On Wednesday 13 October 2010 the Office for National Statistics (ONS) announced that it is reclassifying sixth-form colleges as local government entities, and further education colleges as central government entities, for the purposes of the National Accounts. Previous to this decision, ONS had regarded colleges as being part of the private sector.

Further information about the announcement, its implications and the Government’s approach, can be found in the FAQ section below.

 What did the ONS announce on 13 October 2010?

The ONS is announcing its decision to reclassify sixth-form colleges as local government public sector entities, and further education (FE) colleges as central government public sector entities.

Prior to this decision, and since the introduction of the 1992 Further and Higher Education Act, ONS had considered FE and sixth-form colleges as being in the private sector.

 What will ONS use the classification for?

The ONS will use its new classifications in the National Accounts statistics. The National Accounts is an essential data source for anyone concerned with macro-economic policies and studies. It provides detailed estimates of national product, income and expenditure for the UK.

 When does the reclassification apply from?

The ONS has determined that the reclassification of FE colleges is backdated to 1 April 1993, i.e. the date on which the FE sector was created.

Sixth-form colleges will be reclassified as local government entities from 1st April 2010. However, sixth-form colleges are also affected by the decision that FE colleges are to be retrospectively reclassified as public sector bodies with effect from 1 April 1993. This is because prior to the introduction of the Apprenticeships, Skills, Children and Learners Act (ASCLA) 2009, the legal status of sixth-form colleges was part of the FE sector.

 Does the ONS decision only affect FE and sixth-form colleges in England or does it apply to the whole of the UK?

The reclassification applies to the whole of the UK. As education is a devolved matter, the devolved administrations – Scotland, Wales and Northern Ireland – will form their own view on the implications for their colleges.

 What does this mean for FE and sixth-form colleges and local authorities?

FE and sixth-form colleges

For FE and sixth-form colleges we do not expect this change to make any difference in current accounting practice, standards or financial arrangements for the remainder of this college financial year (2010-11).

However, the reclassification will mean that colleges are treated differently for National Accounts purposes. As a result, there may be some changes to the way financial information from colleges is collected and monitored in future years. But, the reclassification does not automatically mean that colleges should adopt the same accounting, budgeting and control systems as central or local government.

BIS and the Department are taking forward urgent work with the Treasury to agree how the changes will work in practice. They have committed to engaging representatives from the sector fully and to minimising burdens wherever possible.

Local authorities

For local authorities (LAs) it means that expenditure assets and liabilities of sixth-form colleges will be included within revised public sector accounts covering local government and that the Whole of Government Account (WGA) produced by HMT will need to include sixth-form colleges.

But, this does not necessarily mean sixth-form colleges will need to be consolidated within LA accounts or that LAs will themselves need to collate the financial information from sixth-form colleges.

It is also unlikely that there will be any impact on the sector immediately and, in particular, we do not expect any change for the 2010/11 financial year.

 What is the Department doing to help?

The Department and BIS are taking work forward with HM Treasury to minimise the potential administrative and operational impact on LAs, FE and sixth-form colleges by seeking an approach that is as light touch as possible. The government will fully engage representatives from the sector in these discussions.

The Government also remains committed to maintaining and increasing the independence of sixth-form colleges. Part of this involves looking at whether and how Government controls over sixth-form colleges can be reduced (including in relation to colleges borrowing) as to reflect the Government’s ambition for an independent high-performing sector.

 Are colleges now subject to the public sector pay freeze?

The government does not want to do anything that will limit the freedom of sixth-form colleges to set their own pay rates. The ONS classification does not change this commitment.

Of course we expect sixth-form colleges, along with all organisations providing publicly funded services to young people, to exercise appropriate restraint at this time.

 Will colleges go bankrupt as a result of the reclassification?

The ONS classification does not impact on the wellbeing of the college, nor does it change the primacy of the college’s governing body.

The decision does not by itself affect the amount of funding BIS or the Department provide colleges; their ability to charge fees for their services; hold reserves or borrow. The level of public funding for colleges in 2010-11 will not change. Future funding levels will be decided as part of the Spending Review process.

 Is the Government now liable for failing colleges?

The ONS decision does not affect the legal status of colleges as autonomous bodies. College corporations will continue to be responsible for the financial viability of their institutions.

 Will reclassification mean that FE and sixth-form colleges, like other public sector bodies, have to declare all spending over £500?

This is something we will need to discuss with Ministers, the sector and the Treasury.

The Government’s position is to build on the independence of FE colleges and sixth-form colleges and it is doing all it can to free them from government control and reduce unnecessary burdens and bureaucracy. That is our ambition. Nothing has changed.

 Will the reclassification affect students?

No. The issue of classification relates to the preparation of National Accounts. While the decision may have some impact on the way colleges manage their business it will have no immediate impact on learners.

 Why has there been a reclassification?

Classification of organisations as public or private sector bodies for the purposes of compiling National Accounts is carried out by the ONS, which is independent of Government, according to international and EU agreed guidelines. In carrying out classifications ONS follow an impartial and transparent procedure which is independent of the political process.

 Why has ONS made this decision now?

The change is an outcome of a review ONS was obliged to carry out following the introduction of the Apprenticeship, Skills, Children and Learning Act (ASCLA) 2009. ONS had to take forward the review because the act provided for the creation of sixth-form college corporations, with a separate legal status from the FE college sector of which they had previously been a part.

The background to the ONS decision is set out in the classification article Classification of Sixth Form Colleges and Further Education Institutions published on 13 October 2010.

 Wasn't this change a bit sudden?

ONS was obliged to consider what impact, if any, the new legislative framework for sixth-form colleges introduced through the Apprenticeship, Skills, Children and Learning Act 2009 would have on how they are treated for National Accounts purposes.

It is within ONS’ independent role to change classifications whenever they consider it is appropriate for them to do so.

 When will ONS review the sector classification of colleges again?

ONS is an independent body and the timing of any future review of the classification will be for them to determine. However, in pursuing its policy to allow colleges’ greater freedom, it is possible that ONS may determine that a further sector classification review is appropriate at the time that any changes to the control environment are implemented.