Further education colleges in England face losing financial independence | Colleges

Further education (FE) colleges are likely to be treated as “big schools” by the government and lose critical financial independence, after a ruling reclassified colleges in England as part of central government.

Sector leaders said the change had major implications for the way colleges are run, removing their autonomy over borrowing and investment decisions and hampering their ability to grow, while allowing few of the benefits in funding, taxes or pension guarantees enjoyed by state schools.

The Office for National Statistics (ONS) ruled that new government legislation – allowing the Department for Education (DfE) to intervene directly in the operation of colleges – means they are state controlled and their finances should be included in the government’s accounts.

The decision means the £1.1bn in borrowing held on college balance sheets is to be counted as part of public sector debt, although the ONS said the impact “has not yet been assessed”.

David Hughes, the chief executive of the Association of Colleges, said his members would now be regulated similarly to academies in England, despite significant differences in size and role.

“There’s a sense that the [DfE] has said, ‘Well colleges are just big schools really, so we’ll apply the school rules’. But the school rules won’t work,” Hughes said.

An average FE college in England has an annual budget of £30m, 10 times the size of that of many state secondary schools. They also educate and train a wider section of the population, including apprentices and adult learners, often across multiple campuses.

The DfE said the reclassification “will not alter the strategic aims of colleges. Colleges will continue to play a leadership role in England’s skills system.”

It added: “Colleges will retain many of the flexibilities they currently have, for example the ability to keep and spend any surpluses. The day-to-day operations will continue with minimal changes, so colleges can maintain a smooth delivery.”

But the government said it was “very unlikely” colleges would continue to access private finance, and would need government “value for money” approval for capital projects such as student accommodation or new facilities.

Gerry McDonald, the principal and chief executive of New City College, one of England’s largest FE institutions with an annual turnover of more than £100m, said he welcomed the DfE’s move to smooth grants throughout the year but feared the new finance rules would make it harder to support future investment.

“Our concern is that if we need a quick response, adding more layers of approval and a slow bureaucratic timetable gives us less freedom and will not help us serve the skills agenda that our students need,” McDonald said.

Hughes said the barriers to investment “feels like a backward step” when the government wanted colleges to improve the UK’s skills base.

“The biggest issues facing colleges are eye-watering energy costs and impossible challenges in recruiting and retaining skilled staff, especially in construction, engineering or health, and this does nothing to address those,” he said.

The ONS decision means sixth-form colleges will be included in central government. Bill Watkin, the chief executive of the Sixth Form Colleges Association, said the government had “missed a golden opportunity” to reform post-16 education.

“There is very little in today’s response that will benefit students but a great deal that will tie up college staff in bureaucracy and red tape,” Watkin said.

Both sixth-form and FE colleges want to be able to reclaim VAT, as schools can, which costs the FE sector an estimated £200m a year.

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