Glasgow Kelvin College. Financial Control Committee. UK Government Spending Review. Report by Vice Principal Finance & Corporate Services
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1 Glasgow Kelvin College Item 15 For Information Financial Control Committee UK Government Spending Review Report by Vice Principal Finance & Corporate Services 1. Introduction The purpose of this report is to provide the Financial Control Committee with a summary of the Spending Review and Autumn Statement 2015 published by the UK Government. This document and the spending decisions outlined within it will have an impact on the Scottish Budget over the next 4 years which in turn will impact on the funding available to the Further Education sector in Scotland. At present, the Spending Review provides an indication of the likely financial planning assumptions for colleges from 2016/17 to 2019/20. Members will also be aware that the Cabinet Secretary for Finance, Employment and Sustainable Growth will announce the draft Scottish Budget on 16 December 2015 which set out the Scottish Government priorities for the financial year 2016/ UK Spending Review The UK Spending Review is available in full at the following web address: Appendix 1 provides a copy of the key announcements contained within the full document. The document outlines the UK Government s current estimates in respect of economic performance, government borrowing, taxation and expenditure plans. As expected, further reductions in public sector spending are outlined although these are less severe than might have been expected due to better than anticipated economic performance. The document also outlines the priority expenditure areas for the UK Government which include: Defence; Overseas Aid; The NHS; The State Pension; Schools funding; New loans funding for FE and HE in England; The Police; and Funding for the arts and national museums and galleries. The Barnett formula continues to apply in respect of the calculation of the allocations to the Scottish Government. The main element which will directly impact on funding levels for colleges in Scotland is the allocation of resources to the Scottish Government. In respect of the allocation of resource budget to the Scottish Government this is reducing in real terms by an average of 1.3% in
2 each year. The Resource Departmental Expenditure Limit (DEL) allocations increase very slightly in cash terms from 25.9bn in 2015/16 to 26.5bn in 2019/2020. This represents a significant real terms cut in the overall total budget available to the Scottish Government of circa 5%. It is up to the Scottish Government to allocate its budget to public services in Scotland. The current position of the Scottish Government to prioritise areas of spend such as the NHS are therefore likely to result in reduction in cash funding to unprotected areas such as colleges. It should also be noted that additional powers will be provided to the Scottish Government which will provide the opportunity to mitigate the cuts through increases in taxation. It is anticipated that the introduction of the Apprenticeship Levy to be introduced from April 2017, the PAYE element is anticipated to cost the College around 70k per annum, it is unclear what the other implications for colleges in Scotland will be. It is also confirmed that there is a small increase in the capital funding allocation to the Scottish Administration. Overall, the settlement is perhaps better than anticipated following the recent budget however it remains a challenging settlement for the Scottish Government to manage. The College s financial planning assumption was that there would be a flat cash settlement from the Scottish Government. As outlined at the time the Financial Plan was developed, this is likely to prove an optimistic assumption. However, until the Scottish Government outline their expenditure plans later in December 2016 it is difficult to assess the impact of the Spending Review on college budgets. The document also outlines funding and policy priorities for a large number of reserved matters which will impact in Scotland such as large scale reductions in welfare spend. The document also contains a number of proposed public sector workforce reforms. These are aimed at improving further productivity and efficiency in the public sector and include: action on exit payment terms in the public sector; a review of sick absence and the relatively generous public sector sick pay arrangements; and average public sector pay award of 1% for the 4 years from 2016/17. Therefore it must be anticipated that the Scottish Government will need to take account of the likely impact of these reforms when considering its budget. 3. Resource Implications It is likely that there will be significant further reductions in funding to Further Education in Scotland in the coming 4 years. It is anticipated that the magnitude of the cuts to the sector will be known early in calendar year Members will be aware how difficult the College s financial position is based on a flat cash assumption, it is unlikely that it will be possible to maintain the level of student activity and continue with the current public sector approach to avoiding compulsory redundancy in the event that there are further cuts in college funding announced by the Scottish Government. The increase in the minimum wage announced previously by the UK Government will also have an impact on the cost of key supplies and services in the coming years.
3 These additional pressures are on top of the increasing costs of teaching staff pensions and the increase in the employers NI costs already reported to the Committee. 4. Equality There are no disproportionate negative impacts on people with protected characteristics arising directly from the contents of this report. 5. Risk Financial risks are already documented in the Risk Register. 6. Recommendations Members of the Financial Control Committee are recommended to: i) note the contents of this report and its appendix; ii) note the likely impact on the financial context facing the Scottish Government and the FE sector; and iii) note that the direct impact on the College budget in 2016/17 and beyond will not be known until early in Further Information Members can obtain further information on the contents of this report from James Gow, Vice Principal Finance & Corporate Services, or Alan Sherry, Principal, JG Glasgow Kelvin College November 2015
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