FE Digest - Winter 2025
Further Education Digest
Welcome to the Winter edition of our Further Education Digest
Welcome to this latest edition of FE Digest.
This edition brings together national policy updates, funding news, inspection changes, curriculum and apprenticeship guidance, as well as some horizon scanning in the world of VAT and accounting year ends.
This term is already shaping up to be one of significant change across the further education sector. National policy updates are bringing fresh opportunities and challenges — from targeted funding streams that can transform estates, to curriculum reforms that alter how colleges plan and deliver learning. Ofsted is reshaping how quality is judged, meaning your evidence base must be sharper than ever.
Apprenticeships are being streamlined with more flexible rules that must be communicated effectively to staff and learners alike. On the funding side, the Lifelong Learning Entitlement opens doors for adult learners but also requires you to rethink advice, guidance, and course packaging especially given the uncertainty regarding funding for overperformance. In this edition, we look closely at each development and suggest practical actions for teams across the College.
Introduction
Sector Headlines
DfE targeted construction funding announced
The Department for Education has committed a new tranche of capital and revenue funding to expand construction related courses across FE colleges. This funding is designed to help providers respond to skills shortages in the construction sector, with a particular emphasis on modern methods of construction, green technologies, and infrastructure development. Colleges are expected to show clear evidence of employer partnerships and progression routes when bidding for funds.
Ofsted’s updated Education Inspection Framework (EIF)
From this autumn, Ofsted will apply its new framework, shifting from a single overall grade to report cards across different aspects of provision. The emphasis will be on curriculum quality, skills development, safeguarding, and learner outcomes — but with a more nuanced breakdown to reflect the strengths and weaknesses of each area. This change increases transparency but also requires colleges to demonstrate consistency across all curriculum areas.
Apprenticeship rules and funding updates
Government reforms are reshaping apprenticeships to increase uptake and completion. Key changes include shorter minimum durations for certain standards, flexible English and maths requirements, and a renewed focus on high-quality on-the-job training. Employers will have more freedom to choose start and end dates that fit workforce needs.
Lifelong Learning Entitlement (LLE) developments
"The Lifelong Learning Entitlement is rolling out in phases, with new eligibility for modular study for levels 4–6 qualifications. This enables adults to draw down loan funding to study smaller, credit-bearing units rather than full qualifications. The entitlement is expected to reshape demand, as learners balance study with work and family life.
This offers a real opportunity for colleges to attract adult learners into flexible higher-level study. However, it also requires new administrative systems and advice capacity to support modular enrolments"
If there are any issues or topics you wish to discuss further, please contact a member of the FE sector team.
Contact the team
Sector reforms & guidance
Education Select Committee report – investment and reforms to the FE sector
In September, the Education Select Committee published a report urging the UK Government to significantly increase investment and carry out reforms in the Further Education (FE) and skills sectors, which it argues has been neglected for over a decade. The report asserts that the FE sector is essential to the government’s growth agenda and its missions on social mobility, but that the sector has suffered from under-funding, wage stagnation, and declining morale among staff. FE teachers are paid about 15 % less than their counterparts in secondary schools, which the Committee links to recruitment and retention challenges.
To address these issues, the Committee recommends the creation of a statutory pay review body for FE staff (akin to those already in existence for school teachers, nurses or doctors), better funding models that account for local deprivation and the prevalence of special educational needs, and the removal of the VAT burden on FE colleges (see our in-depth article later on). It also proposes a “student premium” like the pupil premium to support disadvantaged students in FE settings.
The report also focuses on strengthening the governance and independence of Skills England, cautioning that its status as an executive agency limits its autonomy. The Committee insists that, by mid-2027, an independent review should be conducted, and that the body’s governance, engagement with employers, data practices, and leadership structure should be revised if it cannot operate effectively under current structures.
Finally, the report outlines reforms across several priority areas: devolving 16–19 provision to local strategic authorities, expanding the government’s “Youth Guarantee” to cover 16–24 year-olds, redesigning T Levels into modular qualifications, simplifying and expanding apprenticeships (especially for small businesses and in everyday sectors), reforming the requirement for maths and English resits, prioritising mental health support in post-16 institutions, and ensuring the continuation of applied general qualifications (e.g. BTECs) alongside A Levels and T Levels.
FE and sixth-form college corporations: governance guide
The DfE has issued updated governance guidance over the summer. The guide, updated on 15 July 2025, provides a concise but comprehensive overview of how Further Education (FE) and sixth-form college corporations should be governed. The guide highlights the importance of understanding that corporations are both statutory bodies and exempt charities whose core mission is the advancement of education — and emphasises that governors act as charity trustees, bound by both charity law and education sector regulation.
The guide provides a timely reminder of the key governance expectations which are structured around the board’s core functions and six main duties. These are a useful starting point for newly appointed Governors and can be used as a timely reminder for existing Governors. The guidance goes into detail about the board’s responsibility for setting and driving the college’s strategy, holding leadership to account, ensuring sound financial and legal controls, and safeguarding public benefit.
As a reminder the six duties for governors are:
Ensuring the corporation serves its charitable purpose
Complying with its governing documents and applicable law
Acting in the best interests of the corporation
Managing resources responsibly
Exercising care, skill, and diligence
Ensuring accountability through transparent reporting and oversight
The guide also offers practical advice on board composition, recruitment, and development of governors. It recommends diversity in experience and background, transparent recruitment processes, induction programmes, and performance appraisal mechanisms. It highlights the roles of key figures (chair, governance professional, principal), emphasising that relationships among these roles require clear boundaries, mutual trust, and frequent communication.
For companies of different sizes there were divergent options:
Conflicts of interest and decision-making
Legal, regulatory, and compliance duties
Financial, estate and risk management
Structural changes and accountability
The guide sets out the process which colleges should consider when setting up new trading subsidiaries – which has often been the debate of the sector as to whether this is still possible. However, the guide does not dovetail in with MPM guidance, as such if the new trading subsidiary is going to undertake a novel, contentious or repercussive activity then permission will still be required from the DfE.
Protection of Free Speech in Colleges
From 1 August 2025, new legislation requiring universities and colleges in England to protect free speech and academic freedom has come into force. Under the new rules, institutions must actively promote academic freedom, ensuring that students, staff, and external speakers can express lawful views without fear of censorship. The laws prohibit the use of non-disclosure agreements to silence victims of harassment or misconduct on campus. If an institution fails to uphold these protections, the Office for Students (OfS) can investigate and impose fines; universities are being warned of “record penalties” if they fail to comply. The changes are part of the government’s “Plan for Change” aiming to restore the integrity of higher education as a place for rigorous debate and free inquiry.
The key points and implications from the guidance are:
As of 1 August 2025, universities and FE colleges in England are legally required to actively promote academic freedom and protect free speech for students, staff, and external speakers.
Institutions may no longer use NDAs to silence victims of harassment, abuse, or sexual assault on campus.
The Office for Students (OfS) will have investigatory powers, and can issue sanctions or fines if an institution fails to uphold the free speech rules.
The University of Sussex was fined £585,000 in March for failing to protect free speech — this is held up as an example, and future fines may be even higher.
Academics, external speakers, staff can trigger OfS investigations; students will have complaints handled via the Office of the Independent Adjudicator.
Institutions will be held responsible for the activities of student unions under the new rules.
Employment Rights Bill
We touched on the development of the Employment Rights Bill back in our Summer 2025 Digest but it’s important we keep colleges updated regularly with progress on the proposed reforms.
Status Update: Where the Bill Stands Now
With Parliament resuming after summer recess, the Bill returned to the Commons in September and we are expecting that it will ultimately receive Royal Assent in the autumn.
An implementation roadmap has been published, outlining “phased implementation” of the proposed key measures—some as early as late 2025, but mostly from 2026 through to 2027.
Meanwhile, critics warn the employment tribunal system already faces a record backlog (nearly 50,000 cases by the end of 2024) and claims reportedly rising by 32% in early 2025. The proposed introduction of day-one rights, and extended claim timelines (from 3 to 6 months) could overwhelm the tribunal system unless capacity is significantly increased.
As a reminder, here’s a summary of the Bill’s key reforms that may soon become law:
- “Day-one” rights— parental Leave, paternity leave, bereavement leave, statutory sick pay, and flexible working, all from the first day of employment. Unfair dismissal protection could also become a day-one right, although an amendment replacing day one unfair dismissal rights with a six-month qualifying period has been voted for by the House of Lords, but the amendment could be rejected.
- Statutory “probationary periods”—potentially up to nine months—offering employers a lighter-touch dismissal process during that phase.
- Guaranteed hours for zero-hours workers — including calculation methods for annualised-hours contracts, shifts in obligation mechanisms to avoid loopholes, and potential worker-driven requests.
- Enforced protection against sexual harassment including by third parties, and nullifying NDAs related to harassment or discrimination.
- “Fire-and-rehire/re-place” reforms—specifically automatic unfair dismissal when employees are dismissed and replaced with non-employees.
- Role of the Fair Work Agency (FWA), a new single enforcement body to oversee labour law enforcement, collaborating with The Equality and Human Rights Commission (EHRC) on equality-related matters.
- Extended tribunal claim periods—from 3 to 6 months for unfair dismissal, discrimination, redundancy, etc.
Enhanced rights and union powers, including in maternity return, sick pay, trade union access, fair pay agreements, and more.
What Can Colleges Do Right Now to Prepare?
Whilst nothing is final until Royal Assent, you can start planning accordingly:
- Have a look at the Implementation Roadmap and work out what might be a priority for your College.
- Review and update probationary policies.
- Consider implementing or refining internal probation periods (e.g., up to 9 months), along with clearly documented “lighter touch” dismissal procedures that comply with forthcoming law.
- Audit zero-hours and low-hours contracts.
- Map out existing arrangements, ensure fair guaranteed hours are built in, and prepare to respond to potential consultation on reference periods (likely to be around 12 weeks).
- Strengthen harassment policies.
- Reinforce prevention measures, clarify how third-party harassment is handled, and review existing NDAs to identify those that might conflict with the Bill’s proposed voiding of harassment-related confidentiality.
- Read about the Fair Work Agency (FWA) involvement. Track developments around the FWA—especially how it will dovetail with EHRC’s responsibilities—and ensure compliance systems can adapt to potential new enforcement approaches.
- As union rights expand, maintaining strong communication channels will be critical—for both compliance and workplace unity.
- Expect increased tribunal claims and longer timelines—plan for higher legal and operational demand.
- Review internal HR audit processes and consider proactive investment in mediation or alternative resolution.
- Although the final shape of the legislation is not yet confirmed, we understand that the upcoming changes may create uncertainty for colleges.
Our team are closely monitoring developments and will provide clear, practical advice to help you prepare and adapt as the Bill moves towards implementation. To support College, we will be launching our Employment Rights Bill Hub, with regular updates, insights, and resources designed to keep you fully informed.
VAT and the Further Education Sector – The Colchester Institute Rulings
Historically, many Further Education (FE) colleges and similar institutions treated the public funding they received from bodies such as the ESFA and SFA as outside the scope of VAT. This was on the basis that such grants were not payments for services and therefore not “consideration” for VAT purposes. Under that approach, the education provided was treated as a non-business activity, which meant there were limited rights to recover VAT incurred on costs. However, this treatment did allow access to certain VAT reliefs.
Colleges often relied on the Lennartz mechanism for capital (building) expenditures, which allowed recovery of input VAT up front while accounting for deemed output VAT over time on the proportion used in non-business activities, under strict rules.
The landscape began to shift following the Upper Tribunal’s decision in Colchester Institute Corporation v HMRC (2020). The Tribunal held that funding paid to an FE college by government funding bodies did in fact amount to “consideration” for the provision of education or vocational training. Although students did not pay directly, the funding was tied to outputs, reporting obligations and clawback provisions, which meant there was a sufficient link between the funding and the educational services provided.
"As a result, such educational supplies were deemed to constitute “economic activity” for VAT purposes and therefore to fall within the scope of VAT, albeit exempt under the education exemption in Schedule 9, Group 6 of the VAT Act. A key consequence of this change was that, because Colchester Institute’s supplies were now treated as exempt rather than non-business, the college was no longer required to account for output tax on deemed non-business use under the Lennartz rules. HMRC was nevertheless permitted to offset Colchester Institute’s claim for overpaid output tax against earlier input tax claims, limiting the overall financial benefit."
In short, the ruling shifted the characterisation of many FE college activities from non-business or outside the scope of VAT to within scope but exempt. This has significant implications for the sector, particularly regarding which VAT reliefs can be claimed. If applied broadly, it would restrict VAT relief available to colleges on certain costs such as capital works, fuel and power. For instance, the zero-rating of a new building for charitable use would no longer apply to the construction of classrooms used for education.
Following the Upper Tribunal’s decision, HMRC issued Revenue & Customs Brief 08/2021 (RCB 08/2021), which stated that, for the time being, HMRC would not require colleges to apply the Tribunal’s decision universally. Colleges could continue treating such funding as non-business pending further appeal.
In more recent developments, there has been a flurry of new case activity. The reasoning in Colchester Institute (2020) has been applied or followed to reduce or overturn output VAT assessments in several First-tier Tribunal (FTT) decisions. In Colchester Institute No. 2 (2024 FTT), the tribunal allowed the appeal in respect of output tax, following the earlier Upper Tribunal precedent. Derby College and Cornwall College have also successfully appealed at the FTT on similar grounds.
HMRC, in RCB 08/2021, confirmed that it intended to test the “consideration” question again through a new appeal. This was pursued by taking a new Colchester Institute decision to the Upper Tribunal in December 2024. HMRC conceded there was no realistic prospect of success in that challenge, and the case was dismissed by the Tribunal. However, HMRC’s strategy was to create a new appealable decision, allowing it to take the issue further.
The matter has since been appealed to the Court of Appeal, where HMRC intends to reargue the “consideration” point. The case is scheduled to be heard in March 2026. It is widely expected that, if HMRC is unsuccessful, the case may ultimately proceed to the Supreme Court. Until the question of consideration is finally settled—either by the Court of Appeal or, potentially, the Supreme Court—the Further Education sector remains in a state of uncertainty.
2025 Apprenticeship Changes: Are You Ready?
As many colleges and commercial entities prepare their teams for a September intake of apprentices, it’s crucial for them to stay updated on significant apprenticeship reforms that came into effect from 1 August 2025.
These reforms bring shorter and more flexible apprenticeships with the intention to boost economic growth, particularly in key areas of shortage - construction, health, and social care - and provide opportunities for an additional 10,000 apprentices per year.
Here’s what’s changed — and what colleges need to know:
- Shorter Minimum Duration Apprenticeships can now be as short as 8 months, down from the previous minimum of 12 months — provided all training and assessment requirements are met.
- Fixed Off-the-Job (OTJ) Training Hours The 20% rule is replaced by set minimum OTJ hours per apprenticeship standard.
- Recognition of Prior Learning (RPL) If an apprentice brings in relevant prior knowledge, employers can reduce both duration and costs—but must still meet the minimum thresholds (e.g., 8 months, OTJ hours).
- Foundation Apprenticeships (FAs) Foundation Apprenticeships launch in August/September 2025, and will be open to 16–21-year-olds (and some 22–24-year-olds with Education, Health & Care Plans, Care leavers, those recently released from prison), with incentives such as £2,000 per learner, plus an extra £666 for progression to higher-level courses. These can be done at the same level or a lower level as the apprentice already has, if it supports learning new skills, and English and Maths do not need to be passed before the course ends.
- Relaxed English & Maths Requirements for 19+ Apprentices For apprentices aged 19+, achieving Level 2 Maths and English is now optional at the employer’s discretion — easing barriers to completion and increasing accessibility.
- No longer separate rules for part-time and full-time apprentices It is no longer a requirement to extend the planned end date for part-time learners. Previously, part-time, or term-time learners had to have their apprenticeships extended to take account of their reduced hours.
- The Apprenticeship (now Growth & Skills) Levy Reform: From April 2025, the Apprenticeship Levy is now the Growth & Skills Levy, meaning colleges can allocate 50% of funds to non-apprenticeship training (e.g., Bootcamps, modular tech courses). There’s also a governmental shift away from funding Level 7 (Master’s) apprenticeships from January 2026, with a stronger focus on lower-level training and youth routes.
- Major Funding Boost for Skills & Training: The Government has allocated £275 million to support technical education, covering training colleges, courses in AI/digital manufacturing, and infrastructure investments for providers.
Forthcoming Schools White Paper
The government has confirmed that the new Schools White Paper will be published in autumn 2025 and will include major reforms to SEND (Special Educational Needs & Disabilities) and wider school system reforms.
It is intended to set out the government’s vision of how to improve outcomes for all pupils, with particular attention to those with additional needs (SEND) and those from disadvantaged backgrounds (for example, white working-class pupils). The White Paper will not itself become law, but will propose reforms that could later be introduced into legislation and regulation.
If there are any issues or topics you wish to discuss further, please contact a member of the FE sector team.
Contact the team
Key policy themes & signals
From recent announcements, speculation, and stakeholder discussion, these are the major themes expected in the White Paper. Whilst targeted at ‘schools’, these themes are likely to include sixth forms, and so will affect colleges:
include sixth forms, and so will affect colleges:
| Theme | Key proposals / signals | Implications / concerns |
|---|---|---|
| SEND reform | • Reforming or overhauling the current system of EHCPs, SEN support, and alternative provision. • Proposals for a three-tier support model: universal (available to all), targeted (for those needing extra help), and specialist (for highest need). • Revision or replacement of the SEND Code of Practice or “ordinarily available” provisions to clarify expectations for schools. • Commitment (in rhetoric) not to remove existing effective support programs. | • There is concern from disability / inclusion advocates that changes may reduce rights or protections for disabled pupils, or increase segregation. • Funding and capacity are major constraints — many local authorities are under financial pressure in their SEND budgets. • Clarity will be needed about transitional arrangements so support doesn’t lapse. |
| Accountability, transparency & school performance | • Greater transparency tools for school leaders to benchmark performance (e.g. comparing with similar schools). • “School report cards” or profiles for parents to see a fuller picture: attendance, behaviour, inclusion metrics, not just exam results. • Strengthening expectations of parental engagement and more formal expectations for how schools communicate with families, how they share data and support home learning. • Reform in how school complaints are handled: clarifying roles, making processes more robust and fair to both parents and schools. | • Increased formal oversight and accountability may increase administrative burden on schools. • The balance between transparency and fairness will matter: too much “naming and shaming” could have unintended effects. • Changes to complaints systems may face resistance, especially if seen as reducing parental recourse |
| System structure, school status, and governance | • The White Paper is expected to address the relationship between local authorities, trusts, and schools more clearly (i.e. who is responsible for what). • Continued expectation (or pressure) for weaker schools to convert to academies or to join strong multi-academy trusts (MATs). | • Some in the sector resist further academisation or consolidation, fearing loss of local control or individuality. • The capacity of MATs to absorb new schools fairly, and ensure consistent quality, will be a challenge. |
| Early years / preventative intervention | • The White Paper is likely to integrate with early years / “Best Start” / family hubs initiatives so that SEND or learning issues are identified earlier and support given before they reach a critical stage. | • Early identification and support make sense in theory, but will require sufficient resourcing and staffing to deliver effectively. • Ensuring alignment across health, social care, and education is always difficult in practice. |
| Implementation, funding & capacity | • The government will need to set out how reforms will be funded, and how local authorities and schools can adapt to changes (e.g. capacity building). | • One of the biggest risks is “announcement without deliverability” — many reforms fail if funding, staff, and management capacity are under-estimated. • There is potential for local variation and inequity in how reforms play out regionally. |
In-depth review
We have reviewed the publication of the College Financial Handbook 2025 and recent VAT developments as in-depth review. The following articles provide you with a comprehensive review of the latest changes.
College Financial Handbook 2025
- Updated definitions and accounting officer duties The responsibilities of accounting officers (usually the principal/CEO) have been rewritten to make them clearer and closer to HM Treasury’s Managing Public Money. Definitions of regularity, propriety, value for money, and feasibility have been refreshed to ensure consistency with the wider public sector. Importantly, there is now an explicit duty for the accounting officer to formally warn the governing board if a decision under consideration would breach the handbook, the college’s funding agreement, or its legal constitution. This places more emphasis on personal accountability.
- New or revised frameworks and references A brand-new investment framework for colleges has been introduced (which is included within the Governance guide noted in the article above), giving rules on how colleges can invest funds responsibly. This broadly follows Charity Commission guidance and makes it clear that colleges are able to set up new trading subsidiaries (subject to NCR considerations). The Procurement guidance has been updated to reflect the Procurement Act 2023, which changes how in scope (as a contracting authority) contracts must be advertised, tendered, and managed.
- Integration of the post-16 audit code content The old Post-16 Audit Code of Practice has effectively been absorbed into this handbook. This means that rules about audit committee composition, responsibilities, and operation are now part of the same single handbook, reducing duplication. Requirements for how external auditors are appointed, what must be included in engagement letters, and how auditor changes are handled have been brought over too. The process for the regularity review (which checks proper use of public funds) and the supporting self-assessment questionnaire is now embedded within the handbook. References to the old code have been replaced with the new Framework and Guide for External Auditors and Reporting Accountants of Colleges.
- Revised parts on delegated authorities and approvals Colleges have clearer rules about what transactions require prior approval from DfE. This includes tighter guidance around novel, contentious, or repercussive transactions (things that might set a precedent, carry political sensitivity, or have wider financial impacts). The handbook now points directly to the DfE’s good practice guide on handling such cases and provides a link to the official FE transactions approvals request form. This should make the process more transparent and standardised across the sector.
- Other consequential and terminology changes The closure of the Education and Skills Funding Agency (ESFA) in March 2025 has been reflected throughout, with all references either removed or replaced by the Department for Education (DfE), which has taken on its responsibilities. Language has been tidied up so that terms like governors, accounting officer, and chief financial officer are used consistently and aligned with both charity law and public sector standards. There was also a late update in July 2025 adjusting the thresholds for senior pay approvals, as noted above, so colleges will need to re-check those figures.
The thresholds for DfE approval of senior pay packages have also been revised in line with HM Treasury’s most recent requirements. The broad changes here are that the salary level requiring DfE permission has increased from £150k per annum to £174k (or its prorated equivalent), and for new appointments, permission is required if a proposed performance related bonus element exceeds £25k (previously £17.5k). For existing appointments, previously increases to remuneration up to 9% did not require permission, this threshold has now fallen, from 1 August 2025, to 6%.
Finally, the DfE has announced that, from August 2026, the UK Corporate Governance Code will no longer be an acceptable governance framework for colleges, meaning boards will need to adopt either the Charity Governance Code or the AoC FE Code of Good Governance.
