The number of colleges with financial warnings will nearly triple to 100 over the next 10 years, the government has estimated.
The Department for Education revealed the figure in its response to its insolvency regime consultation today, in which it urges all colleges with financial troubles to “fully familiarise themselves with the [new] insolvency procedures”.
There are currently 37 colleges with a published notice to improve for financial health.
The DfE estimates using “today’s assumptions” that over the first 10 years of the insolvency regime an additional 63 colleges “could meet the current triggers for a notice”.
“In the subsequent six years an additional 51 colleges may become in scope for intervention (using inadequate as a proxy as per current modelling assumptions). An additional 12 colleges may become in scope of a notice over the following three years (estimated based on current assumptions). Therefore a total of 100 colleges is estimated to be the ‘most likely’ / central scenario.”
These colleges would need to “ensure they were familiar with the insolvency regime procedures”, specifically they would need to know the “details of the regulations”.
The department is expected to pull the plug on exceptional financial support for colleges once the insolvency regime is introduced later this year, and it expects “all colleges to be working to make sure they get on a financially sustainable footing by the end of this financial year” while funds from the restructuring facility are still available.
But new arrangements will be put in place, a spokesperson said, which will be “centred round the new insolvency regime”.
In an exclusive interview with FE Week, the FE commissioner Richard Atkins said that colleges will continue to “occasionally get into difficulty”, and therefore they will need “some sort of funding to oil the wheels in these situations” to ensure stability and protect learners.
“I would have thought that something will need to be put in place, and I know there are people in the Department for Education looking at that at the moment,” he said.
David Hughes, chief executive of the Association of Colleges, pointed out that the DfE’s 100 figure may be “misleading and is certainly not intended to imply that 100 colleges are at risk of insolvency”.
He said the regime being introduced in itself is “not a bad thing”, but “the problem is that it is likely to come into effect at an historic low point in college funding”.
“The Children’s Commissioner just this week pointed out that 16- to 18 funding in 2019-20 will be at the same level in real terms as 30 years ago.
“That lack of funding has made running a college harder than ever, just at a time when colleges want to provide a full and rich curriculum and support for young people and adults.”
An eight-week consultation on the regime was launched in December and sought views from staff at general FE colleges, sixth-form colleges, local authorities, financial institutions and others from across FE, as well as insolvency practitioners.
“We recognise that some colleges may face financial difficulties in the future and we cannot rule out the possibility, however small, that a college could become insolvent,” skills minister Anne Milton wrote in the foreword.
“We therefore introduced primary legislation in the Technical and Further Education Act 2017 to create an insolvency regime for further education and sixth-form colleges.”
Scenarios requiring insolvency arrangements are expected only to be “rare”, and will only apply where colleges are in “severe financial difficulties and there is no alternative viable solution for managing the college out of that situation”.
Today’s consultation only received 30 formal responses. Additional comments were “recorded from discussions at a number of events and forums during the consultation period”.
The secondary legislation on the regime will be introduced “when the parliamentary timetable allows, and our current intention remains that the insolvency regime will be in force in late 2018”.