Official Report: Minutes of Evidence

The Chairperson (Miss M McIlveen): I welcome our witnesses: Trevor Connolly, the director of finance; Philip Irwin, the director of investment and infrastructure; and Gavin Patrick, the deputy director of finance. You are all very welcome. I ask you to make your opening statement and members will follow with questions.

Mr Trevor Connolly (Department of Education): Thank you, Chair. We appreciate the opportunity to attend the Committee to discuss the Department's public consultation paper on the draft Budget 2015-16 that was published on Wednesday 26 November. If you are content, I propose to make a few short opening remarks, and Philip, Gavin and I will then be content to address any questions that members may have.

The Executive's draft Budget 2015-16 was announced by the Finance Minister on 3 November 2014. That triggered the commencement of the public consultation period, which closes on 29 December 2014. Clearly, the draft Budget 2015-16 is taking place in a very difficult economic environment. Compared with 2010-11, when the Assembly last agreed a Budget, the Executive's spending power has been reduced by around £1·5 billion as a direct result of the year-on-year erosion of the block grant.

When setting out the strategic context, it is important to remind ourselves of the detrimental impact on the Department of Education of the final Budget 2011-15. Over the four-year Budget period, DE incurred a total cash terms resource budget reduction of £125 million compared to the opening baseline. That translates to a 13·6% real terms reduction compared to 2010-11.

Following talks with the First Minister, the deputy First Minister and the Finance Minister, the Minister successfully secured an additional £120 million directly for school budgets in January 2012 which would be allocated over the three years to March 2015. He has further ensured that the £75 million allocation in 2014-15, which was originally time bound, has now been permanently added to the Education baseline for 2015-16.

I will now detail the impact of the draft Budget 2015-16 for the Department of Education. In the resource budget, we face a funding gap of £162·5 million or 8·4%. The capital budget has been reduced by £36·1 million or 19·7%. While the Minister is determined to protect front-line services as far as possible, when faced with such reductions, maintaining all core services at current levels is simply not deliverable.

The Department's public consultation document is available on its website, and the consultation arrangements are detailed in section 2 of the consultation paper.

I will now detail the draft Budget 2015-16 funding allocations for the Department's resource and capital budgets in comparison with the 2014-15 opening baseline. The resource budget has been reduced by £94·4 million, or 4·9%, and, as I stated earlier, the capital budget has been reduced by £36·1 million, or 19·7%. However, it is important to note that those budget allocations do not take account of inescapable cost pressures, such as pay increases, price inflation, meeting statutory and contractual commitments, and addressing demographic impacts in 2015-16. Hence, the 4·9% resource reduction represents a floor and not a ceiling. Once inescapable pressures are included, the resource funding gap is £162·5 million or 8·4% on the opening 2014-15 baseline of £1943.7 million.

Over the last number of years, the Department has built up a significant pipeline of capital projects, many of which are advancing through the planning and design phases of delivery. The proposed reduction in capital spending of 19·7% will impact on the Department's ability to deliver some projects that are planned for 2015-16. In order to minimise the impact on longer-term projects, major capital programmes have been prioritised. However, that means that the reductions in other programmes, particularly in the school enhancement and minor-works programmes, will be disproportionably high.

The planned spend on the school enhancement programme was £85 million; however, a budget of only £40 million will now be available in 2014-15. Similarly, the historical spend on minor works has been closer to £60 million to £70 million per annum; however, a budget of only £25 million will now be available in 2015-16.

Table 5 in the briefing paper details the forecast £68·1 million of inescapable resource pressures for the education sector in 2015-16. In making those allocations, the Minister is continuing to tackle social disadvantage through targeting social need by allocating a further £10 million in 2015-16 to the aggregated schools budget (ASB). The Minister is also committed to ensuring that support for children with special educational needs (SEN) is prioritised as much as possible and has proposed to provide an additional £10 million to the education and library boards to enable them to continue to meet the needs of children with SEN statements. Recognising the particular effectiveness of early identification and early intervention, he is also working to prioritise the continuation of early years SEN capacity building.

It is essential that significant budget reductions are realised quickly if the Department is to balance its 2015-16 resource budget. In determining strategic priorities, the Minister's focus has been on protecting front-line services as far as possible, promoting equality and raising education standards. The proposed budget reductions seek to drive up efficiency, reduce bureaucracy and eliminate duplication. However, the scale of the reduced budget reductions means that those cannot be delivered through efficiency savings alone, especially in light of the savings that have been delivered during the Budget 2011-15 period.

Given the scale of the budget reductions that are required in 2015-16 and the fact that over 75% of the Education budget is spent directly on salary-related costs, it is unavoidable that there will be implications for jobs. In setting out the proposed budget reductions, the Minister is determined that the impact on jobs should be mitigated as far as possible. However, that will be very, very challenging. The implications for jobs will be considered further in light of the responses to the consultation, the Executive's workforce restructuring paper and the decisions of the Executive on the final budget 2015-16 allocations.

Section 6 of the briefing paper summarises the equality and good relations implications of the departmental resource and capital budget spending proposals for 2015-16. Preliminary high-level screening of the capital proposals has identified that the overall effect should result in no or a minor impact. Preliminary high-level screening of the resources proposals shows that they should have a minimal impact on equality of opportunity. That is because, wherever possible, the Department has also taken account of mitigating measures to minimise impact. Each proposal has also been subject to equality screening, and, where necessary, full equality impact assessments will be undertaken as they are further developed and implemented.

I know that the Minister issued the public consultation paper to you, Chair, last Wednesday. He looks forward to receiving the Committee's comments on the proposals along with any suggestions of alternative approaches. At this stage, I propose to hand back to you, Chair. Clearly, we are happy to take any questions. Thank you.

The Chairperson (Miss M McIlveen): I declare an interest as a member of the board of governors of Castle Gardens Primary School in Newtownards, Killinchy Primary School and Nendrum College.

Thank you for your presentation. Without doubt, this Budget is the most challenging that any of us can remember. I have a number of concerns about your paper and some of the things that you said during your presentation. You indicated that there will be an impact on jobs without telling us what the impact is likely to be. I realise that it is still reasonably early in the consultation process, but, without that information, there is massive concern among teachers, staff in the arm's-length bodies and, I assume, the Department. If savings were to be made through job cuts by April 2015, the process for redundancies should have started much earlier — we are talking maybe about October time and notices to schools this month. So, from where we sit, the timescale seems to be impossible for those early savings that you have indicated as necessary in the budget.

You have also indicated that the budget will have an impact on schools, but we really do not know to what extent or of what nature this will be. I understand that you sent a letter to schools yesterday in respect of the aggregated schools budget. What does this mean in real terms? There are principals who are, naturally, worried. They see what is being presented as totally unworkable. While there are others who can absorb the reductions, whether they have moneys left over from the delegated budget or receive money from various other pots, what about the schools that rely entirely on the aggregated schools budget?

So, really the assurance that we need is that, when all of the cuts are aggregated and we assess the overall budget and the impact that it will have in regard to the substantial reductions in the budget, there is not a disproportionate and unfair impact on certain schools. We also probably need to bear in mind that the financial year and the school year do not naturally tally. This presents serious challenges for schools that offer A-level and GCSE courses based on having a certain level of funding. They are mid-course, and there is a committed spend for two years.

First, I really want to focus on the aggregated schools budget. From 2014-15 to 2015-16, the budget will reduce by £78·7 million. Has the Department a baseline for the £25·8 million of the extra payments that were made last year?

Mr Connolly: Yes.

The Chairperson (Miss M McIlveen): In relation to the aggregated schools budget, are you simply cutting the money that each school gets per pupil, or are you going to look at changing the funding formula and removing certain aspects of that, be it the small schools factor or the premises factor?

Mr Connolly: There are quite a lot of issues there and several questions, so I will try to unpack that. First, with the aggregated schools budget, our headline funding gap is 8·4%. The £78·7 million reduction is 7%, so the Minister has tried as much as possible. I think that one of the key macro situations is that, of the budget of £1·9 billion, there are, effectively, three material budget lines in that. The aggregated schools budget represents 60% of the overall total. Next up is the block grant that we give to the boards. That is 20%. Then, there is earmarked funding that goes either to the boards or to the voluntary grammar or the grant-maintained integrated (VGS/GMI) schools. That is another 12%. Those three elements cover more than 90% of the total. The single biggest one is, obviously, ASB at 60%. If you are trying to take 8·4% off a total pot and, hypothetically, you protect ASB and say that you will not touch that — the Minister's thinking always was to try and reduce, as much as possible, the reduction — you are then looking at the other 40%. That 40% represents £800 million. If you take £162 million off £800 million, that is a cut of over 20%.

So, I suppose the point that I am trying to make is that we are faced with a very difficult situation, which is that, when you have a budget divided into, effectively, three large chunks, when you start to look at protecting one area, you have to take the pro rata cut that was coming at that area and put it somewhere else. It is a very vicious triangle when you look at it in that way, and that is one of the key things that, at the start of this process, probably back in September, I was emphasising to the Minister. When you start to say that you will protect this, that is OK, but there is a clear, disproportionate impact elsewhere. When you take account of the reduction and the additional £10 million that is in the inescapable pressures, that brings it down to the £68·6 million, which is a net 6% reduction. That is nearly 2·25% below our headline figure. So, I think, to be fair, the Minister has done everything that he can to reduce that within the current parameters.

You mentioned the impact on schools. The letter to schools went out yesterday afternoon, and, in some respects for me, this is déjà vu. On 25 November 2011, only a couple of months after I had joined the Department, we sent out a similar letter. I suppose, to me, it is critical because, as you rightly said, Chair, we need to give the information to schools as soon as possible for them to plan. From the outset, the Minister was very keen that the letter was to go out as soon as he had finalised and we had got the consultation. The figures are estimate figures, because, clearly, we do not have the validated census figures for 2014-15, which we use for the 2015-16 academic year. So, they do not take account of demographic impacts. However, they do show that, at a high level, the age-weighted pupil unit is, effectively, the funding engine, and that is what we pay schools, whether nursery, primary or post-primary, per pupil. We have given every school the high-level funding information showing, roughly, the gross amount that it will get based on the number of pupils. You will see that there is an overall reduction of about 8% for nursery and primary schools, and a reduction of 7% for post-primary schools. That is just pure cash. That is a high-level figure.

From an individual school's perspective, there are various elements. It is not simply based on the number of children but the characteristics of those children. Are they entitled to free school meals? Are they looked-after children, etc? There are various characteristics that mean that you get additional funding. The second factor is where the schools sit within their three-year financial plan? Have they a surplus or a deficit? If they have a surplus, they can clearly use that to mitigate any reduction. The issue there is that that is a non-recurrent option. Once you have drawn down that, that funding is gone.

So, I think that the answer to question about the impact on schools is that there are 1,200 schools and that, essentially, it is the individual circumstances of the schools that will dictate the impact. Do you have a buffer in that you can draw down some of your school's surplus to offset, or are you in a much more difficult position than that? Ignoring the demographics, we have simply tried to give a high-level estimate of what we think that the figure will be. That is clearly based on these figures. By the time that the Executive agree the final Budget next month, we will have the validated census figures, and we will be going out as quickly as possible with the final figures. Very simply, we have been trying to say, "Here is the best information that we can give you for you to plan and set in train the decisions that you will need to make to manage your budget".

The Chairperson (Miss M McIlveen): Have you looked at changing the funding formula around any other factors?

Mr Connolly: No, because I think that there are two things. First, if we were to make any significant change, that would require public consultation, and we simply do not have the time to go through that process. Secondly, as it states in the letter, with the reduction of £78·7 million, as you are aware, Chair, there are two funding streams, nursery/primary and post-primary. The reduction has been applied in exactly the same proportion as their funding amounts in 2014-15, so there is no change to what was done last year. In essence, the Minister said that the same reduction as last year is to be applied in exactly the same proportion. So, there is no change whatsoever to what we had in the common funding formula (CFF) last year. Everything is as is.

The Chairperson (Miss M McIlveen): Will there be any flexibility with regard to the consultation date?

Mr Connolly: The consultation date is set by the Executive, so, from my viewpoint, we have made it clear that we are finishing on 29 December, but my understanding that an Executive paper will be going very quickly in January. To a certain extent, there is no point saying that we will give you until 30 January if the Executive will already have reached a decision in the middle of January. From our perspective, we are completely coterminous with the Executive consultation period, which is to finish on 29 December.

The Chairperson (Miss M McIlveen): I am asking because, obviously, it has been asked of me.

Mr Connolly: That is the rationale.

The Chairperson (Miss M McIlveen): Obviously, from April, there will be one education authority as opposed to five boards. Will there be any radical reduction in DE posts as a result of that and, hence, savings that would, you would imagine, go to front-line services?

Mr Connolly: I suppose that I could answer that in two ways. Irrespective of the change to the education authority, our staffing budget will reduce by 9% or £3 million. Following 1 April, I do not think that there will be any significant change. To a certain extent, and from a finance perspective, people may say that there will be less work because five boards will become one. However, there is a huge transition and transformation process. We need to work with the new education authority because it is going to have a reduced budget and will have to manage that budget in 2015-16. We are going to have to work with people to get consolidated information and understand all the detail behind that. I do not anticipate that we will have any reduced workload in 2015-16 from a finance perspective. This is a brand new organisation, and we will need to work very closely with it to make sure that we get sufficient, detailed information to understand how it is all working through, whether that is around transport, meals or SEN pressures. There is a lot of detail there, and somebody is going to have to consolidate that and present it to us on a one-authority basis rather than on the basis of five individual boards.

The Chairperson (Miss M McIlveen): What pain is the Department feeling as a result of this?

Mr Connolly: As I have just said, we have a 9% reduction in staff costs, which is £3 million.

The Chairperson (Miss M McIlveen): Do you have details of how that is going to manifest itself?

Mr Connolly: We are working through that at the moment. Clearly, it will be a reduction in posts.

The Chairperson (Miss M McIlveen): My last question is this: have you looked at any alternative approaches around collaboration with other Departments to deliver services?

Mr Connolly: We already do that. Sure Start is delivered by the Health Department. There is literacy and numeracy, the nurture units —

The Chairperson (Miss M McIlveen): I appreciate what you have been doing, but are you looking at any further collaborative approaches?

Mr Connolly: The Executive agreed a £30 million change fund. One of the criteria for that is that bids are cross-cutting. Certainly, we are keen to make bids to that fund. The simple answer is that we are looking at that. However, it is difficult to say how you are going to be able to change things when you have a reduced budget. Normally, if you try to do that, you start with investment and then get the benefits, on the same principle as invest to save. If there are any opportunities for us to work more innovatively and efficiently, those will come through in the bids that we make to the change fund.

Mr Craig: I am fascinated by what you said about the aggregated budget. In your terms — you can confirm this — you say that it will be about £68 million out of that. Let us look at that. You mentioned already a couple of things. You are talking about schools that are sitting with a massive surplus. You were forced into doing the three-year plan and are supposed to get within the 5% budget line. However, a lot of those schools have planned that. You said that they can take it out of their surplus, but, in reality, is that not a misconception, because there were plans to do that anyway in a lot of cases?

There is a bit of a contradiction for schools. No matter what a school actually does, it has to meet its curriculum needs. You have to do a curriculum needs analysis if you are even considering making a teacher surplus to requirements. If a school does that and cannot make anyone surplus to requirements, where does that leave the £68 million budget? The reality is that it cannot be met without reducing the number of teachers. There is a bit of a contradiction there. Have you looked at that, or even asked for an analysis of that to be done, across the schools? It is all right to say that you are going to take £68 million out of the budget. That is OK, but can it actually be done? Can it be realised in the timescales that you want it to be realised in? If it cannot, does that not simply mean that you drive schools further into deficit, and that deficit is ultimately picked up by the board and, ultimately, by you, because it is just an accounting exercise, as you will not actually receive the savings?

Mr Connolly: Once again, Chair, there are two or three different questions. I want to be clear: the decision for the surplus is clearly for the board of governors. If you have a surplus, that is an option that you can use to mitigate the reductions. I am not telling anybody what they should do with their budget; that is clearly their decision. However, it is an obvious option.

With regard to the impact on individual schools, in essence, the circumstances in each school are unique, and that is why we sent out the letters. We did that as soon as possible after the Ministers made the overall decisions on the reductions, to give schools as much time as we could to start to look at those decisions.

On your point as to whether the timescales are deliverable, we do not underestimate in any way the challenge that this will have for schools. Even with the £10 million, that is still a 6% reduction in ASB, which is the core funding for 80% of schools in one year. As I said to the Chair outside, that is a huge challenge to deliver in one year. There is nobody in the Department, and certainly not the Minister, who in any sense understates the difficulty of delivering that. This is extremely bleak and extremely difficult.

In terms of the impact, it comes back to the individual circumstances of schools. Some schools have large surpluses, some schools have small surpluses and some schools are currently in deficit. If they are in deficit, they are working with their boards to reduce and manage that. Yes, unless we apply very strict governance and ensure that boards of governors do everything that they can to manage their budget within the amounts, then there is a huge risk that that translates into deficits that then come to the boards and come back to us. We said clearly in the letter that people need to look carefully. We said, "Here is the best forecast information that we can give you. Please go and look at your plans and start to look at what staff reductions you are going to have to make to live within your budget." However, I want to be clear; we are not putting that out as a mathematical or financial exercise. This is a huge sea change for education. For just this element, a 6% reduction in one year is a massive, massive obstacle to deliver.

Mr Craig: Trevor, I want to know whether it is actually deliverable. The other thing that strikes me about what you said is that there will have to be a sea change in attitude within the Department as well. I will declare my hand: I sit on two boards of governors. To try to keep within our three-year plan and keep in the black, last year one of the boards proposed to make redundancies, and it was quite easy for us because we had volunteers who wished to go. However, the Department blocked that because of the alleged surplus that the school had. All of those surpluses are a bit of a technicality. The school never even sees the money, even though it is there in the account. Will that policy be overturned because, for you to get your in-year 6% reduction, you cannot have those silly contradictions? It does mean reducing the overall headcount; that is the only way that you can actually save the money.

Mr Connolly: I have a couple of points on that. When you say that the surplus is a technicality, I do not understand that. The surplus is a figure that the board tells each individual school it has at the start of the year, and the school is aware of that. As far as I am concerned, that is the funding —

Mr Craig: Trevor, the board keeps the money; the school does not see it.

Mr Connolly: The school would see it if it drew down the money. That is the decision for the school.

Mr Craig: Yes, if it could. You know as well as I do that your hands are tied as regards a lot of the ways in which you can actually spend that money.

Mr Connolly: My clear understanding is that any surplus funding would be fully delegated funding from the aggregated schools budget (ASB) and would be available to the school and the board of governors to use.

When making the redundancies for 2014-15 we had to prioritise, because, as you are aware, we had a fixed pot of money. We are at the early stage of setting out the position for 2015-16, but that will also come down to the affordability of the level of reductions required.

I will give you the overall picture on redundancies. We forecast that, if people leave at the start of April 2015, at least 1,000 teacher posts and 1,500 non-teaching jobs would require to be lost. Those numbers will increase substantially if the redundancies are delayed into the 2015-16 financial year. The Minister will do everything he can to minimise the redundancies, and he wants to engage now with the trade union side, both teaching and non-teaching, so as to minimise the number of redundancies. The more traction we get around the 1 April 2015 leaving date, the more jobs we can save. That is the key aspect for us.

Mr Craig: I agree on that one. But, there is a bit of a contradiction here. Some schools are fortunate to have a surplus, and you plan to soak up that surplus over the three-year financial plan that you have to put in. That said, if a surplus stops you making some of the redundancies initially that you know you need to make over the three years, that will, as you quite rightly point out, make the whole surplus situation worse. In three years' time you will have to lay off even more people to try to keep yourself in the black. Is that contradiction in the Department's policy going to be fixed? If not, it will have an even worse impact on the surplus requirements in the long run.

Mr Connolly: Every year, we put a plan on the ASB to all schools. In good faith, when we agreed the 2014-15 budget, all we could do was say: "Look, you must plan on the basis of the current amount". At that stage, it was all we had. Clearly, schools have a good-faith plan on that basis. We have now sent a letter to them saying that there has been a fundamental change and that they need to change their plans completely for the 2015-16 budget. We need them to look at the 2015-16 financial year very carefully, to manage that level of financial reduction to the ASB funding, whether it is 7% or 8%, and then to look at redundancies.

We learned from the redundancies we made during this year. We are in a completely different position now. Those were cost-reduction redundancies, and we had very clear criteria that were communicated to the schools etc. There has been a complete sea change, and we fully recognise that. You are looking at a minimum of 1,000 teaching jobs and 1,500 non-teaching jobs. I cannot remember the exact figures, but I think it was maybe 90 or 91 teaching jobs less in 2014-15. We are looking at a factor of 11 times that. That is the minimum number, which assumes that everybody will go on 1 April.

I will walk you through the process, because this is where it gets extremely challenging. If someone goes at the start of April, you will get a full year's saving from that person's salary. This maximises the benefit for me as a finance director. If someone goes on 1 September, you will be paying that person's salary for five months. You will then have to find that saving, since it comes in only half way through the year. The perverse outcome of this is that you will have to take out twice as many people in order to make the same saving at the end of the year.

So, we need to have as many people as possible leaving close to the start of the year. It is a simple mathematical calculation. The longer it takes, the less saving you will have, which is why the Minister wants to engage now with unions, both teaching and non-teaching, to discuss how to maximise the numbers of people leaving in April. It is the only way we can minimise the number of jobs that are required to produce the savings.

Mr Connolly: Yes, under the current situation. But this is a sea change. We all need to take a step back, look at the current situation and work out how we change that. That is the discussion the Minister needs to have.

Mr Craig: In reality, that conversation probably should have taken place six months ago, but we do not have the luxury of hindsight. This is going to be a massive challenge for any school. I sit on a finance committee in one of the schools, so I know exactly what we are going to be faced with. The figures you have quoted are startling. Was I right in hearing you mention 1,000 teaching staff and 1,500 non-teaching staff?

Mr Connolly: Yes, at least; and that is assuming that all those people go on 1 April. The figures will increase substantially the longer they go through the financial year.

Mr Craig: I am not looking forward to the governors' meeting next Thursday night.

Mr Connolly: That is the point I want to make. I totally agree: this is a massive challenge. To have an 8·4% reduction to deliver in a 12-month period in any organisation, whether public or private, is an enormous challenge. Over 75% of our costs are directly on salaries.

Mr Craig: I understand what you are saying about the six-month delay. When someone goes, there is almost a 12-month period where the school tends to carry the cost in its in-year budget. You do not see a reduction in your overall budget for a 12-month period. I take it that you have taken that into account as well. There seems to be this delayed reaction on your budget. Someone goes, but for a 12-month period you carry the cost technically. I take it that you have taken all that into account.

Mr Connolly: I am honestly not clear —

Mr Craig: We do not see a reduction or savings in our budget for a 12-month period. It is the way the board does its accounting.

Mr Connolly: There are two elements. There is your budget, or your schools budget amount. That will not change for the financial year. That is assigned to you at the start of the year. What should definitely change is the cost you incur. Your salary bill should reduce the following month if that post has been made redundant. If you make a person redundant on 1 July, you will not be paying that person's salary from July onwards.

Mr Craig: Could I ask you to look at that, Trevor, because I have seen that in the accounts, and it puzzles me. I do not understand it, but I think that, potentially, it is the way the boards do their budgets.

Mr Connolly: There has been a strategic cost-reduction process for the last three years, and schools have reduced their long-term staff-cost base. The schools have realised the savings, and they have been able to balance the books. That is the key criterion. We have said that they must reduce their full-time equivalent and have the pay back, and schools are definitely making the savings. We will go back and check. To be honest, I would not decide on the basis of the information you are getting as a member of a board of governors. If a post is made redundant, you will definitely get a saving in salary costs, because that person is no longer there.

Mrs Overend: The fact that the Department wants redundancies to come into place in April does not make financial sense for a school. A class is going to continue to the end of June. If the teacher is not there from April, the school will have to deal with that reduction in staff and still teach the rest of the school. They will have their timetable and their curriculum for the full financial year. Surely a reduction in staff in April is going to mean additional costs for a school. Have I got that right?

Mr Connolly: You are absolutely right. There are two elements to this: the financial and the practical. Chair, you made the point about the academic year and the financial year being completely out of sync. Nobody knows that better than me. The school year runs to 30 June. If, for that three-month period, you keep all the staff that you are saying need to go, then that will be three months of salaries that have to be paid and three months of savings you have lost. It means that the school would have to make proportionately more people redundant to balance its books. So, there is the mathematical, factual basis compared with the real life. We are fully aware of, and fully understand, that challenge, but the point I am making is that the figures we are quoting are based on 1 April. Once you move from that point, it is a simple certainty, mathematically; you must increase the number of people to be made redundant in order to achieve the same saving at the end of the financial year.

Mrs Overend: It does not seem to make sense, Chair, when the aim is to improve the education of our children. Sorry, for jumping in on that.

The Chairperson (Miss M McIlveen): The point has been made that the priority is the young people and their education outcomes.

Mr Connolly: We fully accept the issue. All I am saying is that, in order to balance the budgets of individual schools and the Department, the sooner the people go the more savings you will make and the fewer people you will have to make redundant. That is the factual equation. I fully accept what you are saying, Sandra, which is that there are those three months. There is no issue; that is another fact. The question of how we balance those two things is part of the dilemma we have. Clearly, we are about educating children. We want to have teachers in schools. Unfortunately, with this budget, we cannot afford to have the same number of teachers in schools that we started the financial year with.

The Chairperson (Miss M McIlveen): That is also why we need to start to look seriously at alternatives in our delivery of services, be that around school meals, transport and so on.

Mr Kinahan: We are looking at this in numbers. I know that you are not forgetting the human side, but it seems that you are not looking at how you could do things differently. You are looking at doing everything in exactly the same way; you are cutting it all.

When we were talking through the AGB and, last year, when we looked at the future funding of schools, the thought always ran through our minds that we needed more funding, or, rather, that we needed to let the schools do the funding and the teaching. At any time in this, did you look at not cutting the AGB? At the beginning, you mentioned that you have gone everywhere. Did you look at putting all of the budget cuts elsewhere and then sit down and look at how schools could do more and how some might be able to do their own food and catering cheaper on their own patches, or transport, as the Chair mentioned? On the back of that, is anyone, even in the Department, stepping back from everything, independently, and looking at how we can do things differently so that we can still deliver the teachers and the teaching to the pupils?

Mr Connolly: I will take the point on the AGB and go back to my earlier analysis. There are three large chunks in our overall £1·9 billion budget: the ASB is 60%; the block grant is 20%; and the earmarked funds are 12%. If you apply the 8·4% on a very simplistic pro-rata basis, then the reduction to the ASB would be £97 million, just shy of £100 million. The issue is that, if you say that you are not going to take it off the ASB, then that £100 million would have to be found from somewhere else.

Mr Kinahan: I understand all of that.

Mr Connolly: You would go to your next port of call, the block grant, which is £390 million, just shy of £400 million. Some 50% of that goes to special educational needs (SEN). The next biggest elements are school meals, transport and rates. If you apply the £97 million to the block grant, that would be a 25% reduction. On a pro-rata basis, you also have £33 million to come off the block grant already, so that gets the percentage up to about 27% or 28%. The point is that, unfortunately, in the triangle of where our key funding goes, as soon as you say that you are going to protect one point, you are going to have a massive impact on the services provided. You are looking at whether you are going to reduce special educational needs, transport, meals or rates. If you then say that you are not going to reduce those items but are going to move it on to earmarked funding — earmarked funds are about £225 million — then you would be taking all that funding out. That is the problem.

Mr Kinahan: That is what I mean. Are we looking at how we run education in exactly the same way?

Mr Connolly: We have not looked at this, in any sense, on a simple pro-rata basis. That would have been a very straightforward exercise and would have saved a huge amount of work. However, that is not what we have done. We have done a very detailed iterative process working fully with policy colleagues.

The Minister, on reaching his decisions on both the inescapable pressures and the budget reductions, focused on protecting the front line as far as possible. To me, the realisation there is that the actual net impact on the ASB is 6%; not 8·4%. The Minister has promoted equality, he has raised education standards, and he has secured the continuation of specific programmes that reflect the Department's statutory responsibilities.

Therefore, when you look at the inescapable pressures, the reductions, and where the Minister is reducing, you will see that he is looking at what we continue but, more fundamentally, what we stop. Decisions have had to be made to say that we will have to stop funding here to provide the funding to the ASB. The only way that you can get below the 8·4% headline figure is to take more money from elsewhere. The Minister has continued to tackle social disadvantage, and he has ensured that the support for children with special educational needs is prioritised as much as possible. You will see that in the additional £10 million that is going into the ASB and the money going into SEN for early years capacity.

I want to be clear that this has not been a mathematical process that finance has undertaken. This has been a very detailed iterative process fully involving policy colleagues. It comes full circle back to your opening point. If you protect the ASB, you are effectively saying that the other 40% of the budget will have to be reduced by 20%. You then come to the tipping point, which is that if you are going to reduce individual programmes by 20%, does that strip so much out of them that they are not worth continuing. Those are the decisions that have to be made. In that vicious triangle, you cannot protect the ASB in its entirety because of the huge disproportionate impact that that would have on the other services. When you go to the block grant, there is £390 million, but half of that is special educational needs, which is one of the Minister's clear priorities.

Mr Kinahan: You have written to each school, and you are consulting them; but, really, are you saying that there will be very little leeway for any of them because we are still not changing how we run the whole school system? The letter says that these are the cuts and yes, that you will tweak a little to suit schools, but, on the whole —

Mr Connolly: I suppose that it is really two things. Effectively, the budget was agreed at the start of November, which means that we have five months to put the plans in place and implement them. As you well know, when we went to consultation on the common funding scheme (CFS), that required a full 12-week public consultation — we simply would not have time to do significant changes. That is not to say that the Minister is not looking at things but, realistically, they would not be in place for April.

Hopefully, by the middle or end of February, we will be able tell schools exactly what their ASB will be. Last year, we did that on 13 March, which was after all the CFS stuff. The Minister announced his changes, and we gave them the funding. We want to give schools certainty about their detailed budget as early as possible. For example, if the Executive agree their Budget at the end of January for 2015-16, we will want to give the schools as much time as we can. The situation is how much you can actually change within the maximum of a five-month window. However, on things like the CFS, with the associated consultation and due process required, you would not have time to make those changes.

Mr Kinahan: Thank you. I have lots of specific questions. Two cuts are mentioned: £2 million for early years; and £2·5 million for Sure Start, again working with Health. Can we have more detail on how you are going to work that through?

Mr Connolly: The overall amount for Sure Start is about £23·8 million, and the £2 million is a reduction of about 8%. Sorry, what was the other figure you quoted?

Mr Kinahan: I had reductions of £2·5 million for Sure Start and £2 million for early years.

Mr Connolly: It is £2 million for Sure Start, and the early years —

Mr Gavin Patrick (Department of Education): Early years is Sure Start

Mr Connolly: I am sorry, it is the same thing. Early years relates to Sure Start, and that is maybe where the confusion came from. There will be a reduction of £2 million for early years. The overall budget for Sure Start is £23·8 million, so that is a reduction of 8%. That is in paragraph 5.23 in the document.

Mr Kinahan: I would like more detail on how that will be done and how you will work through it.

Mr Connolly: We are working through the detail of those reductions with policy colleagues to see where and how each will be implemented.

Mr Kinahan: So, you do not have the detail on that yet.

Mr Connolly: No, not at this moment in time. Obviously, it is literally just over a week since the Minister made his final decisions and we are working through those. That funding goes to the DHSSPS for implementation, but the reduction is 8%.

Mr Kinahan: I will allow others to go first and will come back in if I may.

Mr Hazzard: Thanks, guys, for the presentation. I certainly do not envy the task of the Minister, the schools and the boards of governors over the next 12 months. You used the phrases "hugely challenging" and "massively challenging", and that is exactly what this is. We find ourselves in an unfortunate position.

It is right that we protect front-line services. I can see various ways in which you are doing that, and you can see the importance of the child in some of the budget proposals.

I have a whole host of questions. When we look at Health, we hear all the time about inefficiency, waste in the system and blah, blah, blah. To what extent can you identify inefficiency or waste in the education system? Are there inefficiencies? We need to see maximum results for minimum spend. Are there areas in Education that can be improved? I am not saying that they can be improved in the next 12 months, but what areas do we need to start looking at? Danny is talking about different approaches, and the transport review is sitting there, although that is not to suggest that there are massive savings to be made with it. Do we need to look at certain areas?

Mr Connolly: Before I answer that question, I would take you back to the strategic context. We have delivered a savings delivery plan (SDP) for each of the last four years. I do not have the figure in front of me, but I think that the overall savings in 2014-15 will be just shy of £200 million. That has come from reductions in staffing costs, both in the boards and in the Department, and we have looked at a range of costs for ICT, transport, meals etc. My simple analogy would be that — and I hate this phrase — the low-hanging fruit has all been taken. We have done a lot of work.

To me, the SDP is there to balance our books, and we have done that in each of the three preceding financial years up to March 2014. To give you a perspective, our total underspend on the resource budget to March this year was £4 million, and that was from a budget of over £1·9 billion. That is how tight our financial outcome is, and 2014-15 is considerably more challenging than 2013-14, as you will all be aware.

I refer to the Deputy Chair's question and say that we are always looking at areas for improvement. Obviously, with the new Education Authority, there are medium-term benefits from having one such organisation. However, those will not be available within the first 12 months. There is a huge challenge in the first 12 months. I know that Mr Newton has spoken about programme management and change management, but I think that, realistically, a massive change is involved in bringing five education and library boards and the Staff Commission together in one body. Realistically, in the first year we still want the meals to be there and the transport to be provided. There are opportunities, but I think that, realistically, they are in the medium-term and in the next two to three years rather than in the next 12 months.

On my side, we have worked very hard across the sector to make as many reductions as possible at school level through the ASB, in the boards and in the Department. There are the performance and efficiency delivery unit reports on transportation and meals and on the opportunities for the Education Authority in those. However, going back to Danny's question, I honestly do not think that there is anything that we have not reviewed and that is just sitting waiting for us to say, "Oh yes, we can achieve x amount". A lot of work will be involved in implementing that work, and the Education Authority gives us a great vehicle to do that. However, it will take time.

Going back to the point about the change fund, if there are innovative and cross-cutting ideas, we will make bids based on those to that fund. We will definitely make bids to that fund, and I am sure that the Minister would agree with that.

Mr Hazzard: Another area of criticism of some of the Departments is that they often work in silos, especially when it comes to budgets. I know that there are various cross-cutting ways in which Health and Education work together, and we touched on that collaboration. To what extent are we collaborating with other Departments to look at areas where spend can be reduced or where we can work in tandem? That could even mean collaboration for funding opportunities through the EU. Looking at an awful lot of the programmes that we run, I cannot help but think that, if matched funding, for example, was made available, we may be able to draw down European funding for something like targeting social deprivation. To what extent does the Department look at that possibility with Europe?

I have another suggestion that is slightly outside the box. An awful lot of our community groups avail themselves of free services from apprentices at further education colleges through getting driveways paved and the like. The apprentices go on to the site to learn, and they give their services free of charge. Do we look at collaboration with our further education colleagues so that the apprentices could maybe come and do an awful lot of the work that is involved with school maintenance projects? That maybe goes on anyway, but I guess the extent to which we are looking at those issues relates to collaboration.

Mr Connolly: I will bring Phillip in on the point about school maintenance, but I will try to answer the other questions.

We are fully involved in Peace IV, which will start in 2015-16. The Finance Minister has set aside match funding, and we will make appropriate bids to that. Certainly, my experience of European funding is that it starts off relatively slowly in the first year and then builds up. However, the simple answer is that we are fully involved in EU funding where appropriate, and that funding is Peace IV.

On the point about being cross-cutting and collaborating with other Departments, the first thing that strikes me is that we are fully involved in Delivering Social Change. We are working on literacy and numeracy with OFMDFM and on the nurture units with DSD. We also work with external partners and are, for example, working on shared education projects with Atlantic Philanthropies. So, we definitely do that. If my policy colleagues were here, they could probably list a large number of strategies and working groups that we are fully involved in with other Departments, whether that is Health or DSD, etc. I suppose the simple answer is yes — we are fully involved with other Departments.

To take Danny's point, the change fund and the bids to it will present an opportunity to step back and see whether there are any ways that we can do it more innovatively, rather than having the same old, same old.

I will ask Phillip to touch on your question about school maintenance.

Mr Philip Irwin (Department of Education): We are inclined to undertake cross-cutting work not so much on maintenance but in existing contracts, particularly when specialist work is to be done. We do that, whether it is on the maintenance side or on some of the major capital works, where contracts exist as part of the assessment of a site or pre-works on a site. Typically, they will have been let through the Central Procurement Directorate (CPD), and we would make use of those, rather than going through the whole process of re-procuring a specialist contractor. Again, other Departments are probably making use of those contracts as well, but we would use that sort of cross-cutting approach on the procurement side with CPD.

Mr Hazzard: I would like to touch on the nutrition in school meals, because this is no doubt the low-hanging fruit that certain sections of the media will concentrate on. It appears that there is going to be a reduction in what I think was called the nutritional standards. What does that mean in reality? As far as I am aware, a food policy is in place that means that all school meals have to be nutritious. Following the food in schools policy with the Health Department, every school must have a policy in place for nutritious meals. Given that the meals have to be nutritious anyway by law, what would the money that we are taking away have been used for? I am asking about reassuring parents that meals will still be nutritious, because I am slightly confused.

Mr Connolly: Paragraph 5.21 in the paper deals with this, but I am happy for the Committee Clerk to write to us and to give policy colleagues the opportunity to provide a full and proper answer. Certainly, funding was provided previously to assist schools, and I think it is exactly as you say, Chris. The compulsory nutritional standards have been in place for the last seven years. The nutritional standards for other food and drink have been in place since 2008. This is probably a classic situation where additional funding was given to introduce a programme, which stayed and suddenly became mainstream. The Minister is looking at whether we realistically need to continue this. This goes back to the very difficult decisions that have to be taken because of the £5 million difference between £83·7 million and £78·7. All these decisions have been based on that kind of criteria. If you look at the entitlement framework and the admin etc, on the same page, you see that it is the same thing. You are 100% right that, historically, this has been in place. The compulsory nutritional standards have been in place since 2007.

The draft Budget says that:

The budgets for school meals and the free school meals entitlement (FSME) are completely separate. There is funding earmarked and funding in the block grant. The FSME is actually getting £2 million more because of the extension to post-primary from 1 September, so that is being fully funded. This is separate, so there is no direct impact on school meals. This is additional funding for nutritional standards, and that is what is being stopped.

Mr Hazzard: I have just two more questions, Chair. First, the proceeds from asset sales seem quite low at only £500,000. Is that really all that there is? Secondly, by its very nature, Education is not designed to raise revenue. Is there scope in the system for revenue raising? I make it clear that I am not arguing for the privatisation of education by any means. For example, some schools in my area have community sports facilities, and they are able to offset some of the costs of providing a good education to the children in the school. Do we disseminate good practice in that area? Policy people might be perfect to answer this. For some Departments, revenue raising is their big thing, but for Education it is not. Is there scope for it?

Mr P Irwin: Can I take the capital question first? Our budget for this year was to generate half a million pounds in receipts. I think that we are on target to over-deliver significantly, probably to the tune of over £2 million, although there is debate about the timing of some of these asset sales. They may fall in the last quarter of this financial year or in the next financial year, but a lot of activity is going on in that area.

Mr Connolly: You are quite right that there is very little revenue raising. We are back to the circumstances of each school. I know that a lot of post-primaries, especially those that have had major new builds, have state-of-the-art sports facilities, and I know that a lot of schools will generate income. It really depends on the individual circumstances. That is obviously non-public funding, but you are quite right to say that it is income to the school that it can then use.

Our principle is full cost recovery. You are simply recovering your costs, but it is an income stream for the school. We advise schools to use that opportunity if they have it, but from our perspective, they must use it appropriately, because they are still public assets. Schools can generate income in that area and use it to offset costs, but not to raise revenue.

On your question on revenue raising, the answer is no. The only area of revenue raising that we have and that parents know about is school meals. Clearly, there is an opportunity cost to that. For example, do you push more parents and children into the free school meals entitlement etc? There are certainly no obvious ways of increasing revenue, and we have looked at this in a lot of detail. We do not have any substantial revenue whatsoever.

Mr P Irwin: I think that a lot of good work is going on, particularly in newer schools and newer buildings, where the community and so on are using them in the evening. However, I think that the benefits are more community rather than genuine, meaningful revenue-raising benefits.

Mr Connolly: Absolutely, and that is why we would not advocate in any sense that anyone make a profit out of this. As far as I am concerned, it is full cost recovery. They certainly should not be making a loss, but at the end of the day, these are still public assets.

Mr Newton: I apologise for stepping out for a while. It was for the very best of reasons: I have a pupil on work experience with me. I express a wee bit of disappointment that Ms Hepper is not with us today, because some of the questions are to do not with the pure accounting procedures but with the policy areas and the other areas that are identified in them. Trevor, I thank you and your two colleagues for coming. I will start with the savings delivery plan. Before you start on proposals for this year's budget, let me say that we are not quite sure where we are and what we are building on. Am I right in thinking that the Department did not actually take part in the savings delivery plan programme?

Mr Connolly: No. We published a savings delivery plan. It is on the website. I think that we spoke about this at the last meeting. Every time we have changed or updated it, we have communicated it to the Committee. I cannot remember whether it was in March 2013 or 2014 that we last wrote to the Committee about this. We have a savings delivery plan. I think that you are referring to the Minister saying that he does not see any value in reporting and monitoring by DFP. However, all the information is on the website. We have a savings delivery plan, and it is in the public domain.

Mr Newton: I will look at that. I will go back to a couple of things, but maybe you covered them whilst I was out. Can you indicate where the welfare reform penalties are mentioned in your paper?

Mr Connolly: They are not mentioned, and they are not mentioned in the Executive's draft Budget paper.

Mr Newton: We know that there are likely to be penalties for welfare reform.

Mr Connolly: That is clearly a final decision for the current all-party talks and the Executive, so I have no comment to make.

Mr Newton: The nutritional aspect of school meals has been talked about. The recommendations on that from PEDU date back to 2011. How are you taking those into account, and what are you building on with them?

Mr Connolly: A lot of the PEDU recommendations require the Education Authority or, as it was then, ESA to come into place, because it showed the variation between the five boards. Clearly, from the Minister's perspective, we could not implement a lot of those changes until we had the consolidated organisation. As I said in response to Chris's question, and, I think, Danny's, that is an opportunity for the Education Authority, because part of the change management process is about looking at how one organisation is going to be able to have unified policies and procedures across the North when it is coming from organisations that, sometimes, have taken different approaches to dealing with the same issue. You will know more about that change management process than I do. Yes, there are opportunities for catering and transport through PEDU, but you need the Education Authority to be in place to implement them.

Mr Newton: If you take the best example of whichever individual, what do you anticipate the savings will be? What is the benchmark?

Mr Connolly: To be honest, I would need to go back and look at the report. I do not have that information available today.

Mr Newton: We are looking at a budget that is taking account of the fact that we are moving towards an Education Authority, but we are not sure what the benchmark is under the PEDU recommendations.

Mr Connolly: I do not have that information available to me today, because I do not have the reports here. There are two reports: one on catering and one on transport. Both are clear that there are differences in how the five boards do things. Those reports are now four years out of date. So, one of the first things that we will have to do is look at them to see what has changed in the evolution that there has been over the past three years in delivering the savings delivery plan. We will have to look at the reports and at what has changed between September 2011 and April 2015 and consider how to implement that. To my mind, that is certainly something that the Minister is fully aware of and is taking full cognisance of. That is one of the challenges that the new Education Authority will clearly have; that is part of it. We cannot simply look at information from four years ago and assume that everything in it still stands. There is a lot of detail, and we will need to go back and validate and verify a lot of stuff, because things have definitely changed. For instance, we reduced the boards' budgets by £15 million in 2011-12. That was one of the first new challenges in the savings delivery plan. You may find that a lot of the recommendations that were made in 2010-11 have been implemented. I am always concerned that people will look at a report that is four years out of date, so we will need to update that to see what is still available.

Mr Newton: Trevor, is that not essential as a policy building block?

Mr Connolly: Yes, and delivering transportation and catering would be a key challenge for the new Education Authority management. It will be fully aware of that information.

Mr Newton: There is a primary building block there that has not been taken into account.

Mr Connolly: I disagree slightly with the idea that it has not been taken into account. I do not have the report to hand, but I do not remember the amount of savings being hugely significant. The big issue for us is that we need to go back and validate that information and update things to see whether those savings are still available, because you are looking at a report that is four years out of date. However, I do not think that the Minister would have any issue with wanting to apply the principles of looking at whether there are areas in which we could make efficiencies and savings. However, we need to be careful. If you look at something from four years ago, and you quote a figure from it, you have to check that that information is still valid, because a lot of things have moved and changed in the last four years.

Mr Newton: I accept that the figures may change. However, the principles may not.

Mr Connolly: Absolutely, but if you look at the Education Authority, you will see that one of the biggest fundamental challenges is that the five organisations potentially took a slightly different approach across the services that they delivered. Sometimes, they will have taken a unified approach, and that is straightforward. However, if there is a difference, to me the principle is to say that, if board x can perform to key performance indicators (KPIs) and is achieving better efficiencies, in my role, I will be challenging the new Education Authority to explain why it cannot move to that. Sometimes, that can be overly simplistic, but, from my perspective, that will be the challenge function that we will apply to the new Education Authority. We will say that, although some of the information in the reports may be out of date, the key principle is that, if there is a most efficient way of doing this, the challenge for it is to deliver to that as closely as possible.

Mr P Irwin: Realistically, there is a timing issue. The organisation does not exist yet, and, in bringing in and hopefully capturing those sorts of efficiencies, the impact is more likely to be beyond 2015-16 than in the budget paper that you have in front of you now.

Mr Connolly: To me, the key element is that the principles are definitely those that the Minister has agreed to. He has agreed to the reports, but the implementation of the report requires the new Education Authority.

Mr Newton: I will take you back to the nutritious meals element. Some Committee members went to a nurture unit yesterday, and some others have looked at nurture units. One of the areas of concern is youngsters arriving at school not prepared, in that they have not had a breakfast or that what they have had for breakfast has not been nutritious. The nutritional aspect of meals in schools is, obviously, key for children's daily, weekly and monthly performance. Addressing the nutritional aspect is a statutory obligation. How do you measure that statutory obligation?

Mr Connolly: If you will indulge me, I will come back to that question once policy colleagues have had the opportunity to consider it.

Mr Newton: OK. You mentioned the KPIs. How will we be measuring value for money in this new budget?

Mr Connolly: There are two things to consider. The first is the financial memorandum and management statement for the new authority. Clearly, there are challenges that the new authority will have in delivering its services within a reduced block grant budget. To go back, there is a strategic context in where, if you like, the five predecessor organisations have had to deliver efficiencies each year up until the current year, 2014-15, so that they can balance their books and achieve the savings delivery plan. I do not know whether the Committee Clerk has the savings delivery plan in front of him, but I think that, in total for this year, it is about £206 million. That is a considerable amount to take out over four years. So, we have reduced the bureaucracy. We have taken admin and management staff out of the boards and the Department. That is there throughout all four years of reduction. There will be a further reduction to the Department, in that there will be a £3 million, or 9%, reduction in the Department's staff costs.

We are looking at a project to build KPIs across a range, because as you are well aware, the boards especially and the new Education Authority deliver a range of services, including transportation and meals, which are key. Special educational needs is another high priority in the block grant. We need to work through all those and actually identify and benchmark. I think that one of the key challenges that we will have as a Department will be to ensure that this new Education Authority, when we have it, is as efficient and effective as possible. That is part of the work, and I think that that goes back to the PEDU reports. Those reports, which are now four years old, identified some of the information and data and some of the disparities across boards, where some boards were more efficient than others. That, to me, is exactly the key principle: where can we identify best practice, and how can we ensure and challenge that that is implemented in the new authority? I see that as playing a role in providing the information so that we provide a challenge function to the new authority.

Mr Newton: Is the Department currently measuring the target savings against the savings delivery plan?

Mr Connolly: Yes. We undergo a verification process. That, unfortunately, has been slightly delayed this year because we want to get the actual final accounts from the boards, which are then audited, as you know, by the Audit Office. We will then use those to verify that. Where they say that they have made savings, whether in procurement, admin or management, that will be validated against the year-end accounts. I think that we have verified up to 2012-13, and we communicated that at the 30 September meeting with the Committee. Therefore, yes, we do validate that information. At least one set of accounts has been signed off on, and I hope that all the boards' accounts will be signed off certainly before Christmas and that we will be able to come back and give a validated number.

I always try to go back to this question: what is the savings delivery plan? Away back in January, February and March 2011, the Department looked at exactly the same equation. It said, "Here is our opening baseline. Here are the inescapable pressures over the next four years. This is what we need, and here is the budget that we are being given. There is the gap, and the gap is the savings delivery plan". The one fundamental difference between the previous four years and next year is that we have achieved a lot of efficiencies. We have been able to reduce things by saying that we are doing the same with less. We cannot, if you like, market this in the same way. These are budget reductions. Things will have to stop, and that is it. We cannot achieve an 8·4% reduction on the back of four years of continuously reducing budgets by then saying that we will be able to achieve this. We simply cannot do that. That is not a tenable approach. This is about reducing budgets. That is a very bleak statement and a very challenging statement, but that is the financial reality of where we are in 2015-16.

Mrs Overend: Thanks for answering our questions today. Changing my focus, I want to ask about the capital budget and capital spend. Given the various levels of progress that have been made on the various projects, how much of the expenditure is likely to happen in 2015-16?

Mr P Irwin: How much of the budgeted expenditure?

Mrs Overend: Various projects are in progress.

Mr P Irwin: You are asking what the will be impact on those projects.

Mrs Overend: Exactly.

Mr P Irwin: As I think that we stated in the paper, the major new-build programme has been prioritised by the Minister, so it should not be impacted on. A number of major projects should move on-site during next year.

Two programmes will have the biggest impact. There is the minor works programme, which will be reduced to £25 million. Typically, that would run at between £60 million and £70 million per annum. This year, we have been able to do significantly better than that, so I suppose that the reduction is offset a little by the additional spend that there has been in this year. The programme that will be impacted on most significantly is the school enhancement programme, where we have 50 projects that are actively being worked on. I think that we have two of those on-site at the moment. We have another six that are in procurement, and we have approximately another 20 that will come to procurement or that could come to the market before the end of January. In the three months following that, we are programmed to bring a further 20-plus projects to the market. A lot of those projects will have to be delayed, because we will not have the budget next year to be able to implement them. Therefore, £40 million has been earmarked for school enhancement. Of the 50 projects, we reckon that we will be able to get away about 20 of them. The remainder will have to be delayed until the budget can be found in later years or in-year.

Mrs Overend: Do you think that it will be a scramble to get to a certain stage with all those different projects or can you identify them now?

Mr P Irwin: We are going to work on the basis of first come, first served to get to the market. As I said, this is actively happening at the moment. There are in the order of six projects currently in procurement and a further 20, approximately, that could come to the market within the next couple of months. We have already told the project managers not to bring those to the market without clearance from the Department, but, at some point, we will have to draw a line and say that we cannot let any more away because we are constrained in our budget for next year.

Mr Connolly: From a strategic context, if you look at our capital budget for the past four years, you will see that, for the three years before 2014-15, we were at about £100 million. We then had an enormous jump to £180 million this year. The accounting officer prioritised, and we have done a lot of work in the Department — much of the credit must goes to Philip — to create the pipeline to deliver the £180 million. The irony for us is that we have all those projects ready to go, and we are now facing a 20% reduction in that budget. Hence, as Philip said, that means that, by prioritising the major capital projects, we are back to the same scenario. That then has a disproportionate impact on the rest of the budget, which is school enhancement and the minor works.

Mrs Overend: Therefore, January is a crucial date for decision-making.

Mr P Irwin: Yes. On the assumption that the draft Budget does not change. At that point, we would have to take projects all the way — designed, completed and signed off on, and the documentation ready to issue to the market — and then we would have to put a hold on them until such times as budget can be identified. We estimate that approximately 20 of the 50 will probably go to market, and the remainder will have to be delayed.

Mrs Overend: That is another cut to budgets. It is hard for schools to deal with their budgets, and they depend on an enhancement to help them.

Mr P Irwin: As Trevor said, from our perspective, there has been a lot of work done to try to build up a pipeline of projects, so a 20% cut is coming at exactly the worst time.

I will make one other point. We explained in the paper how we are going to manage the cut in 2015-16. The pipeline of major projects that we have — a lot of business cases have been signed off on over the past few months, and we anticipate more over the next few months — will go to design during the 2015-16 financial year. In the following year, those will be ready to come to market. We obviously do not have visibility of our capital budget beyond next year, but I can foresee even more significant problems and our having to delay the pipeline from April 2016 onwards, unless our capital budget steps up significantly.

Mr Kinahan: When will schools get an idea of where they lie in line with priorities? Will they just know that, because they have got to the end of the design stage and are in the queue that they are high up the system, or will they eventually get a picture of what is going to happen?

Mr P Irwin: To some extent, we had foreseen constraint on our budget and the potential that some of the projects would have to be held over, but we had perhaps not foreseen this level of constraint. Therefore, the schools and the project managers involved in those projects have been aware that, if you like, the sooner that you can get to market, the more likely that it will be that the project would run unhindered. We are going to take projects on a first come, first served basis. Until we get to the point at which we have used up all the pot of projected budget spend next year, we will not slow anything down.

Mr Kinahan: As we do less maintenance and things become more severe from a health and safety perspective, are you keeping a contingency fund? At the same time, I presume that insurance will go up. Do you read that into it?

Mr P Irwin: There is no contingency fund as such. Everything has been allocated. Maintenance is another budget again, and that has been reduced in 2015-16. It is a resource budget rather than a capital budget. It will be very challenging to live within the £14 million that has been allocated for maintenance next year.

Mr Connolly: Chair, your predecessor and I had long-standing discussions about the contingency fund. There will be no contingency fund in 2015-16. What that means is that there is absolutely no room for manoeuvre. From a £1·9 billion budget, we will have nothing whatsoever. That is absolutely right and proper for the Minister. However, if you go back to Treasury policy, you will see that there will always be unforeseen circumstances. The situation will be extremely challenging for us, because we will have no ability whatsoever to address pressures throughout the year, whether those be SEN or schools. We will have nothing whatsoever in the cup.

Mr Kinahan: One will have a knock-on effect on another. Therefore, if health and safety drives something, you will have to find money from somewhere else.

Mr Connolly: To be clear, that is the contingency fund from the budget. The budget decreases on maintenance from £17 million to £14 million. That is it. There is no funding for maintenance other than that £14 million.

Mr P Irwin: That budget will cover our statutory and health and safety duties to do with things such as Legionella and asbestos. There will be no planned maintenance. Everything else will be reactive, such as help-desk calls, and will have to be prioritised. At some point, that gets to be difficult —

Mr Kinahan: I realise that.

Mr P Irwin: If the heat is not on in a school one morning, what do we do? As I said, managing within that budget will be very, very challenging.

Mr Kinahan: Rather than go through the earmarked funds, because all are going to be consulted on, will you tell us all the different groupings that will get funding as soon as you have worked it out exactly? Do you see that happening before we get to January?

Mr Connolly: I gave a budget presentation yesterday afternoon to the Strategic Forum, which involves all the trade unions and all the education and library board chief executives. They have the document and are fully aware. We are having a meeting specifically with the chief executives on, I think, 17 December. The information on where the reductions are is there.

Mr Kinahan: I will go back to Sure Start. If you are going to cut back, are we changing the budget targets? The target was to move from 20% to 25% of the most deprived wards. Are you still going to try to work within those targets? I do not see how you can.

Mr Connolly: That is a question that is specific to policy side. However, yes, faced with an 8% reduction, we are going to have to do something differently. The simple answer is that, yes, we will have to look at and re-evaluate what the prioritisation is. I know that the Minister has increased it from 20% to 25%. Unfortunately, this comes back to the extremely difficult financial decisions that have to be made. The simple fact is that, if we do not take the money off there, the money will have to come off the ASB. It has to come off somewhere.

Mr Kinahan: I do not envy you your task. Thank you.

The Chairperson (Miss M McIlveen): Are you going to allow schools more flexibility to run deficits?

Mr Connolly: For controlled and maintained schools, financial governance rests with the boards. To take Jonathan's earlier point, if schools run up deficits, that is a cost to the block grant and to us. That translates into us not realising any savings. It is a valid point that we do not have any contingency. I do not have any money to give to the block grant, based on the Minister's decisions. Therefore, the simple answer is no. The letter going out to schools makes clear that the emphasis has to be on each individual school doing everything that it can to manage; otherwise, we simply have an Excess Vote, because we do not have any money to address pressures. Actions have to be taken to look at staffing for each school, each board, the Education Authority and the Department. All those very difficult decisions will have to be made to balance the books. We cannot allow schools, which are 60% of our budget, simply to say what they are going to spend. I do not mean that in any facetious way, because this is not going to be easy. It is an incredibly difficult challenge. However, we need schools to balance their books.

The Chairperson (Miss M McIlveen): Currently, we have schools that have significant deficits. This will exacerbate that situation and their long-term future. Were those schools to become unsustainable, or were they to be currently unsustainable, that debt will be left unpaid.

Mr Connolly: That is where you get into the sustainability of schools. There are systemic reasons for some of those schools' situations, and the solution for them is area-based planning. That is the strategic solution for those schools. I fully accept that there are situations in which the school has to make difficult decisions. We are doing some work on this. If you can look at schools and say, "Here's your pupil profile, and here's the number. Other schools with exactly the same numbers can produce a balanced budget", that is part of the difficulty, when you are looking at any school in isolation. However, if you try to look at it in a broader sense, you can say, "There are other schools that have the same funding level as you that can produce a balanced budget".

The answer to your question is that we must have corporate governance and a framework within which schools should do everything that they can to balance their budgets, because that money flows from the school to the boards and from the boards to us, and we do not have any money to address that pressure.

Mr Craig: Trevor, how are you going to police the situation? One thing that I have taken note of down through the years that I have been involved in education is that some schools deliberately spend, spend, spend and, frankly, go into massive deficit, and nothing is ever done about it. The Department has never taken action against those schools, and nor has the board. Given the dire situation that you find yourselves in financially, how are you going to police this? What action is going to be taken against those schools that refuse to take any notice of the financial situation that we are in?

Mr Connolly: I suppose you are going back to the key principle of the local management of schools. The ASB is a fully delegated budget, and that is within the control of the board of governors. The board of governors is there to act in good faith to manage that budget and to live within it. The responsibility for those schools lies with the boards and the Education Authority. You are right that it is a very difficult and challenging situation. As I said earlier, the only solution that can be implemented for some of those individual circumstances is an area-based planning solution, and that will take time. A development proposal is required, and a capital solution is normally involved. That will take time.

To me, the first responsibility in dealing with each individual school lies with the board of governors. It will have to be told that it is managing it in good faith and that it has to make very difficult decisions to balance the budget. However, if schools and boards of governors abdicate that responsibility and refuse to make those decisions, that is something that the new Education Authority will have to look at and speak to us about. I know that there are legal powers that enable you to withdraw delegation. I do not know whether that has been implemented before.

I am genuinely confident. When we went out in 2011-12 to discuss the Budget impact, we did 10 seminars across the country with boards of governors. I did the presentations. After every event, the boards of governors came up and said that they wanted to balance their books. They said that they accepted the financial situation and that they would do everything that they could to balance the books. I do not remember anybody coming up and saying, "I don't care what you say. I'm going to do what I'm going to do". You have to take people at face value. I genuinely think that people will do their best, but it comes back to the earlier point: this is a very bleak and difficult situation. It means that, where schools' funding is going to reduce by 7% or 8%, boards of governors across the country will have to make very difficult decisions in order to be able to balance the books. In one 12-month period, that is extremely difficult to do.

The Chairperson (Miss M McIlveen): I want to move on to another area that we have not touched on, and that is the entitlement framework, where there is a reduction of £2 million. That is already a challenge for schools to deliver, particularly for rural schools, given the associated transport costs. That is even before we enter into the budget. How do you see that manifesting itself in the delivery of the entitlement framework?

Mr Connolly: In agreeing the 2014-15 Budget, the Minister made the decision to extend the £6·9 million of funding for another full year. It was actually due to cease at the end of 2013-14. That £6·9 million is here and has been allocated in 2014-15. The £2 million cut represents a 30% reduction. This is a good example of the very difficult sort of decision that the Minister has had to make. Let us go back to the schedule that we have. It said that, in an ideal world, we would have over £2 billion, when you take into account the inescapable pressures. If we had that money, I think that the Minister would be minded to retain the entitlement framework funding in full. However, we do not have that luxury. The Minister has made the decision to retain 70% of that funding. He has not taken all of it out. However, if we do not make reductions and take difficult decisions, we will keep coming back to whether it should come off the ASB or the block grant. Where will the money be coming from?

The Chairperson (Miss M McIlveen): I go back to the point that the framework was already difficult for schools to deliver before the budget was cut. Just how much more difficult is it now going to be, particularly in a rural setting?

Mr Connolly: Once again, you are into the situation of individual schools. One of the things in the entitlement framework and the delivery of the curriculum is area-learning communities and collaboration between schools. The Deputy Chair asked earlier whether we were doing things differently. Part of the challenge will be for schools to consider whether they can sit down and look at the schools in their area-learning community to see whether they can provide the curriculum while doing more collaboration and joint working. That is a potential option.

I know that I am like a long-playing record. We do not underestimate the difficulty of doing that, but, once again, we are faced with the situation of whether we should retain all £7 million of the entitlement framework funding or withdraw all of it. The Minister has made a clear policy decision. He has retained 70% of it and reduced it by £2 million. However, that is not to underestimate the difficulty of delivering the curriculum with reduced funding. Historically, we could argue that that funding has always been time-bound. It has always been made clear that it is not mainstream funding. The Minister extended it for 2014-15, but that will clearly be a challenge.

The Chairperson (Miss M McIlveen): Part of the issue is transport costs. I guess that those will be taken into consideration when you look at the review of transport.

Mr Connolly: That would be, by all means, a question. I am not aware of that aspect from the policy side. If the Committee Clerk is happy to give us that question, we will try to answer it.

Mr Newton: Trevor, I want to ask about the savings delivery plan for 2013-14. When will we have sight of it?

Mr Connolly: As I explained earlier, we are currently waiting for the 2013-14 accounts of all five boards to be signed off on formally by the Audit Office. We do that as a matter of procedure so that we are using fully audited information. I understand that the accounts of one board have been signed off on. They have been delayed significantly this year. Normally, and in prior years, they have been signed off by the middle or end of October. Once the accounts are finished and we are able to get the validated figures, we will come back on that point as soon as possible. I appreciate that there has been a delay. Realistically, I hope that they will all be signed off on early in the new year and that we will be able to come back, verify that and give you the validation.

Mr Newton: Does that mean that you will have those for the January meeting?

Mr Connolly: I do not know when the Audit Office is going to sign off on the accounts. As soon as it signs off on all five, we will be in a position to finalise our work. All that I can say to you is that, as soon as we get to that position, we will do our work and come back to you as quickly as we can. Realistically, that could be the middle of January, but we will come back to you on that as soon as we can.

The Chairperson (Miss M McIlveen): Trevor, you have been the bearer of bad news today. I would like to extend an invitation to you to come back in January and to bring the Minister with you. You have given us a bleak outlook. The projected job losses are of concern, and I know that we will not know the final detail on those for a little while, until you get full responses back from individual schools on how they plan to deal with their budget. The plan is that redundancies will be paid out of the central pot. What proportion of the pot will be taken up by DE's redundancies?

Mr Connolly: At this stage, it is very hard to estimate that with any degree of certainty, because there are lots of variables. We come back to the individual circumstances of each school: what staff grouping is involved; what the terms and conditions of a school member are; if it is a teacher, what the age profile and length of service is; whether it is a voluntary or compulsory redundancy; and what the timing of it is, by which I mean when it will actually happen. We do not have any concrete figures for how much that will be, but, clearly, if you are looking at a gross total of 2,500 posts, a very significant bill will be attached to it.

The Chairperson (Miss M McIlveen): At this stage, are you looking at drafting revised redundancy terms?

Mr Connolly: I think, as I said, that the Minister wants to engage now with trade unions to see how we can minimise the number of redundancies and how we can get more traction in order to have as many as possible leaving as early as possible in the new financial year. That is the only way in which we can save jobs.

The Chairperson (Miss M McIlveen): No other members have indicated that they want to speak. Thank you for your time. We will be in correspondence with you with further questions. As I indicated, we would like to see you again in the new year. Thank you.

Mr Connolly: Thank you.