In recent years, 1 August has become an important date in the FE calendar. It’s the official point at which, following the area reviews of college provision, many mergers have been formally completed.

This date in 2016 saw seven colleges come together; in 2017, 15 formalised their union during the summer break. But at the time of going to print, just three mergers had taken place on 1 August. With the area review process now long finished, the pace of restructuring has slowed down.

But much of the money set aside to fund college restructuring - about £700 million was made available for colleges through the restructuring facility - remains untouched.

The Education and Skills Funding Agency’s (ESFA) annual report, published last month, revealed that, as of 31 March, some £300 million from the facility had already been spent or committed.

But with less than 10 weeks left until the deadline for applying to the transaction unit, which administers the facility on behalf of the ESFA, Tes understands that between £200 million and £300 million is currently expected to return to the Treasury’s coffers rather than being spent on college reorganisation.

And the main reason, according to sector leaders, is that many colleges fear that the act of applying for financial assistance could make them a target for closer scrutiny from the FE commissioner and Ofsted, and, ultimately, intervention from the Department for Education.

‘Hard won’ resource

In an unusual move, apprenticeships and skills minister Anne Milton, FE commissioner Richard Atkins and the Association of Colleges (AoC) have united to urge colleges not to let anxiety get in the way of them applying for a significant sum of money to achieve lasting security for their institution.

“I don’t want colleges to feel reluctant about coming forward,” Milton tells Tes. “This was facilitating money, this was money to enable colleges to do some of the things they needed to do in terms of mergers - really, really important.

“I was really, really keen that colleges knew that as important as making sure they bid for the money if they needed the money [was] for them to realise this will be coming to an end. That’s the critical thing. This never was going to be available forever…Through this article, maybe there is a last opportunity [for colleges to apply] but they have to get a move on.”

Up to March, there had been 58 applications for the restructuring facility. Atkins says the £700 million fund was “hard won” from the Treasury by what was then the Department for Business, Innovation and Skills and the DfE.

“I am disappointed that a significant amount of this scarce money will be unspent when the fund ends in March,” he adds. “I believe that consolidation within the sector will continue, as evidenced by the 20 ‘structure and prospects’ appraisals, which the FE commissioner team has facilitated this year.

“Not all of these colleges were failing; some took the far-sighted and strategic decision to find a suitable merger partner so that more money could be spent on frontline teaching and learning. In all of these cases, the college’s governing body made the final decision, not the FE commissioner’s team. I would encourage any colleges that believe that they might be eligible for restructuring funds to come forward before the 30 September deadline.”

Putting all colleges on a sustainable financial footing was one of the key objectives of the government’s area-review process. Back in 2016, Sir David Collins, then FE commissioner, told principals and chief executives that colleges should hold an operating surplus of 3-5 per cent of their income.

With an insolvency regime for colleges looming in the distance - and with the government’s own figures showing that between 80 and 150 colleges could be at risk of not being able to pay their creditors - the need for a strong financial footing is more pressing than ever.

AoC chief executive David Hughes says he is concerned that the new insolvency regime for colleges could mean there is “nowhere to go” for colleges in financial difficulty.

Grants preferable to loans

Hughes adds: “The [restructuring] fund was established to try to bring every college into positive surplus. That has not been achieved and will not be achieved.

“That is because the funding rate has not changed and costs have increased enormously. Colleges are finding it increasingly difficult to make a surplus and the transaction unit has not helped with that.”

Hughes says some colleges in financial trouble are apprehensive about approaching the transaction unit for fear of being seen as a failure: “It isn’t just a perception of failure, it is also [a fear] that you get into a place where maybe the FE commissioner could get involved and you might get in a position where you might get pressured towards a merger or restructure that might not be appropriate.”

One principal, whose college was one of the first to apply to the transaction unit, says it was made clear near the start of the process that the funding was “Treasury money”.

Stuart Rimmer, chief executive and principal of East Coast College, which has campuses in Norfolk and Suffolk, believes the unit’s focus on awarding loans rather than grants is “not the most financially healthy approach for colleges in financial need”.

He adds: “I think if there had been DfE experts allowed to use their expertise in supporting decision-making, that would have led to funds going out of the door far more quickly.”James Kewin, deputy chief executive of the Sixth Form Colleges Association, says it would have made more sense for the funding to have come in the form of grants rather than loans. He adds: “We would like to see any underspend reinvested in the sector rather than disappearing back to [the Treasury].”