If we believe everything we read, it would appear that the Scottish Executive thinks there is no longer any justification for retaining all 32 local authorities, and that some are in danger of being abolished unless they get their financial affairs in order.

A tougher line on local authorities failing to get their finances in order might easily be applied in future to Scotland’s further education colleges.

Nearly a fifth are in the red, despite expensive bail-outs, and the question inevitably arises whether the Executive will continue to fund 39 separate incorporated colleges, and a further four colleges, two of which (Orkney and Shetland) operate under the control of local authorities.

Since 2002, college funding levels have increased. But progress in aspects where strategic influence is called for has been much slower. Seven of the 39 colleges still have deficits and concerns remain about the financial position of two individual colleges.

In the above scenario, it seems surprising that more colleges have not sought the benefits that can arise through merger. In recent times, only three mergers have taken place in further education, and this despite the availability of strategic funding.

Adam Smith College was formed from a merger of Fife and Glenrothes colleges (August 2005); Forth Valley College was formed from a merger of Falkirk and Clackmannan colleges (August 2005); and Glasgow Metropolitan College was created from a merger of Glasgow College of Building and Printing and Glasgow College of Food Technology (March 2005).

It would be difficult to argue that the Scottish Funding Council has been dragging its feet. In 2003, the then Scottish Further Education Funding Council (SFEFC) established a joint project based on a proposal by the Glasgow colleges to rationalise provision in the city into a hub of specialist facilities in the centre with a ring of local community colleges. But some of the city centre colleges were unhappy with these proposals.

More recently, the SFEFC requested the city centre colleges to submit a full business case for the city centre estate, and the Scottish Funding Council is now about to consider the recommendations. These actions suggest the funding council is all too aware of the redeployment gains and cash savings from strategic opportunities arising from estates investment and institutional mergers.

Reasons for the slow progress in merger activity are not hard to find.

Under existing policy, it is for individual colleges to consider merger and the purposes it will serve. But most boards of management are reluctant to consider merger for fear of raising concerns around loss of identity and long-term damage to the interests of their local communities.

The funding council also has difficulty raising the thorny issue of merger with colleges since its role is restricted to advising the Executive on proposals from colleges wishing to merge, and reporting on post-merger evaluations. It is for the Executive to make decisions on proposed mergers based on funding council advice and the outcomes of other consultations, for example the views of staff and students in merging colleges.

If more college mergers are to take place, there is a need to go further than the existing voluntary, college-driven process. In the short term, alternative strategies might usefully focus on the executive developing a new policy for mergers, giving greater incentives to ensure that the benefits of merger can be achieved.

This is not to suggest that rationalising the structure of colleges won’t have major implications in terms of meeting local, regional and national needs. But it does beg the question whether the existing structure can attract sufficient resources to deliver the breadth and depth of provision to meet individual, employer and wider community needs.

Under present arrangements, the further education and training needs of Dumfries and Galloway (population 147,000), Scottish Borders (110,000) and the Forth Valley (approximately 235,000) are delivered through single institutions. On this basis, there is surely scope for other parts of the country to deliver services more effectively. Glasgow has a population of 577,000, for example, yet 10 colleges are located within a few miles of the city centre.

Evaluation of Mergers in the FE Sector in England 1996-2000 is a useful report when considering merger. It concluded that there was no consistent evidence to suggest that merger, in itself, was guaranteed to produce long-term financial benefits. But considerable evidence of longer-term merger benefits was readily identifiable. These included development of new centres of vocational excellence, the ability to respond to government agendas more rapidly and improved links with higher education partners.

Merger also broadened the opportunities for participation, reduced competition and allowed a new unified approach to student recruitment. In addition, evidence was available in support of claims of economies of scale and more strategic curriculum planning.

Significantly, merger generated few problems from the perspectives of students already accessing courses. While merger disrupted some locations and timetables, investment in new student facilities increased student satisfaction. Perhaps most surprisingly, initial apprehension in local communities about merger was short-term and mainly concerned such changes as relocated course venues or a new college name.

While the financial health of Scotland’s colleges has improved over the past three years, it is unclear at this stage whether the improvements can be attributed to additional funding or improved financial management. In a bid to ensure that good practice is applied, a new financial memorandum was introduced this year which places more responsibility on college boards to secure improvements in accounting for their college’s performance.

Towards the end of 2004 the Executive published Building a Better Scotland: Efficient Government - Securing Efficiency, Effectiveness and Productivity.

The expectation in the FE and HE sectors was that the funding council would “secure cash-releasing savings through collaboration between institutions, shared support services, new approaches to estates development and management, better procurement and pooling of research capacity”.

In its response to the Executive, the funding council set out the range of actions it intended to implement, including “redeployment gains from strategic opportunities presented by estates investment, research pooling and institutional mergers”.

As far as mergers are concerned, the problem will be how to get there and resolving just how local further education should be.

The Executive’s financial support for local authorities is this year’s row.

The case for retaining all of our current further education colleges could well be part of next year’s debate on the future of public sector Scotland.

Jim Donaldson, a former member of the inspectorate in Scotland, was chief inspector of the Further Education Funding Council for England, and is now a consultant.