New college classification cautiously welcomed

Colleges will be coming to terms with their new found freedoms after being released from government control.

The Office for National Statistics (ONS), reclassified general further education colleges as part of central government, and sixth form colleges as local government entities, for the purposes of national accounts in October 2010.

But that changed last week when the ONS revealed that colleges would be reclassified to the private sector from April 2012.

It follows the Education Act 2011, which was given Royal Assent in November, through which the Department for Business, Innovation and Skills (BIS), and Department for Education (DfE) removed a range of restrictions and controls on FE and sixth form college corporations.

While the move has been welcomed, some have warned caution. Financial consultant Bob Deed, who works in the FE sector, said: “The ruling is good news; insofar as it means colleges are likely to be spared the additional red tape, which would have been inevitable if they were classified as an arm of central government.”

However, he added: “The de-regulation agenda may have downsides. It is likely banks will ‘re-price’ the risk associated with lending to colleges – that will mean higher borrowing costs on new loans.

“Freedoms do raise the stakes. Colleges will have to think for themselves. When things go wrong, they will not be able to blame anyone else.”

Julian Gravatt, assistant chief executive for the Assocation of Colleges (AoC), said the reclassification could save colleges “tens of millions of pounds” in compliance costs in finance departments. He added: “So we’ve had a near miss at a time when college budgets are being cutback.”

Mr Gravatt also said colleges may not notice many differences, as some of the controls have “never been used” and because the effect of the changes would not be revealed until they are actually used.

One example, Mr Gravatt explains, is the Skills Funding Agency has used its legal power to appoint governors several times in the past decade, but has never formally used its power to ask a governing body to dismiss a principal.

Mr Gravatt said: “Allowing colleges to maintain their own affairs is not only beneficial to the institutions themselves, it also brings more clarity to the way public money is spent.”

Lynne Sedgmore CBE, executive director of the 157 Group, said: “Clearly the voice of colleges and our business communities have been listened to, and responded to, on this critical matter to good effect.”

When announcing the news, skills minister John Hayes said: “I am delighted at this very positive news which we have been working hard to achieve over the last year.”