Iwrite to draw your attention to the increasingly serious financial problems facing colleges for 20045 and to the impact that this will have on their ability to meet the expectations placed on them by Government, employers and their local communities.

When you addressed our 2002 annual conference, you set a number of challenging targets for colleges. The evidence less than two years later is that colleges have delivered these targets, with the result that we see record numbers of 16 to 18-year-olds in education and training and solid progress towards the various targets for adults.

At the same time, real strides have been taken to achieve the aims of Success for All. This progress is now under threat because of the rapidly building evidence that there is insufficient money in the Learning and Skills Council budget to meet these demands.

This creates risks, in the long term, that the Government will not have the funds to implement its strategies for 14 to 19-year-olds nor for adult skills. In the short-term, for 20045, there is an immediate risk to courses, opportunities, jobs and financial stability in colleges.

Reports from member colleges have highlighted signs of real financial stress: 1. Delays in payments of responsive growth money There are at least 50 colleges who recruited additional 16 to 18-year-old students in 20023 and 20034 on a promise of extra funding from the LSC.

Most are still waiting. In some cases, colleges have been told they will not be paid for another 12 months.

2. Uncertainty over funding for 16-18-year-old participation Just last month, the national education maintenance allowance programme was launched. In the pilot areas, 79 per cent of EMA recipients were in FE and sixth-form colleges. In 20045, colleges do not know if they will get any money to pay for extra students.

The 2004 DfES report forecasts a 10 per cent increase in 16-year-olds in colleges. Colleges have been told by the LSC that they will have to cut courses for adults if they recruit too many 16-year-olds.

3. Cuts to courses for adults On the basis of the known shortfall in the provisional funding allocations for 20045, the Association of Colleges warned last November that up to 70,000 places for adults could not be offered this year if Government priorities for 16-19 and adult basic skills courses were to be met. It is evident that projection seriously underestimated the cuts colleges now face.

In recent weeks colleges have been faced with demands to model significant cuts to adult courses to fit demand within the reduced LSC resources available. Although the final decisions are not yet known there can be little doubt that many colleges will face serious budget reductions.

The movement of funds towards the Government’s immediate priorities will force cuts to level 3 (A-level equivalent) courses in areas such as care, IT construction and access. This is directly contrary to the priorities of many regional development agencies. Others under threat include many lower-level courses in computing, foreign languages, sign language and classes out in the community.

While AoC supported the need to prioritise public resources, it cannot be right that the impact of these reductions falls on those with the greatest needs or on areas of learning important to employment success.

In the short-term, demands for cuts in 20045 create unacceptable pressure on colleges. Most have very little time before the start of the new year to make changes. They have made plans, advertised courses and started recruiting students on the basis of their understanding of the funding.

One of the welcome reforms introduced in Success for All was three-year planning and budgeting. The allocations announced last autumn covered the three years from 2003 to 2006 and promised further stability in the system.

The imposition of cuts to the provisional allocations, even where colleges have successfully delivered against targets will create considerable instability and will call into question the system’s viability.

Alongside this, a number of colleges have told us that they will have to reconsider their ability to make pay rises in 20045 if they have to face budget cuts. Colleges planning capital programmes to modernise facilities will have to deal with a new area of uncertainty, which could create a problem with borrowing. Colleges wishing to make investments to raise quality will need to think again and consider how to protect core services as the first priority.

More immediately for the Government, funding reductions will affect the drive to raise 16 to 18 participation at exactly the time when it is putting renewed focus on this via EMAs and Connexions. Progress towards the various skills strategy targets will be hit as will the capacity of colleges to handle the expansion that the Government needs to deliver its higher education strategy.

I wrote to you earlier in the year with our analysis of FE’s longer term funding needs. We and our member colleges await the outcome of the decision-making process you are engaged in with more than the usual degree of interest. But the question raised now by colleges about their problems is whether Government intends, within the current funding settlement, to honour the commitments implicit in the policy framework put in place over the last few years by ensuring that sufficient resources are available to fund colleges’ success in meeting and exceeding the targets set.

There can be no mistaking the strength of concerns amongst college principals and senior managers about the consequences for individuals and businesses of the Government’s apparent intention to cut much established education and training. AoC’s National Parliamentary Day last week, the biggest FE event ever in the House of Commons, illustrated that very clearly.

AoC believes that ministers must now act to maintain confidence in the policies which have been put in place, and to avoid the damaging consequences to learners, employers, communities and colleges themselves which funding cuts for 20045 will inevitably generate.

I would welcome your early response.

Dr John Brennan Chief executive Association of Colleges