In the annual letter of guidance to the Scottish Further Education Funding Council, Jim Wallace, Lifelong Learning Minister, has indicated that most of the extra money for 2004-05 will be for capital investment, mainly to improve infrastructure.

“There will therefore be no increase in planned student numbers which will allow us to consolidate progress to date and improve quality,” Mr Wallace states.

His letter points out that the FE sector will have seen its funding rise by 38 per cent in the seven years to 2006. There will be an 8 per cent increase in 2004-05 and 2005-06, but a large part of that is earmarked for the capital programme.

The funding council is planning a major increase in capital spending to improve the college estate, rising from pound;21 million this year to pound;38 million in each of the two years to 2006.

Its annual review published towards the end of last year confirmed that colleges in the Greater Glasgow area, which make up nearly a quarter of the FE sector, have the greatest need and will have a priority call.

Mr Wallace also served notice that he would be keeping a close eye on the financial health of colleges. The funding council has pledged that the sector would be put on a secure financial footing by July 2006, with pound;26 million already earmarked for the purpose.

His letter states: “The sector-wide benchmarking exercise which the council has commissioned will enable colleges to compare their costs on a robust and consistent basis. The overall aim is to identify good practice in high-performing colleges that can be embedded in other parts of the sector.”

The latest report from the Auditor-General showed colleges are making strides to turn round their fortunes, with a pound;14 million deficit in 2000-01 converted into a pound;2.3 million surplus in 2001-02. The number of colleges with operating deficits was halved from 34 to 18.

Linked to the financial performance of colleges is the quality of their management and Mr Wallace wants to ensure that college boards have the right balance. He is encouraging “skills audits” to achieve that - the assumption being that financial skills must be a key ingredient.

In his letter, Mr Wallace also repeats the Executive’s commitment to a new role for colleges in providing vocational education for 14-16s. But he has told the council not to fund colleges for this purpose beyond current levels until the outcome of the school-college review is complete.

The Executive acknowledges that the way school-college links are funded is one of the major issues for the review, and Mr Wallace remains hopeful that a joint strategy will be implemented from the 2005-06 academic year.