both further and higher education. It is a huge benefit that we think of one post-16 system and fund both bits of it.

On relationships with the Government, we spend quite a lot of money on further and higher education. In other parts of the world, a lot of the money comes from fees and other sources, so there is not the same type of body as we are. Funnily enough, the funding council that we would perhaps speak to most, as it is most like us, is as far away as New Zealand. To be honest, I could not tell members how interventionist its Government is compared with ours.

Comparing is hard, as the systems for funding further and higher education are so different. Therefore, the extent to which we would expect Government interference varies quite a bit. England is moving in a completely different direction.

My question is about two types of retention: the retention of quality staff and the retention of students. First, I will deal with staff. You will know my background—I was a staff member of a college and then I became an agency lecturer, so I speak with that experience.

Is there any monitoring of the level of agency lecturers against the level of those who have permanent contracts, and of the impact of that on the quality of teaching? I do not say that from the point of view of agency staff being of less quality; I am talking about the retention of people with permanent contracts. Do you monitor that?

We do not collect data on agency staff, full-time staff or permanent staff and relate that to quality. I am not aware that Education Scotland monitors that, either, when it does reviews. However, we could look at that. The data on staff in colleges has not been as extensive as that on staff in universities. That is one area that we are keen to improve for equalities reasons, for example.

I will tell you where I am coming from. On the quality of teaching, there could be a situation—I certainly saw this in my 15 years of college experience—in which excellent people from industry come to work in a college and then leave, and we do not know why, because they are never given an exit interview to ask what made them move on. I am glad that you have said that you will look at that, as it is a real issue, particularly given that we will have stronger links with industry. We are asking people to come from industry and teach in our colleges.

We want people with industry experience, including recent industry experience, to work in colleges. Sometimes a revolving door is a way of achieving that, but we want to know that it is revolving for the right reasons.

Exactly.

As you are taking notes on my wish list, I think that people from industry who have a lot to offer colleges could be instrumental in keeping courses relevant and doing development work but, if they work for an agency, they will not have a staff contract and will not be given paid time to do that. I am sorry—I am on my hobby-horse.

The other issue that I want to speak about is student retention and how it is monitored. I understand that colleges are funded for students if they are retained until a certain point in the academic year. Will you explain that for us?

I will let my colleague Lorna MacDonald come in on that. If a student stays beyond a date around November, the college will get more funding. We monitor retention and success rates by looking at a range of issues. We ask how many stayed until the early retention date, how many stayed until the end of the course and how many were successful. Does Lorna MacDonald want to say anything more about that?

I think that you have covered the matter.

NUS Scotland has spoken to me about the impact of having that date. Its criticism is that, beyond that date, students are not given the support that would allow colleges to retain them, because retention after that date does not have an impact on funding. How do you answer that criticism?

For funding purposes, we have the cut-off date because there tends to be a drop-off and we need to ensure that we fund only students who are there. Through the outcome agreements and the performance indicators, we focus on success—students getting to the end of their courses and passing them. Our performance indicator is not that someone stays for 25 per cent of the course; it is that they stay to the end and are successful. That is what we focus on in the outcome agreements. Are you suggesting that the funding method might incentivise colleges to be more concerned about the early part of a course than the latter part?

NUS Scotland and I talked about the drop-off in retention. Student retention is really important, and it is important to identify why students drop out. Is there a correlation between how the funding model works and the effort that is made to retain students? Are you looking into the reasons why students might be in difficulty?

Ten years ago, when there was less focus on the performance indicators and before there were outcome agreements, funding played a bigger part in what happened than looking at the outcomes did. At that time, I was aware of colleges being more concerned about the earlier part of a course and getting over the funding hurdle. However, that is probably less the case now, because there is so much focus on the end point and the success rate. The overall trend is that success rates have been going up, with the exception of the full-time FE level, which dipped a bit last year.

That leads me on to my next question. How do we measure the destinations of students who leave courses early? They sometimes leave early for legitimate reasons such as other opportunities, but the statistics on retention do not really dig into the destinations of people who left their courses early.

We have a destination survey that tracks where students go after their courses finish, which covers about 85 to 90 per cent of students. The ones that we do not track are more likely to be the ones who dropped out early and did not go on to other courses, because they are harder to find. We need to keep working on that to ensure that we have data on the students who drop out early as well as those who complete their courses.

It is sometimes hard to fathom why students dropped out. Sometimes, they chose the wrong course; other times, they wanted a job and got a job halfway through the course. We need to know those details because, if people can get a job halfway through their course, the course is too long and we should be running a different course that gets them to where they want to go more quickly.

You get that it is important to have that information so that you can structure your courses appropriately.

Yes.

I do not like to talk about students dropping out purely in financial terms, but given that we are doing pre-budget scrutiny, I note that there seems to be an issue with money being spent on students who then drop out. That does not represent good value and perhaps shows that not enough is being spent on student support to keep them on their courses. In the longer term, we are looking at reform of student support, but what is needed in the shorter term to prevent that money being wasted? There seems to be a big issue around the discretionary support budgets.

In the past, colleges have reported to us that the availability of the FE bursary, the discretionary support and so on has been part of the perceived reason why students have dropped out. In recent years, we have tried to focus that funding better on need. The allocation of places to a college is relatively stable—we know roughly how many places colleges will need and the funding for them—but student support is far more volatile. A different body of students of different ages, genders and so on can really affect the student support budget, so it is far harder to predict what will be needed.

Last year, for the first time, we used a needs-based analysis. I think that that will reduce the need for an in-year redistribution, which is something that we do every year and which is quite a sticky method of getting the funding in the right place. That is the kind of thing that will be looked at in the student support review that is kicking off, because we recognise that one potential reason for drop-out is uncertainty about student support.

11:00  

I thank the funding council for accommodating Liz Smith and me on our visit to Queen Margaret University last week, and for providing the helpful written submission on depreciation, which I am sure we have all been studying. [Laughter.] It is actually quite interesting.

I realise that professional accounting practice dictates the process, but I have a couple of concerns and I need a bit of information. Obviously, the approach means that most colleges will end up with a technical deficit, no matter what they do. Is that deficit annual or cumulative? In other words, will the impact on the apparent bottom line get worse?

That is one point on which I will bring in my director of finance.

It is not cumulative, but you are absolutely right that we should expect technical deficits. You will see from the Audit Scotland college overview report that, in 2014-15, the overall deficit was £28.3 million but, with the adjustments for non-cash aspects and one-offs, the overall underlying deficit was £3 million. About 15 colleges showed a technical deficit as well as other potential deficits.

That is the norm; it is not something that is going to get worse and worse. The priorities for the use of depreciation have been set. In many cases, with any revenue spend in that depreciation category—that non-cash budget—the priorities of student support and pay pressures will continue. However, it is not possible to keep allocating additional priorities to that amount of money.

From a budgetary point of view, the committee is interested in being able to see readily whether a college is in deficit. Members tend not to look at whether a deficit is technical or real. How will the information be presented in a way that allows committee members to see readily the real financial position of a college without having to go into the accounts and interpret them?

You are absolutely right. You will see from the written submission that we have added requirements in the accounts direction to make that communication much clearer. It is important for everyone to understand where a deficit is technical and where it is an underlying deficit.

On a small point of clarification, the submission talks about “Professional accounting practice”, but is it the same professional accounting practice across the whole public sector?

It is the recommended practice for further education and higher education institutions.

Is that different from the practice in other sectors?

Yes. For instance, other charities would have to apply the charities statement of recommended practice, but colleges and universities have to apply the further and higher education SORP.

How does that differ from the way in which other public sector budgets are handled?

It is considerably different from the normal Government accounting and accounts. Indeed, there is to be a further change in the SORP, which, I am sad to say, will make the interpretation of accounts more confusing. However, going forward, we collectively have to improve the communication of the underlying message.

Obviously, it is a concern if we cannot compare one area of the public sector with another. Would it be possible for you to encapsulate on one page what the significant differences are and how the education budget would differ if it was in another area of the public sector?

Yes. I am happy to provide that in writing following the meeting.

That is actually quite important.

In the submission, under the heading “Priorities for spend of depreciation funds”, you set out the three areas that have been prioritised: student support funds, loan repayments and the costs of the 2015-16 pay award. They are not necessarily one-off payments, are they? They are continuing obligations.

Absolutely, and, because the commitment goes forward, the flexibility within the net depreciation is reduced. It is an annual commitment that has to be met from that allocation.

Are those guidelines laid down by the Scottish Government or by the SFC?

There is ministerial approval of the priorities, and there is a legal commitment for repayment of any loans that existed prior to April 2014.

So, in effect, are we relying on the continuation of current accounting practices in order to fund those commitments?

Yes.

Okay. I have one other question, which arises from our discussion last week. When I highlighted some concerns about the role of the SFC as a regulator rather than a provider of funding to colleges and universities, I got the impression that there is still no clear role that distinguishes the regulatory part from the purely funding part.

Since you raised the point last week, I have been thinking about whether there are benefits to playing both roles or whether they should be separated. A regulator is responsible, often on behalf on the public, for ensuring that a service is of high quality and efficient and is using money correctly. We do that on behalf of the public in our regulatory role, and I think that it is probably easier to do it while we provide funding, because of the relationship that we have with the institutions. We discharge our regulatory role in a number of ways through our quality work, some of which has been mentioned today. That is very much part of the regulatory role; we ensure that what happens in colleges and universities is of high quality, and we do that through QAA and Education Scotland.

We have other governance roles that we have mentioned and which are part of our regulatory role, and we do that in the college sector through the recommendations of the college governance task group. Would it be easier to do that if we were standing separately from the colleges and universities or from the funding? That is probably a question not for us but for the wider world, but I do not think that it would be easier, because many of the interactions that we would have if quality was not good or if there were governance issues would allow us to bring things back on track through the day-to-day work of our outcome agreement managers and others who work with colleges and universities, and through funding levers. That approach does not work for absolutely everything, but it works for some things.

I am not arguing for one model or another. What I am arguing for is clarity on where the two roles sit within the SFC and on how the SFC sees itself as a regulator, being responsible overall for the health of the sector and ensuring that whatever regulations, laws and guidelines are made are enforced.

We should perhaps make clearer to MSPs and the world how the things that I have talked about fit together and how our quality work and regulatory work fit with our governance work, and how they fit with the outcome agreements that are a way of ensuring that what we think we are getting from colleges and universities is in fact what we are getting.

Further to Colin Beattie’s budgetary rather than regulatory points, I want to ask about Audit Scotland’s comment in its letter for today’s meeting that the SFC

“does not currently prepare medium to long term budgets.”

Why not?

It is partly because we are currently funded year to year by the Government. The previous budget settlement was for a year, and the next one will be for a year. Before that, it was more common to have a longer time horizon, and when we have had that certainty, we have done medium and long-term planning.

I do not want to contradict the Auditor General for Scotland, but Lorna MacDonald has a huge amount of information on the rolling forward of budgets and what our strategy for the future would be. We have probably not expressed that in a way that has allowed the Auditor General to see it as a strategy. It is an issue that we need to look at.

If I may be so bold, I suspect that the committee would really welcome that information. You have made a really good point. If you are doing the work anyway and you want to share it in some sense with us, we will support that.

That is good.

Colin Beattie also asked for clarification on accounting practice. You might well want to pull all that stuff together and send it to the committee.

Yes, I will.

I have one question on a related theme. Previous committees have asked your predecessors, Laurence Howells and, before him, Mark Batho, whether there was sufficient data to measure effectively whether the Scottish funding council was doing a good job. Is sufficient data available to measure the quality of what the funding council is delivering, or are there other aspects of data that it would be helpful to have?

It is always useful to have more data. When we analyse our effectiveness, we often analyse the effectiveness of what our funding has turned into through research on widening access and so on. A huge amount of data is available, but it is often a question of how we use it and how we promote it to the world so that you can see the changes in, for example, widening access.

We have talked about what happens to students after they leave college, particularly those who leave early. We know what 85 per cent of those students do after college, but we do not know about the remaining 15 per cent. A lot of what is needed is not about developing new data, but about making sure that our existing data sets are complete, cover the right things and link together so that we know where somebody goes when they leave college and the outcome if they have or have not completed the course. It would be very useful to have such information to know whether we are doing the right thing.

We often take policy decisions based on the data that we have. After all, the world changes, and we need to see how it all looks in five years’ time. A student destination six months or four years out might be very different from what it will be 10 years out. That said, although I am a person who would always like to have more data, I realise that there are limits.

My question is related to the point about accounting measures—and I apologise if this is getting technical. Colin Beattie asked about comparisons across the public sector. Would it not be fair to comment at this point that colleges and universities have a very different status in that regard? Universities are charities, but colleges now find themselves categorised as public sector institutions.

Colleges are also charities. Colleges and universities are very different beasts. On the different accounting standards, I will again defer to my colleague Lorna MacDonald.

I will follow up on the difference in accounting standards in a paper. However, the institutions very much have to follow a certain recommended practice for their operations.

Colleges have probably seen the biggest changes in the tertiary education sector. I note with some concern the comments that were made in the Audit Scotland report on colleges in the summer but also the Auditor General’s comments that were supplied to us before the meeting about measuring the benefits of the college merger process. She says in her letter that there have been issues in fully measuring

“whether the merger programme delivered all of the expected benefits.”

What are your reflections on that point? Will we be able to determine whether the benefits have been delivered and whether the merger process has been successful?

11:15  

We published a report reflecting on the post-merger evaluations that we have done of all the mergers. We did the two-year ones of all of them earlier this year and we published a summary report measuring the progress against the stated aims of the mergers in the plan at the time. The Auditor General’s point, which I think is a valid one, is that there are other baselines that could have been used at the time and from which we could have tracked things forward. At the time, we did not have some of the data on college leaver destinations that we have now, so we could not have used that for baselines.

I take the Auditor General’s point that we should perhaps have been clearer in stating some of the other things at the time—what the aim was for some of the measures. For the ones that existed at the time and that exist now, we tracked things such as retention and success rates at colleges as part of our post-merger evaluation. That was not explicitly set out as an aim of the mergers programme, but we have tracked the impact of the merger programme. To talk about the impact of the merger programme is perhaps overstating it, because we do not know what affected success rates over that time. It is not clear. However, we are able to track quite a lot of the baselines. It comes back to the point that it would generally be good to have more data so that we can measure success. We have quite a lot of it, but those things were not explicitly stated as part of the merger programme.

The Auditor General is making a much balder point than that. She is essentially saying that the Scottish funding council and the Scottish Government have not publicly set out when the benefits of the college mergers will be achieved and how they will be measured. She is specifically saying that there is incomplete baseline data. A particular point is raised in her letter about

“the costs of harmonising staff pay”

not being included in the cost assessments. In response to what you have just said, that sounds more central than marginal.

At the time when the Auditor General published her report, we had not published the post-merger evaluation summary. When we published it, we did not have all the harmonisation data from the colleges. I am pleased to say that we now do have that. I will come back to a caveat on this, but the cost of the harmonisation relating to the mergers was about £6.2 million. You need to consider that against the £52 million—the current savings.

Coming now to the caveat, I note that the challenge in the harmonisation data is that some of the decisions about harmonisation and about how pay costs were harmonised in the college sector were taken against the background of national bargaining coming in, as opposed to the merger. It is hard to disaggregate the two. The total cost of the harmonisation was £6.2 million a year.

The ability of colleges to invest is critical to their success. You have highlighted the fact that well over £200 million of investment is needed to bring the college estate up to standard. At the same time there has been a 77 per cent reduction in the capital investment that is available to colleges. What would your commentary be on that and on the ability of colleges to move forward? Secondly, what has the impact been of the reclassification of colleges as public sector bodies?

Once they became public sector bodies, the ability to retain reserves and to borrow money to address capital projects became much more difficult. They can retain some reserves through an arm’s-length trust, but that is at arm’s length and it is not really a reserve. That has indeed changed the way in which colleges can address capital issues. Previously, they could in effect save up and then use that money with some grant from us to address capital issues. The fact that they cannot do that puts far more onus on the funding council and the Government to be aware of colleges’ capital needs and to help them to address them.

We are currently doing some work with colleges on the needs of their estates and we are expecting the outcome of that to be available in the next few weeks. We will then be doing a larger piece of work on estates need over the next year or so, looking at all the colleges. We recognise that, although some of the college sector in Scotland has very good estate, with a lot of new buildings such as the large new building that the City of Glasgow College opened just a couple of weeks ago, there are other bits that are now coming up to the stage when they need investment.

Given that very large hurdle that has been placed on the college sector, are you concerned by recent reports that your board may be merged into the overarching board for enterprises, which may be directly chaired by a minister? To your mind, could that put universities’ status at risk? Would they be liable to become classified as public sector bodies? What would that do to the £2.5 billion that universities currently hold in reserve and to their ability to invest?

The issue of universities being classed as public bodies is one for the Office for National Statistics and it is looking at that. I would not want to speculate on how likely that reclassification is, but there would be a number of choices to be made if the ONS decided that universities are part of the public sector. The Government, or others, could take a number of steps to move universities out of the public sector and change the degree of control over them, whatever might lead the ONS to believe that universities are part of the public sector. I would expect the Government to look at that issue in phase 2 of the enterprise and skills review. However, there would be choices to be made if the situation arose.

But the change in the governance regime could push matters in that direction. Is that your understanding?

I would not go that far. At the time, there was quite a lot of concern about colleges becoming part of the public sector and the impact of that on their charity status and so on. There are ways in which we can react to that kind of situation and avoid its potential consequences, although I will not go into the detail here.

What sort of steps could be taken?

It is mainly to do with the degree of control that the Government has over bodies.

Thank you.

We move on now to the issue of the LCM.

My question is directed at Dr Fancey. I think that you were present earlier when the previous panel was giving evidence on concerns about the LCM. Do you share those concerns?

We share a considerable number of those concerns, as we said in our relatively recent submission to the committee. We share many of the concerns around the desire that we all have in Scotland that the UK body that will overarch the research councils in their new form will properly reflect UK-wide policy considerations and that individual research councils will be able to respond to the needs of the entire country, including Scotland.

I want to add one concern to those that were raised earlier. It was not mentioned as explicitly as I would have liked, but I think that that was an oversight, which is why I am adding the concern now. It is about the function of the UKRI body that will oversee the new overarching body. We hope that that body could be helped to operate in the way that my colleagues spoke to you about earlier, which I largely agree with. One way in which that body could be made more effective for us in Scotland is by keeping it relatively slim. We were pleased with the reassurance from John Kingman, the shadow executive chair of the new body, who sees it as being a relatively light body that would not have a large amount of policy and strategy staff, and activity. It is in that space that I think danger potentially lies, so it would be good to see his suggestion of a slim overarching body being carried forward and made as clear as possible in the process of creating the new body.

Do you agree with Professor Yellowlees’s view that there should be Scottish representation on each of the new research councils?

Yes. The research councils have operated very well for many years for all of us in the UK but particularly for us in Scotland, as has been reflected on more than once this morning. That is partly because they are directly responsive to, and work very closely with, the research communities that they serve. The history of those research councils bringing into their boards, committees and advisory structures experts in their various disciplines from across the UK is one that we would very much like to see maintained. Whatever the post-change governance structures of the new research councils or committees—however they are termed—we would very much like to see maintained the current openness in drawing on the ability of researchers from across the UK.

Clearly, one of the outstanding features of Scottish universities is their ability to attract a greater percentage share of top-class research funding than might be expected. What specific qualities of Scottish universities do you believe make that possible?

Clearly, there are some extremely good people working in our Scottish universities from across Scotland and the United Kingdom, and from around the world, who have chosen to build their careers in our excellent universities, which is the strongest component of their success. However, we have some extremely valuable structural advantages in Scotland, one of which is an incredibly collaborative culture; the ways in which Scottish universities work with each other at the level of disciplines and work as a sector through Universities Scotland is a distinct strength of our system. The funding council, working with the universities, has acted at various points over the years to support and nurture that culture through the research pooling initiative, for example, and the more recent collaborative work that we have been doing on all manner of things, from entrepreneurship to innovation support. Collaboration is therefore a very important feature of the system that supports that excellence.

How comfortable are you that the Westminster Government recognises the strengths of the Scottish institutions in that respect? Are you confident that it recognises that that is something that must not be lost?

The discussion that the committee had with the previous panel and is having now with us reflects the fact that we are not complacent at all about the change from the research councils, HEFCE and Innovate UK to a system that brings those together. There is a concern that our distinctiveness and our ability to operate in ways that are different and effective could be less recognised. We welcome the letter that appeared overnight that shows that, for the formation of UKRI, it is proposed to give some consideration to the diversity of the UK’s research and innovation cultures. That is a great step but, as we have said this morning, more could be done to give us even more reassurance.

We agreed earlier that it would be helpful to have a united front on supporting further amendments to the Higher Education and Research Bill. Would the funding council welcome that?

Most definitely. The committee will see from the submissions that it has had from various parties, including those in the earlier panel and us, that we are of a similar mind on the issue and, indeed, share the views of ministers in their representations to their colleagues in Westminster about the safeguards and structural provisions that we would like to see in the bill, if possible. Certainly, there are operating protocols and practices that we definitely want to see in addition.

Thank you.

As there are no other questions on the LCM, I thank the panel for its attendance and evidence.

11:27 Meeting continued in private until 11:47.