City Guilds was Pounds 3.3 million in the red for the year to September, after setting aside Pounds 1m to pay for two empty central London offices, as well as spending Pounds 1.3m on cost-cutting voluntary redundancies.

In the previous year the organisation, which validates hundreds of vocational courses, made a Pounds 800,000 profit. However, operating losses doubled to nearly Pounds 1.2m, due to a larger than expected drop in demand for traditional courses, increased administration costs and the expense of setting up regional offices across Britain.

Director general Nick Carey warned in the organisation’s annual report: “It is clearly disappointing that City Guilds has made an operating deficit of Pounds 1.2m. An excess of expenditure over income is clearly unsustainable. ”

Senior managers were confident of returning the group to profit during this financial year.

Dr Carey said income from running national vocational qualifications had overtaken that from traditional City Guilds courses, but warned of the costs of national vocational qualification assessment.

He said: “The heavy expense to an awarding body in operating NVQs, in particular that of external verification, remains an issue which City Guilds is determined to resolve.”

Senior figures are also concerned that the take up of NVQs has not kept pace with the decline of older qualifications, although they stress that this year has seen an increase in awards.

The group’s finances were also hit by the decision to move out of two central London offices, although both sites have now been sold.

But senior managers reported success, including setting up a Hong Kong operation to cover South China, and expanding its other offices in the Far East.

The organisation is also expanding its range of courses, including developing new “progression awards”, to provide a foundation for work-based NVQs in colleges.

And there are moves towards developing some traditional City Guilds courses as modules within general national vocational qualifications, providing a bridge between classroom GNVQs and work-based NVQs.

The first pilot schemes have already been launched, including modules in food services, information technology and vehicle servicing.

Managers are also celebrating victory after the announcement of new legislation requiring workers digging up the road to hold a City Guilds certificate. An estimated 150,000 staff will need the qualification.