The level of reserves held by colleges has dropped by £1 billion over the past five years, according to analysis by Tes.

The total reserves held by colleges across England has decreased from £3.69 billion in 2010-11 to £2.61 billion in 2015-16, according to college accounts. The trend broadly matches the drop in the overall core budget for adult skills, which fell from around £3 billion to £2 billion between 2009 and 2015.

This suggests that more colleges have dipped into their reserves to replace government funding. Julian Gravatt, deputy chief executive of the Association of Colleges, said that other factors leading to a reduction in colleges’ reserves could include changes in pension deficits and capital expenditure.

But a lower level of reserves was a concern, he added: “That means there is a risk of colleges losing control. It is an unpredictable environment. There will be some colleges that have too many reserves, but it is unusual.”

‘Inadequate’ financial health

In 2015, the National Audit Office warned that the number of colleges under financial strain was expected to rise “rapidly”. The financial position of the sector had been declining since 2010-11, said an NAO report, which highlighted that the number of colleges assessed by the Skills Funding Agency to have “inadequate” financial health had risen from 12 in 2011 to 29 in 2015.

“The decline in the financial health of the sector has been quicker than indicated by colleges’ plans, and current forecasts suggest that the number of colleges under strain is set to rise rapidly,” the NAO concluded at the time. At present, 41 colleges are subject to a notice of concern over their financial health.

In 2015-16, Westminster Kingsway College had the biggest reserves of £152 million, followed by City and Islington College (with which it has now merged) on £107 million and Barnsley College on £63 million.

‘Resilient to economic challenges’

NCG saw its reserves drop by almost a third in 12 months, according to the latest college accounts, from £74.1 million in 2014-15 to £50.8 million the following year. A spokeswoman for the group said this was “primarily due to some substantial one-off restructuring costs of £20.6 million in 2015-16”, incurred to ensure the business’ “long-term success”. The group was now in an “excellent financial position”, she said, adding: “Our strong balance sheet and cash reserves enable us to be resilient to economic challenges. This is particularly important, given the significant economic uncertainty the UK faces.”

Some colleges, however, bucked the trend. Over the same period, Bedford College increased its reserves from £26.5 million to £32.2 million. Principal Ian Pryce said the college had looked at reducing its pension liabilities, and reserves had increased because it had challenged “the actuarial assumptions”.

A new insolvency regime for colleges was created under the Technical and Further Education Act, which became law in April.

This is an edited version of an article in the 18 August edition of Tes. Subscribers can read the full article here. To subscribe, click here. This week’s Tes magazine is available at all good newsagents. To download the digital edition, Android users can click here and iOS users can click here.

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