Today, the National Audit Office published its report on the financial sustainability of colleges, highlighting the challenges the sector has faced and calling for the government to set out a clear vision for the role, structure and funding of the college sector as part of the long-term reform programme.

NAO report: Government intervened in nearly half of colleges

Background: Ney Review on college financial oversight published

More: Keegan says 5 colleges needed extra funding owing to Covid

Funding for colleges

Here are 10 things we have learned from the report:

• The financial health of the college sector has fluctuated since 2013-14, but showed improvement in 2018-19.
• Government funding per learner aged 16 to 19 fell by 7 per cent in real terms between 2013-14 and 2018-19. Total funding for adult education and support services (excluding apprenticeships) fell by 35 per cent in real terms in that time. “The [Department for Education's] funding arrangements create extra financial pressures for some colleges. In recent years, colleges have had to deal with increasingly complex funding formulae for different income streams,” says the report.
• Colleges have faced cost and competitive pressures that have hampered their financial sustainability. “There have been particular pressures in relation to staff costs, which typically account for around two-thirds of colleges’ running costs, including significant increases in pension contributions,” says the NAO.
• Colleges have narrowed their provision and reduced broader support for students due to financial constraints, which is likely to have detrimental effects on students and skills development.
• Despite the financial pressures that colleges have faced, Ofsted had graded more than four in five colleges as "good" or "outstanding" at August 2019.
• Area reviews are likely to have helped to limit the financial deterioration of the sector, partly by providing substantial amounts to pay off colleges’ debts – but stakeholders are sceptical they will achieve their intended long-term impact. They aimed to ensure that there was the right capacity to meet the needs of students and employers in each area and that institutions were financially stable and able to deliver high-quality provision.
• The DfE “has not had an overall strategy for the college sector but is drawing up a 10-year reform programme”. “The department considers that the FE system prevents strategic planning of provision to meet local and national labour market needs, with local FE markets not well organised or equipped to deliver national and regional priorities,” says the report.
• At February 2020, government was intervening in nearly half of colleges for financial health reasons, and intervention often takes a long time – 84 colleges were in early intervention because of their financial health, and 31 were subject to the more serious formal intervention.
• The Education and Skills Funding Agency paid £253 million to 36 colleges with serious cashflow problems, much of which will not be repaid, as was originally intended.
• Two colleges have been through the new insolvency process, at a gross cost of nearly £27 million from April 2019 to May 2020.