Proposals for a new insolvency regime for colleges could result in debt and pension payments rising, MPs have been warned.

Addressing the first public bill committee for the Technical and Further Education Bill this morning, Bill Watkin, chief executive of the Sixth Form Colleges’ Association, said the reaction of lenders to the government’s plans could result in money being diverted away from teaching and learning.

He told the committee that the regime outlined in the bill has had “an impact before insolvency is even a reality”. “What’s happening at the moment,” he continued, “since the publication of the insolvency regime, is that banks and pension fund managers are responding differently to colleges.” Mr Watkin cited the example of a group of colleges in the South East which, “immediately after the publication of the insolvency regime”, was “upgraded to a maximum risk rating in terms of their pension contributions”.  This “means that they are able to divert less money to teaching and learning, and have got to negotiate less favourable repayment terms, and it’s the same thing with bank loans,” Mr Watkin added. “Bank loans and pension fund managers are all being more cautious because of the insolvency regime and that’s having an immediate impact.”

‘A greater risk’

The insolvency proposals in the bill are designed to establish a ”clear and well understood insolvency framework for the benefit of learners, colleges and taxpayers”. They include a “special administration regime which will protect learners by avoiding or minimising disruption to the studies of the existing students of the FE body”.

Speaking to TES after the hearing,  Mr Watkin said that while he and colleges were supportive of the plans to protect learners from colleges becoming insolvent, the proposed insolvency regime had resulted in there being “perceived to be a greater risk” to lenders and pension fund managers.

“What I would say is one of the effects of the insolvency regime is to make lenders - whether they’re pension funds managers or banks - more cautious … and the negotiations in terms of repayment plans are likely to be more difficult for colleges because there [is] perceived to be a greater risk because of the insolvency regime. So, if you’ve got more difficult terms and conditions, you have to divert money from teaching and learning and put it into repayments servicing loans... and it could be pensions or bank loans.”

Any reduction in the availability of commercial loans would have a knock on effect on government, Mr Watkin added. “If in the future that is not a viable option, there is only one place where you can go to get money to build your new science block or art block or whatever it happens to be, and that is the government, so there will be a greater demand on the public purse - unless of course the government steps in and says, ‘Well, you can borrow money for loans, and be rather than a commercial loan, come to us’.”

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