Colleges ask for extra £400m as ‘perfect financial storm’ hits

Cash-strapped colleges are pleading with ministers to stump up an additional £400 million as they face unpalatable choices including large-scale redundancies, increased class sizes, and campus closures to stay solvent.

Demands have also been made for the recently introduced ban on college borrowing to be suspended to ensure capital projects are not abandoned.

The Association of Colleges has today written to education secretary Gillian Keegan warning of a “perfect financial storm” faced by the sector, which involves lower than expected enrolments, high inflation, rocketing energy costs, and staff pay pressures.

Around £400 million is needed for the 2023/24 academic year, according to the AoC, based on increasing funding rates for 16 to 19 provision and the adult education budget to match inflation of 10 per cent.

The DfE is planning to increase 16 to 19 funding rates next year, but only by 2.2 per cent. AEB rates are also set to rise, but not until 2024/25.

AoC chief executive David Hughes warned that without a big cash injection, colleges, which have “already been cut to the bone”, will need to make decisions this year “which will damage their capacity to deliver the skills needed for the economic growth and levelling up your government wants to see”.

He has called on Keegan to publish the DfE’s own analysis of the financial position of colleges to help the sector make “more informed strategic decisions”.

The AoC also wants the DfE to publish a college pay analysis – a sister document to the School Teachers’ Review Body – “recognising that inadequate pay and the pay gap to schools and industry has led to even tougher recruitment and retention problems for colleges than for schools”.

It comes as the AoC prepares to enter negotiations with the University and College Union over next year’s pay recommendation. A wave of strikes hit colleges across the country last year after the AoC recommended a 2.5 per cent pay increase in the face of a decade of government funding cuts.

Hughes warned that colleges will have to continue to restrict pay awards to levels which will further widen the gap to schoolteacher and industry pay without additional funding.

He said that following the Office for National Statistics reclassification of colleges to the public sector, colleges now have “few places to turn other than to DfE as its funder, lender and regulator”.

The letter states that colleges have struggled to meet their student recruitment targets this year because of a “continuing preference for academic courses and for going into jobs rather than education”. There are also “considerable doubts” about autumn 2023 enrolments due to labour market pull remaining strong, T Level implementation issues, uncertainty over the apprenticeship budget, and the impact of inflation on people’s decision to study.

There are also additional costs and wasted expenditure for a “significant group” of colleges who have been trapped by the mid-year decision to require government approval for any borrowing.

The AoC told the Financial Times this week that colleges have made 55 loan applications to the DfE since the ban on borrowing cam into effect on November 29, of which 22 were refused and 10 are pending. The 23 applications that had been approved were all for short-term loans.

AoC wants the DfE to suspend the new controls on borrowing to allow time for officials to develop the policy and process for the promised DfE loan scheme, including the recruitment of “sufficient” staff to administer a new approval process with a view to introducing a new system with effect from 1 August 2023.

Other calls include for the DfE to act as guarantor for colleges in the local government pension scheme to help bring down contribution rates, and for a restructuring fund to assist colleges with the upfront costs of large-scale redundancies, campus closures or mergers.

A Department for Education spokesperson said: “We recognise that colleges are facing significant financial pressure and that’s why we are supporting colleges to continue to deliver for their learners through an additional £150 million to improve conditions this year, bringing forward £300 million of payments to improve cash-flow, and making significant funding increases for young people to ensure access to high-quality education.

“We will continue to look at how best to support the further education sector in its critical role and will provide an update on further support soon.”