Unveiling the annual main grants to colleges, the details of which were released yesterday (Thursday), Roger McClure, the council’s chief executive, said only a small number of colleges still required “exhortation and encouragement” to reach stability.

Mr McClure declined to put a figure on the number but he described the improvement as “a huge achievement for the sector, considering that a couple of years ago the majority of colleges were in the red”.

The council, which announced a 5 per cent average increase in college funding for the 2005-06 academic year, says it is continuing to monitor the underlying financial health of colleges, hoping they will not be caught off guard by any unexpected expenditure because their income will be greater than their expenditure - the “Micawber approach” to budgeting, as Mr McClure described it.

The latest grant round will see colleges receive a total of pound;321 million in their recurrent grant from the council and just under pound;107 million in other fee income, amounting to almost pound;428 million for teaching purposes (see table). With other earmarked sums, including pound;64 million for student support and pound;66 million for capital investment, the 45 colleges will receive a total of pound;533 million in the coming year.

The pound;66 million in capital spending represents a significant rise of pound;28 million. Some pound;25 million is for immediate distribution (Pounds 15 million on buildings and pound;10 million on equipment) and the remainder will be spent in response to bids for specific projects.

Mr McClure described the 5 per cent increase as “reasonable”, given that inflation is running at 2.52 per cent and the pressures colleges face, including pension costs (for which pound;9.4 million is ring-fenced) and the imposition of new regulations such as disability legislation. Some 34 colleges will receive 4.5 per cent or more.

But this continues to be a picture of no growth spending for colleges, after years where they were forced to engage in competitive increases to boost student numbers and therefore attract increased funding.

Mr McClure suggested that the current period of “consolidation” had allowed colleges to strengthen their financial position and therefore to appear “less sickly” compared to universities - an important advance, he suggested, when both sectors come under the merged funding council from October this year (the Bill to bring about the merger passed its final parliamentary stages last week).

But the funding council is preparing to anticipate more growth from next year, particularly as a result of increased activity as more school pupils attend college. Jim Wallace, Lifelong Learning Minister, has asked the council to consider whether there should be any other growth in student numbers.

The largest of the earmarked sums for specific development purposes, in addition to the teaching grant, is pound;9 million to be spent on what each college considers its highest priority, which could be steps to reach financial security.

Stability in funding for one small group of colleges, those in the Western Isles, Orkney and Shetland, took a step forward with a smaIl but significant reallocation of around pound;600,000 to them and Argyll College, whose sums are distributed through North Highland College.

As revealed in The TES Scotland (April 8), the council has decided not to change the funding formulae for mainland colleges serving remote communities, pending a review. One of the difficulties lies in defining remoteness.

The package includes pound;5 million, the same as last year, to help colleges make “significant strategic changes” in the way they go about their business. This might involve collaborative activities between colleges, including mergers. Mr Wallace has told the council he expects “quantifiable efficiencies through collaboration between institutions”.

Other specific funds are pound;4 million for information and communications technology programmes to support e-learning, pound;3 million to boost student numbers from disadvantaged areas and pound;2.7 million for quality improvements.

The cash also includes revised sums for calculating social inclusion funding, which in future will be based on the Scottish Executive’s new Scottish Index of Multiple Deprivation.

This is supposed to be a more precise measure and will be used from the 2005-06 academic year for colleges which serve the 20 per cent most deprived postcodes. Some 77,000 such students are in FE and colleges have been given pound;12 million to spend on them.

The change is said to be the chief reason why Dumfries and Galloway College has received the smallest increase in its support, up by just 2.5 per cent.

One technical change in the way in which college activity is assessed for funding will involve a slight difference in the way full-time courses are measured. Some colleges may be affected more than others, depending on the balance between full-time and part-time programmes.

But the council is allowing time for colleges to adjust to the new measurements by increasing the leeway it gives to those that fall below their activity targets from 2 per cent to 3 per cent.

Mr McClure said colleges had been aware that this change was coming, but added that any which faced significant difficulty should contact the council.