One of Scotland’s most successful colleges has become the latest casualty of the further education funding system - and has had to ask local landladies and landlords to help bail it out.

Perth College faces a cumulative deficit of pound;1.5 million as a direct result, it says, of cuts in Scottish Office grant despite student growth. Jobs are on the line and the college has taken an immediate decision to close its 18-year-old halls of residence next month because it can no longer afford to subsidise or modernise them.

Mike Webster, the principal, said the college authorities are appealing to owners of bedsits, flats and private homes to come to the rescue of the students who had been offered places in the halls next session. The residences can house up to 67 students.

Mr Webster also confirmed that staffing reductions could not be ruled out, although he hoped this would be achieved through natural wastage. The board is aiming for academic and support staff savings of pound;700,000 and non-staffing cuts of pound;750,000.

Perth’s experience shows that colleges are not yet out of the financial woods, despite the Government’s extra pound;214 million for FE. This, however, is largely new money for new activities and is not intended to shore up existing balance sheets.

Great hopes are being vested in the Scottish Further Education Funding Council which is carrying out a review of FE funding. In the meantime, colleges have been told to expect an average 5 per cent increase in funding for student growth next year. But Professor John Sizer, the council’s chief executive, has warned that this will inevitably mean some colleges receiving less than the average.

Perth, like some other colleges, is particularly aggrieved that its achievements are not being recognised through the funding formula. It says it is being forced into the red despite “healthy growth” in student numbers, developing outreach learning centres and contributing to the University of the Highlands and Islands.

The college’s basic Scottish Office grant for 1999-2000 rose by only 1.4 per cent against a growth in teaching activity of 6 per cent.

Perth has now suffered a fall or freeze in its Scottish Office grant for four successive years, a decrease from pound;5.7 million in 1996-97 to pound;5.1 million this year. The result has been a budget shortfall which has grown steadily during that period from zero to pound;300,000 to pound;900,000 and now to pound;1.5 million. Student hours over the four years have gone up from 1.482 million to 1.741 million.

The problem in the past has been that the Scottish Office pays out grant on the basis of college performance 18 months previously, and the funding council has promised to move quickly to “real time” funding.

Grants for individual colleges are also affected by how well the rest of the sector is doing so that, while Perth’s student numbers have grown, the increase was well below the Scottish average.

Marian Healy, further and higher education officer of the Educational Institute of Scotland, believes the college is “alarmist.” She said: “I appreciate it has a deficit. But it’s not extraordinarily large and I don’t see why it should have to trade out of the deficit in a single year when other colleges have been given three years.”