Finance Committee

Meeting date: Wednesday, January 30, 2013

Official Report 500KB pdf

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Post-16 Education (Scotland) Bill: Financial Memorandum

The final item of business is evidence from the Scottish Government bill team as part of our scrutiny of the financial memorandum to the Post-16 Education (Scotland) Bill. I welcome to the committee Mr Michael Cross, Gavin Gray, Tracey Slaven and Scott Mackay. Good morning, everyone. I understand that one of you has a brief opening statement to make. [Interruption.] I do not think that it is to be made by Gavin Brown, who has just come in. It is kind of you to join us, Gavin.

It is me who is to make the opening statement, convener.

Thank you very much indeed for your introduction and for inviting us to discuss with the committee the financial memorandum to the Post-16 Education (Scotland) Bill. At the outset, I thought that it might be helpful to set out the context in which the bill sits and to give a brief overview of the three areas in which we expect a financial effect.

The bill is an important part of the Government’s reforms to post-16 learning. There are three overarching principles that shape that programme of reform: to secure a system that is better focused on getting learners ready for work and which is therefore aligned with the Government’s ambitions for jobs and growth; to improve life chances, particularly for young people; and to create a sustainable system for the long term.

11:30

The Government consulted on its proposals twice: first through “Putting Learners at the Centre: Delivering our Ambitions for Post-16 Education”, which set out our ideas for the wider post-16 learning agenda; and subsequently through a specific consultation on college regionalisation, which was undertaken jointly with the Scottish Further and Higher Education Funding Council. The reform programme is also proceeding in the light of the independent reviews of university and college governance that were undertaken, respectively, by Professor Ferdinand von Prondzynski and Professor Russel Griggs. Their work, too, was the subject of consultation with stakeholders. That is the strategic background.

Turning to the bill, college regionalisation forms its most substantial part. It is a central element of our wider college reform programme, which is well under way. Although the bill is not needed to deliver college mergers or the significant efficiency savings that the Scottish funding council expects them to realise, it will establish a new approach to college governance, support the new regional structures and reflect the different approaches that colleges are choosing to take.

As the financial memorandum makes clear, there are costs associated with the new governance arrangements. We estimate that the most significant of those costs relates to the establishment of new regional boards, and we estimate a recurrent cost of some £560,000 for a regional board. It is worth saying that the assumptions that form the basis of that figure were developed with the support of a college assistant principal who is a human resources professional, who is currently on a secondment to my division in the Scottish Government. We shared our assumptions with the college legislative group that was established by what was Scotland’s Colleges—it is now Colleges Scotland—so that a group of college professionals could act as a sounding board as we developed the bill.

The aim of the new governance measures is simply to deliver ministers’ ambition for greater diversity in college and regional boards. The proposed new arrangements for boards’ constitutions and for appointments will improve public accountability by clarifying what is expected of boards and their members, in the context of the existing arrangements for clear accountability for funding and the new regional outcome agreements.

The second area of the bill in which we expect some costs is the new power to ensure that the Scottish funding council can proactively review the structure and provision of fundable further and higher education. The SFC already has a duty to exercise its functions for the purposes of securing coherent provision, but the bill provides a more explicit mechanism for conducting a review of the overall delivery landscape and gives the SFC a clearer remit to use the evidence that it has to ensure that the structures that we fund operate as effectively as possible. We believe that such a power is important in giving the council a clearer mandate to discuss with institutions evidence of, for example, unnecessary duplication that is to the detriment of learners and wider public investment. We sought advice from the SFC on the potential costs of such a review, which we know would not be incurred annually. They would depend on the scope of the review that was undertaken.

The third area in which costs arise is that of data sharing, in relation to which the bill provides for a ministerial power to develop secondary legislation that specifies bodies that would be required to share data with Skills Development Scotland and which sets out the information that needs to be shared. The background is that for some years SDS has operated a client management database system that allows staff to target their activity at young people who are at risk with a view to re-engaging them in education. We estimate that the cost to partner organisations of the proposed provisions will be around £52,000. We base that on SDS’s experience with other partners such as local authorities.

We do not expect additional costs to arise from the bill’s provisions on higher education governance, those on widening access or those on tuition fees.

I hope that that provides a helpful overview that sets the context for our discussion of the financial aspects of the bill.

As the clerk is aware, a combination of circumstances means that our two colleagues who are working on college governance are unavoidably absent today. We shall do our best to answer the committee’s questions on such matters, but we might need to write to you—if that is the case we will do so immediately, of course.

Thank you. We have dealt with a number of financial memoranda over the past few months and it seems clear that the Scottish Government never errs on the side of generosity in its financial assessments and that stakeholders never believe that adequate funding is available. We have to ascertain the reality, which might be somewhere in between.

Universities Scotland’s view on widening access is completely different from that of the Scottish Government, as you are no doubt aware. Universities Scotland said:

“the costs of attracting, teaching and retaining ‘widening access’ students were around 31% higher than for students from more privileged backgrounds.”

It went on to say that the additional cost of educating a widening access student is £2,325 per student per annum. Why does the Scottish Government say that there will be no additional cost in relation to widening access?

I will ask Tracey Slaven, who is head of higher education and learner support, to respond.

I think that I can answer the convener’s question quite directly. Widening access activities, particularly around outreach and retention, are significantly funded, to the tune of about £25 million per annum, by the Scottish funding council. Our progress on widening access has been steady, if unspectacular, and the SFC has had no indication that underfunding is the cause of the slowness of progress. I am a little surprised by Universities Scotland’s argument, but we will be more than happy to have a rather belated conversation on the matter if any institution thinks that there has been underfunding.

The report that underpinned the assessment of a 31 per cent additional cost is based on data from 2002 in England. Of course, simply because of its historic nature, that report cannot reflect in any way the substantial funding that has gone into widening access in Scotland, the different distribution of disadvantage in Scotland relative to England or the dramatic changes in recruitment, retention and outreach activity in universities since 2002. Things that were considered as routes only for potential widening access students in 2002 are now mainstream activities for all students. I am therefore rather bemused by the basis on which the evidence was put forward.

I understand your point about the time lag and the changes since 2002, but are you arguing—as seems to be the case—that there will be no additional costs whatever? Even if the £2,325 figure is inaccurate—I do not know whether that is the case; we should look into the matter further—there must surely be additional costs in relation to a group of people who are more likely to drop out of university and who need more support for financial and other reasons. If the number of people from that group increases by 20, 30 or 40 per cent, there will surely be an additional cost, because additional services will be provided.

Student support falls very much outwith the provisions in the bill. Substantial changes to the student support package have been introduced for 2013-14. Those changes are specifically designed to help to support widening access and retention by providing a minimum income for low-income students of £7,250 per year and a minimum student loan of £4,500 for all students. That has already been provided, outwith the bill; issues to do with student support were addressed in the spending review.

On the universities’ activities, the financial memorandum indicates that the additional costs will be marginal, rather than zero. There might well be changes in individual institutions, and changes will be greater in some places than in others. The sector has been engaged in widening access activities, supported by the Scottish funding council, and as I said there is no indication that the sector thinks that such activities have been underfunded.

In this case, the issue is the move from activity to outcomes for students. We are looking for that translation and commitment in the widening access agreements, remembering, of course, that those agreements are reached by the institution with the funding council. The institutions are not being set targets either in the legislation or directly by the Government.

They are not being set targets, but do you have a ball-park figure for how many additional students would gain access through that approach?

We have already provided around 2,000 additional places for students in relation to widening access-type activities and articulation. Therefore, the Government has provided additional places to address issues around headroom. Those were raised as the key issues in addressing widening access by the research-intensive institutions, rather than the funding of widening access, outreach or retention.

To switch to colleges, the regionalisation agenda will produce expected savings of approximately £50 million by 2015-16. I am always very suspicious of round figures such as “£100 million”, “£50 million” or “£25 million”. If you said to me that the figure would be £47,233,411, I might be inclined to think that it had been accurately assessed. How was the figure of £50 million reached?

The £50 million figure is a matter for the Scottish funding council, which is supporting the merger programme that is currently under way in the college sector. Drawing on its experience of several previous college mergers, the Scottish funding council has estimated a figure of some £50 million, which its chief executive has, I think, made clear is a round figure.

There has been an extensive exchange of correspondence on the matter following Audit Scotland’s report last autumn. Both the director general for Mr Russell’s portfolio and the chief executive of the funding council have written to the Public Audit Committee to make clear the basis of the Scottish funding council’s assumptions. That is, of course, outwith the scope of the bill as it stands, as the bill is not necessary to deliver the mergers, but we would happily copy that correspondence to the committee, if members would find that helpful.

Okay. That would be useful, because Colleges Scotland mentions in its submission the

“£25m College Transformation Fund which will assist this process”.

It goes on to say,

“however this is unlikely to be enough to meet all the costs of merger”,

but it has not provided details of what it expects the costs will be. What level of discussion is there about that issue? Is the gap closing between Colleges Scotland’s assessment and yours?

With the Scottish funding council, we are continuing to talk to colleges about the support for mergers. We do that on the basis of the merger in question. The costs will clearly vary from merger to merger. The Government has made available a £15 million college transformation fund, and the Scottish funding council has access to strategic funds that supplement that transformation fund. I am not sure whether they are of the order of £10 million, but that would take the figure to the £25 million that Colleges Scotland talks about.

I think that there is the prospect of continued support for mergers in order to ensure that they happen on time.

The funding council’s letter to the Public Audit Committee refers to providing additional merger funding in subsequent years and to an estimated cost of £54 million in one-off expenditure funded through a combination of SFC strategic funding and the college transformation fund.

Okay.

The issue of VAT has been raised. The new regional boards that will be created by the bill cannot be registered for VAT and will therefore be unable to claim recoverable VAT on non-business activities. However, Colleges Scotland has stated that many of the predicted costs in the financial memorandum relating to regionalisation “appear light”. It suggested:

“It might be prudent to consult a VAT expert to ensure that costs can be minimised within regional strategic bodies”.

Is that happening? Is a VAT expert being consulted?

We consulted the VAT expert in the Scottish Government. Our initial assessment of whether the new bodies would wish to register for VAT was based on an analysis that the bodies would be similar to non-departmental public bodies. As such, they would be able to recover only the element of VAT that related to their business activities. As the vast majority of their activity relates to education, which is exempt from VAT, our expectation is that they would be able to reclaim minimal amounts of VAT and therefore may choose not to register for VAT initially. The financial memorandum was prepared on that basis.

The situation would be subject to review if the bodies themselves investigated cost sharing. My understanding is that the bill makes provision to allow that to be explored but does not require it.

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The bill makes provision for regional bodies to operate “economically, efficiently and effectively”. Were those criteria met, the colleges would pursue the approach suggested by Scott Mackay.

There is new legislation that specifically looks at cost-sharing groups, which we believe would be applicable in this instance, but further activity would be needed once the bodies were established. My expectation is that there would be a review of the VAT position as cost sharing was explored.

I have one last question before I open up the session to colleagues, who are all champing at the bit to come in with questions.

On-going costs of £110,000, including VAT, have been estimated for the regional strategic bodies. Concerns have been expressed to the committee that those costs, which

“are expected to cover new premises, insurances, licences, audit fees, membership fees and staff training, to name but a few items of expenditure”,

are a woeful underestimate. What is your view on that?

We disagree. We have a detailed breakdown of the £110,000, ranging from the computing equipment necessary through consumables and hospitality to travel expenses for board members, recruitment of board members and professional services. We would be happy to share those details with the committee. We do not agree that the forecasts are light.

Gavin Brown will be next to ask a question, followed by Michael McMahon.

I will start with a simple one. You have given predictions for the cost of data sharing, which you describe as “Marginal”. However, in a helpful footnote in the financial memorandum, you say that the cost will be £52,000. Skills Development Scotland says that that is a likely estimate, while Colleges Scotland says that the estimate appears light.

You also say that the money will be spent in 2011-12 and 2012-13. There are only two months left of the financial year 2012-13. Can you tell us today that the £52,000 has proven to be the right amount of money and that the issue is no longer live because all the work has been done?

I am sorry but the main policy lead on that is not here today. From SDS information, we are aware that that is the correct level. I do not know for certain that it has been spent but we can clarify that.

I do not want to press the matter if the right person is not here; perhaps we could get a letter on that. When the financial memorandum was produced, there may have been some dubiety. However, given that we are fairly close to the end of the financial year that the money was for, we must now know whether it is enough.

We are confident that the £52,000 is the best estimate that we can provide you with. Your point on timing is well made. It is unlikely that there will not be some slippage of that cost into 2013-14. However, we will write to you to confirm that point.

I want to return to the subject with which the convener started, which is widening access. We have heard what Universities Scotland has had to say on that. It also states that the cost assessment

“has not been the subject of consultation with Universities Scotland or with member institutions.”

Is that correct?

There has not been a specific consultation on the preparation of the financial memorandum. However, conversations on the costs of widening access and the provision of support through the funding council for the outreach activities that I described earlier have been on-going for a number of years. As I said, there was no indication of underfunding on those issues.

When you had informal discussions, if not formal consultation, with institutions and Universities Scotland on the financial memorandum, did they say something different from what the written evidence that we have received says?

As I said, there has not been a specific conversation on the financial memorandum.

Has there been a specific conversation with universities or Universities Scotland on the costs of widening access as a consequence of the bill?

No.

That leads me to the obvious question: why has there not been a conversation? In working out the costs, why would you not ask them about that?

That is simply because there has been a long and on-going conversation around widening access. The universities are involved in drawing together plans for outreach activity and they have been involved in the development of the widening access agreements, which are part of their outcome agreements. Cost issues were not raised as part of those processes.

Obviously, cost issues have now been raised, on the record, in Universities Scotland’s written submission. What will the Government do in response to that?

As I said, I am more than happy to have conversations with Universities Scotland to see whether we have any evidence or indication that is somewhat more recent than the report that was mentioned.

The convener mentioned that report and the additional cost per student of about £2,350, which you do not agree with. He fairly pointed out the year in which that report was produced, and I believe that it referred mainly, or possibly exclusively, to the situation south of the border. I am happy to take all that on board, but what is your idea of the additional cost per student for widening access? The report states that it is £2,350 or thereabouts, but you do not agree with that. To disagree, you must have some idea of the cost per student. What is it?

As indicated in the financial memorandum, we believe that, at sector level, the cost is marginal. That is because recruitment and the admissions process are, as universities have said, intrinsic to their core mission. The processes are changing and developing over time. Five or 10 years ago, the idea that a university would have a social media presence to try to recruit students simply would not have been tenable. Those processes are changing the costs. Widening access is part of that mainstream activity. The bill simply requires commitments to demonstrate the impact of those activities.

So your view is that you can widen widening access—if I can couch it in those terms—without additional funding?

In relation to the bill, yes. As I said, we made additional places available when it was indicated that headroom provision of places was the key constraint for our research-intensive universities in performing against the widening-access targets. We have provided student support that will remove financial barriers for widening-access students who have the aspiration and ambition to go to university, so we do that transition.

It is worth reflecting that the Universities and Colleges Admissions Service statistics that were released this morning indicate that there has been a substantial transition on widening access, with students from our most disadvantaged areas now 80 per cent more likely to apply to university than in 2004. We have been on a journey and we have already had quite a lot of impact. The changes are starting to become well embedded in the universities’ core systems and processes.

You referred to a figure of £29 million. Is that an annual figure or does it cover a spending review period?

It is an annual figure.

Okay. As it stands, there is an annual sum of £29 million for widening access. How many students are helped by that £29 million?

I would have to refer to the latest report, which I do not have with me, for that information. It is worth knowing that that money goes to fund outreach activities, which obviously impact on a large number of individuals, a number of whom become applicants and then students. I can get a copy of the latest report to you.

You do not have it to hand, but if you are prepared to furnish us with it, that would be helpful.

It is a published document from the SFC, so we can get it for you.

Thank you.

A number of consultations took place prior to the bill being introduced. We asked people to comment on their participation in those. Colleges Scotland states in its response:

“The Financial Memorandum contains new proposals within the College Regionalisation section for staffing structures/costs of the regional strategic bodies and regional boards as well as proposed remuneration levels for chairs of regional college boards”.

It goes on to say that those were not part of the initial consultations. Can we trust the figures that you have come up with, given that they were not consulted on and given that all those other costs have been added without having been reflected in the consultations?

I hope that you can trust the figures. It is true that the estimates did not appear in the consultations that the Government published, but the structure of the regional board was developed on the basis of those consultations. We discussed with Colleges Scotland—or, rather, with the former Scotland’s Colleges—the content of the financial memorandum. Specifically, we discussed it with the college legislative group, to which I referred in my opening statement, which comprised four current principals, one of whom is a regional lead at the moment, and a college chair. The purpose of that engagement was to help shape the content of the bill, which in turn reflected the earlier consultations. Like Tracey Slaven, I am slightly puzzled that Colleges Scotland is saying that it was unaware of the figures. We think that they are at the upper end of the costs likely to be incurred by a regional board, but we did expose those figures to Colleges Scotland as they were developed.

There is a supposition in all this that the regional boards are just going to happen and that we will end up at the end of this process with the structures that the Government envisages for them. However, regionalisation is not going well in Lanarkshire. What happens if we do not end up with the regional boards in the way that you envisage and we still have individual colleges that are not within the regional board structures that the bill projects?

In a region such as Lanarkshire, which would in effect be one region with a number of colleges in it, we would construct a regional board to oversee provision in the region, working with the constituent colleges.

Will there be a regional board regardless of whether the colleges come together and form the structures that you hope or intend in the bill?

Yes, there will be a regional board in each region.

I occasionally get a complaint about a college, although not that many. The Scottish Public Services Ombudsman submission states that there has been an 18 per cent increase in complaints and highlights the potential for an increase in complaints if there is a lot of structural change. Is it the feeling that there will be just a marginal cost for the SPSO or is there a wee bit of a risk in there?

Our view—and I think that of the ombudsman—is that such complaints are likely to remain a marginal cost.

If there was quite a lot of movement, with courses being provided on only one campus rather than another, for example, I could foresee that meeting a certain amount of resistance.

Yes, it might meet resistance. That goes to the heart of what we intend by regionalisation. We do not intend to reduce the offer available to learn—that is not ministers’ ambition. However, on the point about the ombudsman, if there was a large increase in complaints that the ombudsman was not funded to accommodate, we would need to take account of that.

Would that be kept under review?

It would have to be.

12:00

Although we have been talking about mergers, am I correct that, technically, mergers are not in the bill? Regions are in the bill and whether colleges merge is a separate issue.

Yes, mergers are a matter for the colleges.

People certainly think that the two are interlinked.

An issue that has been raised with me is salary structures, which I think are very different around the country at present. I presume that when colleges merge there will be one salary structure. I accept that that would fall outwith the provisions of the bill.

I am wondering about somewhere such as Glasgow, where there will probably be three colleges in one region. If they all have separate salary structures, will it be the region’s responsibility to bring that under control, or will it live with different costs? There would be quite a cost in trying to bring it all together.

There may be a cost in that, which would be a matter for the region to resolve. If there was a significant additional cost, the region would have to take account of it when deploying the funding it would receive from the Scottish funding council.

Would that be included in the change fund or the £54 million that has been mentioned?

No funding will be provided specifically for the harmonisation of terms and conditions in the way that you suggest.

Is that because it is seen as purely a college merger function and not a regional function?

It is seen that it could be a consequence of college merger.

Is it possible that there could be one region with three different salary structures within it?

Yes, that is possible.

Okay. Thank you.

I should supplement that for the record. This is quite detailed territory, in which I would normally look to my colleagues, who cannot be here to answer today. If I have got that wrong we will certainly correct it, but I think that that is the position.

Okay. Thank you.

I want to clarify a couple of things about college regionalisation. Nine out of the 13 regions that will be established will have single colleges. Is it correct that the four regions that will have multiple colleges are Lanarkshire, Glasgow, Fife and the Highlands?

No, that is not quite correct.

Correct me then.

I will try to do that. The regions that will remain single-college regions are, I think Dumfries and Galloway—

No, I am asking about the four that will have more than one college.

The University of the Highlands and Islands will have more than one college. Fife is not expected to have more than one college. Glasgow and, as your colleague suggests, Lanarkshire will.

I am aware of that one.

I think that that completes the set. Relatively recently, the two colleges in Aberdeen and Aberdeenshire—Banff and Buchan College and Aberdeen College—agreed to merge.

So Aberdeen and Aberdeenshire was the other region.

Yes, it was once.

So the number is now down to three.

Yes.

I am still a wee bit confused. There is a reference to the Highlands and Islands, but UHI is not referred to as a regional board. Why is that?

The position of UHI is rather distinct from the college sector, so Tracey Slaven will pick up on that.

In essence, the function of the regional board will be conducted by a further education subcommittee of the UHI council.

So there will be no set-up costs or on-going costs for UHI within the arrangements that you referred to.

That is a slightly different point. There probably will be set-up costs for UHI. The financial memorandum is not quite accurate on that point. I am conscious that UHI has made a submission in which it identifies start-up costs. We are talking to it—constructively, I might add—about those costs.

There is also reference to three boards and a £560,000 cost. Are you suggesting that there might be only two boards?

Yes.

So might that £560,000 figure come down?

It might well come down, yes.

I presume that we would recognise that as good news.

The £560,000 would not come down. The aggregate of £1.86 million was based on three regional boards.

So the figure is £560,000 per board?

Yes.

Okay. That was my misunderstanding. So the aggregate costs will come down a little.

Can you explain how the £560,000 figure was arrived at?

We spent some time talking to Colleges Scotland about the figures and they were influenced by a human resources professional from the sector—an assistant principal who is on secondment to us. We estimate the staff costs to be about £430,000, which covers 6.5 staff. We envisage the position of chief executive officer or strategic lead within the region, a strategic curriculum lead, an operational finance role, an information and communication technology lead, a regional board secretary who will act part time, and two administrators. That comes to £430,000. There are then the on-costs of about £110,000, which we discussed earlier, and the costs of remunerating the chair. Those are the component parts of the global figure. Again, we will be happy to send you a breakdown.

That would be helpful.

Where a regional board has been established, it is subject to a degree of oversight by the Commission for Ethical Standards in Public Life and the Scottish Public Services Ombudsman—we have talked a little about complaints. Can I clarify that, where there is no regional board, those bodies will have no role and there will be no cost implication for them?

Yes, barring the remuneration that we propose for the chair of that board.

What board?

The board would be the board of the single college.

Okay, so that will still be subject to—

That would become subject to remuneration.

But there will be no role for the SPSO, because they will be incorporated—

That matter is still to be determined by the cabinet secretary.

Okay. What will happen to a regional board if the region ceases to have more than one college—that is, if the colleges merge into one?

That would merge into one board, which would essentially become the regional board for the region.

I thought that there would not be a regional board because it was no longer a multi-college region.

There would be one college and that board would act as—

Would it, or would it cease to exist?

No. There would be one college in the region and that college would have one board, and that would be it. There would be nothing sitting above that.

That is an interesting point, because is that not a disincentive for colleges? I am not saying that there should necessarily be an incentive, but colleges are going to think, “If we merge, we will have no say over who our board will be.”

No. I think that the reality is that they would have a considerable say in the constitution of their board. Part of the act of merging is to discuss what the joint board of the merged colleges will look like.

I wonder whether we are talking at cross purposes. I am talking about circumstances in which a regional board has been put in place or appointed to deal with a region in which there is more than one college and, at some point down the line, the colleges decide to merge. In other regions where there is only one college, there is no regional board, so my instinct was that after the merger the regional board would serve no purpose and would cease to exist, but you are telling me that, in fact, it will become the de facto board of the merged college.

No. I am sorry if I gave you that impression.

That was the impression.

I am sorry, because that is not the answer. There will be one board that is constructed jointly by the merging colleges.

My initial perspective was correct, then. The regional board will cease to exist.

There will be no public body where there was one.

Thank you. That is what I was trying to establish. I think that we got there in the end.

Sorry. I was terribly slow on that.

Are you all right, Jamie?

I am now.

Jean?

My question was mostly answered through Jamie Hepburn’s questions. Can I be clear about colleges that have merged and how that has come about? Was there a desire for more colleges to merge? Is there an expectation that more colleges will merge in future?

I think that the cabinet secretary has always made clear the attractions of merger. The letter from Mr Batho at the funding council to Mr Gray at the Public Audit Committee makes quite plain the attractions of merger. In the sense that merged colleges can provide a better service to learners, there was encouragement to merge where that suited the colleges. If the second part of your question was whether further mergers are in prospect, I think that they probably are, for that reason.

Thank you.

Do you have any other questions, Jean?

No.

We seem to have exhausted the committee’s questions. As we have no further items on our agenda, I thank the witnesses and close the meeting.

Meeting closed at 12:10.