Education briefing - Colleges financial handbook – what can colleges expect?

• United Kingdom

• Education - Briefings

17-01-2023

Following the Office for National Statistics (ONS) reclassification of further education college corporations, sixth form college corporations and designated institutions in England (colleges) - see our previous briefing the Department for Education (“DfE”) has confirmed that it will implement a new College Financial Handbook. This handbook will explain the actions colleges must take to comply with managing public money guidance (MPM) and other public sector guidance. It is hoped that the handbook will clarify the new financial controls to which colleges will be subject and the levels of independence that colleges have under the new classification.

The DfE has confirmed that the draft handbook will be published for consultation in Autumn 2023, with a final draft to be published in March 2024 ahead of the handbook becoming effective in August 2024.

The introduction of a financial handbook is a similar approach to that taken by the DfE with academy trusts who must comply with the Academies Financial Handbook (“Academies Handbook”). In this article, we look at the Academies Handbook for clues as to what colleges may expect.

1. Land and other asset disposals 

Most property and other capital asset transactions by academy trusts require the prior consent of the Education and Skills Agency (ESFA), including the disposal of freehold and leasehold property. Moreover, on the sale of a capital asset, trusts may be required to pay some or all of the proceeds to the DfE or a local authority. 

While the DfE has confirmed that colleges can continue to dispose of fixed assets without approval until 31 March 2025, it may be that the colleges handbook will refine in what circumstances approval is or is not required when disposing of capital assets.

2. Borrowing

Borrowing (including finance leases and overdraft facilities) by academy trusts requires the ESFA’s prior consent where it is to be repaid from grant monies or secured on assets funded by grant monies. Further, the Academies Handbook expressly states that academy trusts will only be granted permission to borrow in exceptional circumstances.

Colleges may now borrow from private sector sources only if the transaction delivers value for money for the Exchequer. The DfE in its letter to accounting officers expects that because non-government lenders face higher financing costs, in practice it is very unlikely that colleges will be able to satisfy this condition for future private sector borrowing. Any new proposal for private sector borrowing will need DfE consent (including further use of existing overdraft and revolving credit facilities) and the conditions of funding for colleges 2022/2023 have been updated to reflect this consent requirement.

Colleges should expect the new handbook to clarify how colleges should comply with MPM with respect to borrowing and set out in further detail in what circumstances the DfE would be prepared to grant its consent to future borrowing.

From the information we have so far, it appears that the restriction on colleges (no borrowing without DfE consent) is harsher than that on academies (no borrowing if security or repayment is from grant monies).

3. Novel, contentious and/or repercussive transactions

Any novel, contentious and/or repercussive transactions entered into by academy trusts must always be referred to the ESFA for approval, and the request must be made to the ESFA before the transaction occurs. The ESFA may refer such transactions to HM Treasury for approval, so academies should allow sufficient time for proposals to be considered.

The DfE has confirmed that the same rules now apply to colleges and their subsidiaries, and the language adopted by the DfE in its response is precisely the same as in the Academies Handbook. Colleges should expect similar provisions in their handbook.

4. Related party transactions

Academy trusts must report to the ESFA all contracts and other agreements with related parties (which includes subsidiary companies) and must obtain ESFA prior approval for certain contracts exceeding certain thresholds, currently £20,000. In practice, this can cover transactions including intra group services agreements, purchases of goods or other assets and the provision of guarantees between related parties.

Colleges previously had to disclose any transactions with any organisations or individuals that they have a close association with in their financial statements. However, they did not previously need to seek ESFA prior approval for related party transactions, so if a similar measure features in the colleges handbook this may impact colleges with subsidiary companies, service companies or otherwise with a corporate group. This would be a significant new restriction for many colleges.

5. Write offs and entering into liabilities

As with academy trusts, colleges are free to write off debts and losses and enter into liabilities within certain delegated financial limits (which are largely the same as those for academy trusts).

The Academies Handbook also includes further requirements on trusts in relation to these limits, such as trusts being satisfied there is no feasible alternative before writing-off any losses. The colleges handbook could contain similar requirements.

6. Special Payments

The Academies Handbook regulates special staff severance payments, namely staff severance payments, compensation payments and ex gratia payments, and the DfE has confirmed that colleges will have broadly the same freedoms to make such payments below certain thresholds.

In addition to financial thresholds, the Academies Handbook sets out the process which academy trusts must follow before making such payments and the colleges handbook may contain similar processes.

Workshops – ONS reclassification of colleges

We are pleased to be running a series of workshops in conjunction with MH&A to consider the implications of this recent decision in further detail.

Indicative workshop dates (subject to confirmation) are:

Leeds – 23 January 2023 (4:00pm – 6:30pm)

Manchester – 13 February 2023 (4:00pm – 6:30pm)

London – 13 March 2023 (4:00pm – 6:30pm)

Further information in respect of these workshops will follow, but to register your interest please do get in touch with any of the contacts below or email

edubooking@eversheds-sutherland.com.