As policymakers, providers and sector leaders take stock of the recent spending review and the Education Select Committee’s inquiry into FE and skills, one message must cut through the noise: financial sustainability in FE cannot be reduced to a conversation about cost-cutting or efficiency alone.
We need a systemic reappraisal of what it costs to run a modern, inclusive and responsive FE college and an honest recognition that current funding levels simply do not stack up.
At Etio, we have worked extensively with FE institutions benchmarking their financial performance. Our recent submission to the committee draws on detailed analysis of college accounts, operational data and workforce structures across the sector. It presents a worrying picture: over half of general FE colleges were operating in deficit in 2022-23 despite concerted efforts to contain costs and restructure provision.
This tells us something important. The financial fragility of the sector is not primarily a product of inefficiency or poor decision-making. It is the outcome of a long-term erosion of per-student funding, rising delivery costs, and a growing requirement for learner support that colleges are meeting with increasingly constrained resources.
Funding per student is 11 per cent lower than in 2010-11. And yet, our benchmarking database shows that colleges have held their operational cost base remarkably steady; reducing proportional spend on teaching, support and admin from 54 per cent to 52 per cent of income over the past decade. That’s equivalent to a £1.2 million reduction at a £60 million income college.
‘The resilience of FE has masked a deeper fragility‘
Colleges have grown class sizes, cut back remission time and shifted towards more cost-efficient delivery models, with increased use of instructor roles and flatter management structures.
Yet the cracks are showing. Colleges that support high volumes of high-needs learners are forced to pare back business support and professional services to protect front-line student provision. It may preserve support ratios in the classroom but it comes at a cost: weaker operational resilience, overstretched back-office teams and a growing backlog in estates and IT investment.
The energy crisis has only added fuel to the fire. In 2010-11, energy costs per square metre in college estates were typically under £14. Today, we routinely record figures more than double that. Ageing, inefficient buildings compound the issue.
So, what needs to change?
First, we must challenge the narrative that colleges are structurally inefficient. The data does not support it. What we are witnessing is a sector that has flexed, adapted and absorbed pressure far beyond what is sustainable. The resilience of FE has masked a deeper fragility, and that mask is slipping.
Second, we need a funding model that reflects reality. Colleges should be resourced not just to survive but to deliver quality education that meets the needs of learners, employers and communities.
That means a more agile formula that recognises the cost pressures of high-needs delivery, allows for regional flexibility and incentivises innovation not just compliance.
Third, we need targeted investment. Strategic capital funding to modernise college estates isn’t a ‘nice to have’ – it is essential for reducing long-term costs and improving the student experience.
Likewise, support for digital infrastructure and workforce development is vital if colleges are to meet rising expectations for blended learning and employer engagement.
None of this should be viewed in isolation. Financial sustainability isn’t about balance sheets alone, it is about securing the future of the sector’s mission. Colleges sit at the heart of the government’s plan for change. If we want them to deliver on that potential we need to fund them accordingly.
The education select committee inquiry offers a timely opportunity to reset the conversation. It’s a moment for sector voices to shape policy thinking and for evidence to drive action. Short-term boosts, like the additional £300 million announced in the autumn budget, are welcome but they are not enough.
What is needed is structural reform, informed by robust benchmarking and a deep understanding of the pressures colleges face on the ground.
FE has done more with less for too long. It is time to invest in its future.
I think there is another angle to this also.
Is there hidden quality degradation caused by years of ‘efficiency’ savings? Increased class sizes, fewer hours, less rigour on teacher qualification, worsening taught environment – that all has to take its toll. But perhaps there is some grading flex or grade inflation occurring beyond the reach of Colleges that is masking this.
You don’t have to look much further than HE where massive grade inflation has occurred, running alongside student loan uptake and increased fees (hard to flog a £50k debt for a low chance of a decent grade).
Is it possible that grade inflation has occurred in FE for different reasons?
An easier way of addressing this is to remove the planned hours requirement for study programmes. If it was recognised that a full-time student is one where they are being delivered all of the components of a study programme irrespective of them being above or below 580 hours. The funding methodology currently stifles innovation in delivery and efficiencies. As long as colleges maintain good outcomes that should be the focus over the bean counting and evidencing of hours which limits opportunities for e-learning and hybrid delivery.