The FE sector will play a vital role in retraining workers and filling skills gaps, writes Meg Hillier, but it cannot do so without more support

The further education sector in England receives around £7 billion of public funding each year, to educate and train around 4 million learners of whom more than half are taught in FE colleges.

The financial health of the college sector has been a cause for concern for many years and too many colleges are financially precarious. In 2018/19, one in three colleges reported an operating deficit.

Financial pressures are having a detrimental impact on what colleges can offer students, including through cuts to mental health and other support services.

Meanwhile, the economic impact of Covid-19 means the sector has become even more important in addressing labour market skills gaps and retraining workers.

The Public Accounts Committee recently examined financial sustainability in the further education sector and, as I highlight in my annual report, our inquiry gave me little comfort that a long-term solution is in sight. 

We found that the bodies responsible for funding and oversight have been slow to address the emerging financial and educational risks, despite the potentially serious consequences for learners and local economies. 

The college principals we spoke to told us that they had been forced to make decisions that affect the life chances of their learners and limit skills in the local economy. For example, they had closed whole classes, including modern foreign languages and English language provision for those who may lack the linguistic skills to find work; they dropped specific types of qualification, including some A-levels; and they had been unable to upgrade their buildings or invest in online learning.

Colleges’ autonomy can hamper the central departments’ ability to protect learners and safeguard taxpayers’ money. For example, colleges are free to borrow sums that they may struggle to repay, and to run with financial deficits year after year. But colleges are also grappling with issues beyond their control.

Perennially late funding decisions, overly complex funding arrangements, and iniquitous VAT rules between sixth-form colleges and other post-16 education all add pressure.

Some colleges also face serious problems arising from the historic Building Colleges for the Future programme. When the programme was suspended, 79 capital project applications had been approved in principle by the former Learning and Skills Council, but only 22 subsequently received final approval. Reductions in funding since then have left some colleges with new premises that are under-used, or large debts that they are struggling to repay.

The National Audit Office reported that, in February 2020, the government was intervening in nearly half of colleges for financial health reasons, and in recent years the taxpayer has stumped up over £250 million in emergency funding, alongside other support, to ensure the continued functioning of colleges.

Oversight arrangements are complex, sometimes overlapping, and too focused on intervening when financial problems have already become serious rather than helping to prevent them in the first place. While the introduction of the Further Education Commissioner has been a positive development, there remains confusion over who is responsible for intervening and in what circumstances.

As the focus turns to rebuilding and reskilling following the chaos caused by Covid-19, this is a chance to develop the proper, integrated vision for the college sector that has been lacking for so long. The Department for Business, Innovation & Skills and the Department for Education appear to see area-based reviews of post-16 education as a fix-all solution to the current problems, but the reviews do not cover all types of provider and it is not clear how they will deliver a robust and financially sustainable sector.

Colleges need more proactive support from the centre to manage the significant financial challenges they face. Some need to step up their governance as further funding cuts cannot be ruled out. Decisive action and intervention are needed to put the further education sector back on a financially sustainable footing.