The £300 million cash boost for colleges announced at budget will deliver a real-terms freeze in per-student funding due to rising learner numbers and inflation, according to the Institute for Fiscal Studies.
Economists at the think tank also suggest the government would need to increase annual college funding by £200 million in 2027 in today’s prices to maintain spending per student in real terms, given the growth in the student population.
The institute said a freeze in total funding in real terms would “imply a 4 per cent real-terms fall in funding per student”.
David Hughes, chief executive of the Association of Colleges, said the IFS report “confirms that current planned investment in colleges will not go anywhere near far enough to reverse the decades of underinvestment colleges have suffered”.
He added that the upcoming spending review must include sustainable long-term funding for colleges to train more adults as well as young people if the government wants to “deliver 1.5 million new homes, boost economic growth and improve the NHS”.
16-18 population soaring 18% between 2018 and 2028
Chancellor Rachel Reeves announced in October that further education would receive a £300 million revenue funding injection in the 2025-26 financial year. The Department for Education (DfE) is, however, yet to say how this funding will be distributed.
Today’s IFS report said that even with this increase, college funding per student aged 16 to 18 in 2025 will still be about 11 per cent below 2010 levels and about 23 per cent lower for school sixth forms.
Alongside rising costs, colleges must also accommodate a student population which has been growing since 2017.
The number of 16- to 18-year-olds in England grew by 230,000 between 2018 and 2024 – a 13 per cent increase. Projections suggest a further rise of 110,000 (5 per cent) by 2028, when the population of 16- to 18-year-olds is anticipated to peak.
If participation rates remain unchanged, this would equate to an extra 60,000 students in colleges and sixth forms.
To maintain spending per student at 2025–26 levels in real terms, the IFS said government would need to increase total funding by almost £200 million in today’s prices by the end of the spending review period in 2027–28.
Fixing the budget in real or cash terms would result in spending per student falling by around 4 per cent in real terms between 2025–26 and 2027–28. Overall, spending per student would be around 14 per cent lower in real terms than in 2009–10.
IFS economists said the expected growth in student numbers means that providing no additional funding would “lead to sharp cuts in per-student spending over the spending review period, and even maintaining existing per-student spending levels would require significant additional funding”.
‘Expecting colleges to do more with the same money’
Meanwhile, average college teacher pay is expected to be about 18 per cent lower than for school teachers in 2025, which is “likely connected to the high exit rates amongst college teachers (16 per cent leaving their jobs each year)”, the IFS said.
And while underlying college financial positions have improved since 2018, the think tank’s analysis found that there remained about 37 per cent of colleges operating deficits in 2022–23.
IFS’ deficits figure differs from other research because it focuses on income and spending that reflect the actual cash position of colleges in a given year – meaning it excludes elements like capital grants, depreciation, and adjustments for pension costs.
Hughes said: “The demographic increase of 16 to 18-year-olds between 2024 and 2028, the increasing gap between school teacher and FE pay, the demands of the labour market, the needs of employers wanting to grow, and rising FE staff turnover create the perfect storm in a sector which the government has recognised as vital to the success of all five of its missions.
“Expecting the colleges to do more with the same money is simply unsustainable and limits the support they can give.”
A Department for Education spokesperson said: “Further education is a critical part of mission to kickstart economic growth and increase opportunity across the UK. This is why the budget provided an additional £300 million in funding for further education, and why we are establishing Skills England to ensure that young people can be part of the high-trained workforce needed to power economic growth.”
The fact that our education system is incapable of calculating and tracking funding per FTE learner hour, over time, is a good indicator.
It’s a system destined to collapse under the weight of its own bureaucracy, lurching from one ‘perfect storm’ to another. The only winners have been those managing the system.