A number of Scotland’s 43 further education colleges are in serious financial difficulty. Arguably, had some been private sector companies, they would now be thinking about stopping trading to remain within the Companies Acts.

Fortunately, as public sector bodies it is difficult for colleges to become insolvent, though some may face a pretty thin time of it. Others will require to search out willing suitors so that mergers can ease their financial futures. There might even be a few “shotgun marriages” (though such unions are seldom acknowledged by the partners, or the rest of the family, to be other than completely voluntary).

That said, however tight the Chancellor’s grip on the public pursestrings, some more money can usually be found for a service which meets the training and educational needs of nearly 300,000 people annually, and without which flagship training initiatives, like Skillseekers, would shrink to anorexic proportions.

The FE service also supplies about a quarter of all higher education. How, then, to square the vicious circle of shrinking college budgets with society’s (and Government’s) rising expectations for more and better education? Most of what colleges spend comes out of government coffers. This being so, changes in public funding impact directly, and quickly, on provision. To complicate matters, individual colleges gain or lose not only from changes, but as a result of the operation of the funding formula (which determines how, and in what sum, public funds are distributed to each college annually).

Recently, many colleges have faced real cuts in their budgets. However, the colleges in greatest financial difficulty have suffered most from redistributive effects, not as a result of cuts in the total funding of the sector. It is no accident that they are also the colleges which have failed to recruit enough students, andor have failed to reduce their costs fast enough, in a funding regime which is deliberately designed to encourage student numbers to rise rapidly, while fostering the convergence of college unit costs (for “convergence” read “lowering”).

Ominously, the public spending plans of the last government presage further cuts so without injections of funding the status quo is fast becoming unsustainable. Something has to give somewhere. Judging by the resolve of the Government, it may be the status quo in further and higher education.

Official action to redress financial imbalances in FE is focusing on how the Pounds 290 million available annually is allotted to colleges. Attention seems to be on the funding mechanism, not the amount of public funds made available (the size of which, correctly, is seen as a matter for policy-makers).

It is acknowledged in colleges, and the Scottish Office, that the current funding formula - funding following the student - has passed its shelflife. It has been very successful, but is now putting colleges under strains they find difficult to bear. A Scottish Office review group is searching for a more stable means of shelling-out the cash. The matter is urgent and the search fairly energetic, but the budgetary problem may not be amenable to so quick and convenient a “fix”. The deliberations of the review group may even come too late to avert more serious budgetary problems arising in 1998.

In the medium term, redefining the funding formula may well curb the volatility of the funding regime, and keep individual college heads above water for a time, but the danger is that this approach may merely reshape, relocate, and defer problems, not resolve them. Tuning funding mechanisms will not be enough. The quantum of public funds is simply too small to secure the policy objective of the last government - that of serving ever more students at ever higher levels of quality and at ever lower unit cost.

There are a number of options available to policy-makers: firstly, reduce policy expectations (namely the rate of growth of student numbers) - an impossible task if ever there was one. Or increase the sector budget - very difficult, but not impossible. Lastly, restructure and reform the service at a national and local level to increase productivity so that government gets more for our taxes - commonly thought impossible, but actually only difficult.

The Scottish way usually is to combine options to achieve benefits while reassuring interest groups that actual change will not be as bad as their apprehensions. This is a decent and humane approach, but only if it is affordable and effective.

The new Government has the huge advantage of a fresh start - a shortlived benefit, perhaps, but one which should not be underestimated. Ministers have not been slow to tackle the problem. Brian Wilson, the education minister, told the Association of Scottish Colleges that Labour accepted the success of the colleges under the Conservatives, but not the means. He rejected the “shadow-market” approach which fosters brisk competition among colleges for students and funds, and he implicitly rejected the previous Government’s encouragement of unfunded rapid growth. Mr Wilson wants greater co-operation among colleges. He and his colleagues face an uphill task in a sector which has undergone culture shock in the past few years.

If the Government wishes to alter the structure while increasing activity to meet initiatives like welfare-to-work and Target 2000, further change is inevitable, and demands for new cash will become more strident. Government could maintain its grip on public spending while also meeting its ambitious objectives.

Further education needs a clearer strategy if the present “shadow-market” system is to be abandoned. It should both inform policy making and be the medium for implementation. It should be indicative but not imperative. A new strategic framework would also require the end of the current model of college development planning: one which is based on what individual colleges think should be provided in their own areas, rather than their contribution to a sectorwide plan. In the absence of a market-led approach, FE needs to be transformed from a service into a system.

This implies a degree of coherence and more central direction than is currently evident, but not central planning in the traditional sense. A Scottish community college system would proceed more by co-operation then competition, but would need to retain an element of healthy, not wasteful, competition, to foster productivity growth. (The knack is in knowing which is which.) Reasonably clear “service areas” would need to be established - on geographical or other criteria - so that colleges would know where their turf starts and ends.

Policy-makers need to realise that the service really does need more money if it is to function more effectively. How much more, depends upon the extent to which Government is prepared to sponsor changes which will further improve the efficiency of the sector. Put bluntly, how many sacred cows is it prepared to put to rest to save putting even more money in? Like most other parts of the public sector, the further education service has a way to go before it hits the buffers of productivity.

No doubt money could be found for FE in the global budget available to fund post-16 education and training, without higher overall public spending, and only the foolhardy suggest that there is no room for higher productivity in many of Scotland’s colleges. Take a glance at the widely (some would say wildly) varying unit costs among the 43 colleges. The differences in college costs are simply not explainable by reference to “remoteness” or “special” circumstances: they stem from relative efficiency. Lastly, the service needs an industrial relations climate which fosters change, not one in which change is seen automatically as a threat. Of all the challenges facing the sector, this is the biggest and most intractable. What people say and do are often incongruent, even incongruous.

Change would be easier to achieve if the positions adopted by trade unionists and college managers were the products of aberrant personalities, as is sometimes depicted. Idiosyncrasies apart, this is not the case. Respective positions derive from very different conceptions and analyses of what is needed, and - even more difficult - what is desirable. Under the Conservative government the teaching unions had things easy. They could confine their contribution to criticism. Under a Labour Government that is much less easy to maintain. Trade union representatives have had the luxury of not having to address important issues. They have been relatively free to oppose important management-sponsored change while reserving the right to criticise managers for not initiating the very same changes when financial problems have become serious.

That managers are in this no-win situation is not unusual, but that is not this point. From time to time lecturer union leaders have nationally expressed a general willingness to work to make things better, but locally, practice has often not matched rhetoric.

Understandably perhaps, the lecturer unions locally argue against change. But they do so at a time when financially the status quo would entail wage cuts and redundancies - not the expansion of job opportunities. Only some of the problems lie on college managers’ doorsteps. Lecturers’ representatives claim the problem is one of “macho-management” or “managerialism”, but this ignores the fact that colleges are tightly controlled and monitored by the Scottish Office, and many have had to cope with large cuts in funding while at the same time giving staff increases above the rate of inflation. The managers whom the unions target are not the authors of the arithmetic.

This approach is no longer tenable if unions are serious about improving the service. At best, the claim of some activists confuses cause and effect, and style with substance; at worst, it undermines the sincere and serious efforts of people trying to grapple with pretty unforgiving arithmetic.

Unfortunately in further education, as in many other economic activities, less management does not mean that more money is available from the same pot. Indeed, experience suggests that less management leads to not enough money left in the same pot. The notion that public cash does not need managing - only the application of professionalism and goodwill - is attractive, but flatly wrong.

To their credit, the real leaders of the wider teaching unions and the bulk of their membership acknowledge the financial facts of life. But consensus on defining the central problem facing colleges is not synonymous with its resolution. If colleges are not to receive meaningful injections of new money soon and government is to demand more from the service now, unions and management will need to accommodate that seeming contradiction in their perspectives and behaviour.

Taking public pot-shots at college managers (individually or as a group) may be easy because the managers have little effective right of reply, but that is no substitute for grappling with necessities like changes to conditions of service. Unions and management have also to realise that they operate in the world of opportunity cost where one more pound to further education is a pound less for the Health Service or hard-pressed schools or other public spending priorities.

At the Scottish Office neither Donald Dewar nor Brian Wilson looks remotely like Santa Claus to me. A little more money for the Cinderella service would help, but colleges will need to earn it if they are to deserve it.

Rae Angus is principal and chief executive of Aberdeen College but writes here in a personal capacity.