Colleges are facing the perfect storm of Covid, rising inflation and a new era of higher interest rates.
The sector has shaken off the label of Cinderella, only to now find itself impersonating Mr Micawber, hopelessly trying to get outgoings to come in below earnings.
Direct impacts
This cost-of-living crisis hits FE colleges in many ways.
Most directly all colleges have seen big rises in energy costs, already one of our biggest expenditures. Increases of up to £2m are not uncommon, twenty times the average financial surplus!
Inflation and rising interest rates also clobber those undertaking major building projects. Colleges tend to take all the overspend risk, so 17% construction inflation is scary. If investment is funded by borrowing, FE colleges end up paying over and over, as interest rates rise.
Indirect impacts
The indirect impacts are even more extreme.
A post-Covid world has made working from home a mainstream activity. Due to our flexible work patterns, education enjoyed a monopoly on attracting bright, young women caring for children. At a stroke, this has been lost.
It means fewer job applicants for college posts and rising pay levels. Higher energy costs also mean even loyal staff have to look for better-paid work elsewhere, and higher staff turnover in the FE sector has a real cost.
And the indirect impact of Covid brings more cost pressure. Emergency exam arrangements meant many students qualified for advanced level courses but with less knowledge and tuition than their predecessors. They need more support from teachers.
When added to the well-reported increase in post-Covid mental health issues, costs go up further.
Young FE students
But the impact of the cost-of-living crisis goes far beyond the running of a college. It impacts on our revenue.
When our students - and their families - feel the pinch, we feel their pain.
We have the highest vacancy rates in the labour market for decades. The pressure is on lower-level students to take available jobs now, rather than wait to qualify.
We have not seen any appreciable fall in participation in full-time education by young people yet but some, especially from poorer households, will have to get a job to help with family bills rather than learning at college.
Adult FE students
And, of course, the choices adults face are very different.
In tough times, adults must pay the bills – gas, electricity, food and travel – and survive. Where there are up-front fees or not, adults will defer taking a part-time course or not do it at all.
Many colleges already report big drops in higher education and part-time numbers.
Pressure on Limited Bursary Funds
Even when students enrol, the tougher financial climate means they may need much more support with transport, food and equipment costs. The pressure on bursary funds has significantly increased.
Mix of provision
Tough times also encourage students to make choices based more on economics, to seek “safe” choices.
Numbers studying each subject traditionally rise or fall slowly. Suddenly we see huge shifts, especially into construction and care, and a retreat from A Levels (the post-16 equivalent of gold).
Staff cannot switch subject easily so colleges might face a double whammy of restructuring and extra recruitment costs.
Past and future cuts
Furthermore, the cost-of-living crisis comes on top of a decade of real-terms funding cuts and the potential for further cuts between now and 2026/27 when the Chancellor announces his Medium-Term Fiscal Plan.
How colleges can respond
Given the scale of the problem how are colleges like ours mitigating the impact and responding?
We can look to reduce our energy use.
We can, if we have to, reduce space, change opening hours, close outside term time and nudge down the thermostat.
Some colleges with deeper pockets might be able to invest in energy-saving technology too.
We can delay or stop capital investment, even routine maintenance, but both carry risk.
We can hold staff vacancies for longer but the impact on staff workloads and wellbeing will have a cost at some point.
Ultimately our solvency is linked to our funding rates.
Schools are better funded and have bigger groups. That means they can pay more and teach less.
Colleges tend to have smaller programmes but that is our only advantage. This means we have to stop running so many programmes - become more Aldi than Sainsburys - and teach and train students in much bigger groups.
It means we have to prioritise teaching over services that are not directly funded like libraries, careers and discretionary support.
Making eyewatering calls
Sadly, unlike Cinders, we have no fairy godmother, but maybe our Micawber-like optimism that “something will turn up” will be enough. Micawber eventually succeeded in Australia but that required some big decisions.
Colleges are finding this perfect storm requires the same.
The calls are eyewatering.
We hope the Chancellor makes the right calls.
And let’s hope we all make the right ones as well.
By Ian Pryce, Chief Executive, Bedford College Group