The sector has long been bracing itself for a below-inflation allocation, with last September’s spending review promising no more than a 2 per cent increase.

But the funding council announced today (Friday) that it has been able to find extra resources to make the rise 4.3 per cent, boosting the grant from pound;411 million to pound;428 million. The unions hope this will mean less “volatility” in colleges in the coming year than they had feared.

The main recurrent grant to support existing levels of teaching accounts for pound;326.7 million of the increased sum, up from pound;309.5 million. The rest of the package consists of “top-sliced” reinforcements, chief of which are pound;61 million for student support and pound;21 million for property improvements (another pound;17 million is guaranteed for the college estate in each of the next two years to 2006).

There is also some good news within the teaching grant allocation, which includes pound;21 million for widening access and pound;4.4 million to help remoter colleges meet higher costs. These elements have each been increased by 8.9 per cent, double the overall increase.

Mr McClure acknowledged that, while colleges will receive more than they expected, this is “a tight settlement which will simply cover costs, although it should avoid colleges having to take a step back in their plans”.

He repeated the mantra well aired by the Scottish Executive that the emphasis now should be on colleges consolidating their activities, not “expand, expand, expand”.

Although the funding council avoids inviting flak by commenting on pay issues, the clear message from this settlement is that there will be no spare cash for the salary bill and that colleges should remain cautious to stay out of financial trouble.

They have so far received pound;31 million to haul themselves out of the red and remain financially stable, but that was a one-off sum for 2002-03 only.

Despite the promise of a more generous settlement from the spending review in the next two years to 2006, the funding council strikes a cautionary note. The Executive’s spending plans allow for the council to receive another 4.7 per cent and 8.2 per cent in each of these years. But it cannot predict what the balance will be between funding existing core priorities and increased activities.

The council warns colleges to plan on the basis that their main funded activities would be increased by no more than 2.5 per cent a year, in line with the Treasury’s assumption on inflation. Colleges will also have to guard against the possibility that part of their grant might be clawed back if student enrolment falls.

They have been given a further caution about the prospect of reduced European funding, a significant source of income for many.