The Scottish Office official who was, until recently, head of its further education funding branch has called for a change in the system.
Joyce Johnston, who left her Scottish Office post in October to become principal of Fife College, said that the present method of funding the 43 incorporated colleges through student units of measurement should be replaced by a "contractual funding model".
The Government's grant to colleges is built up on the basis of "weighted SUMs", corresponding to 40 hours of student teaching time skewed to take account of the relative costs of different subjects. This requires the Scottish Office to undertake detailed SUM calculations before arriving at the overall grant for each college.
Mrs Johnston wants this replaced by a more hands-off approach. "Under a contractual funding model, each college would agree with the Scottish Office to deliver a set programme for a set cost. It would mean that the civil servants would no longer be involved in the detailed funding of SUMs: they would simply assess whether, under its development plan, a college was likely to deliver what it says it can deliver based on its track record.
"The Scottish Office would therefore not get involved in setting limits on courses and programmes which, after all, are the responsibility of boards of management based on their view of the needs of their local areas."
The major Government interference with college plans is the capping of full-time degree courses. The seven colleges in the north are exempted in order to expand their degree provision as a deliberate policy to create the University of the Highlands and Islands.
Mrs Johnston shares her new colleagues' irritation with this limitation on college growth, which the FE sector hopes will be removed following the Dearing inquiry into higher education. But she says capping was imposed reluctantly because of the soaring costs of HE student awards. "I hope to see this ban lifted at the earliest opportunity post-Dearing," she says.
Mrs Johnston defends the funding system to date for bringing colleges to the same unit of resource. The drive to equalise the distribution of funds across colleges, which created winners and losers as the former local authority spending patterns were changed, acted as "a major engine of growth" - a 6 per cent rise in student activity in 1994-95 and 9 per cent in 1995-96.
Ironically, Fife College is now a victim of Mrs Johnston's previous handiwork as it faces having to make cuts of Pounds 1.7 million by 1998-99, only Pounds 500,000 of which has been achieved.
"With this scale of savings required," Mrs Johnston told her staff, "the consequences of inaction would be extremely serious." She has pledged that, apart from early retirement and voluntary severance, the economies would be realised from shedding management and administrative rather than lecturing posts.
Fife's predicament is only partly attributable to the Scottish Office formula. Fife Regional Council's relative generosity to its FE sector has meant an inevitable squeeze as funding was equalised across the colleges. The authority was also highly successful in accessing European funds to support college courses, but that cake is now more widely shared over a much larger number of colleges, which means Fife gets less.
The Scottish Office has been moving steadily away from funding systems inherited from the local authorities and colleges are now 100 per cent formula-funded based on their success rates in attracting students.
There is, however, a "safety net" which this year has ensured that the biggest losers did not lose more than 5 per cent of last year's grant. The FE principals met Scottish Office officials last Wednesday and were unanimous in pressing for the safety net to continue into 1997-98 at a slightly increased level of 6 per cent, but only for those colleges who can clearly demonstrate need - if they do not have sufficient cash balances to survive otherwise.
Mrs Johnston does not, however, expect this cushion to continue after April 1998, hence her own anxiety to get Fife College into shape before then. Several of her colleagues, particularly in the larger colleges, have been pressing for an end to the safety net which is in effect money top-sliced from cash they would otherwise have received.
Colleges expect to hear in a matter of days what their individual Scottish Office allocations are going to be for the coming year. The overall FE settlement is Pounds 291 million for 1997-98, an increase of Pounds 7 million on previous plans. But most of that is earmarked for college expansion in the Highlands as part of the university project. And the full sum will not in any case be distributed in recurrent grant to the colleges since around Pounds 50 million will be held back for bursaries, capital allocations and other areas.
Although the Pounds 291 million is an increase on planned expenditure, it is the same as this year's figures which, after inflation, means a cut. "We have delivered 9 per cent student growth, efficiency gains of 6 per cent and we end up with less," said Tom Kelly, chief officer of the Association of Scottish Colleges.