One in eight colleges is in such poor financial health that it is in danger of not being able to pay its bills – and is likely to be reliant on the “goodwill of others”, new Tes analysis shows
By applying the scoring system used by the Education and Skills Funding Agency (ESFA) to the financial health measurements included in the latest college accounts (borrowing and earnings as percentages of income, and the ratio between current assets and liabilities), the analysis reveals that more than one in four colleges would be rated “satisfactory” when measured against the ESFA’s standard, meaning they have “limited capacity to respond successfully to opportunities or adverse circumstances”.
Some 12.8 per cent would have been graded “inadequate”, which the ESFA defines as being in “financial difficulty and likely to be dependent on the goodwill of others, with a significant risk of not being able to meet obligations”.
New insolvency regime
Barely one-third of colleges would be graded as “good” and about a quarter would be “outstanding” – which means they have “robust finances”, according to the ESFA’s scoring system. The analysis comes ahead of the introduction of a new insolvency regime for failing colleges, which comes into force later this year.
As well as cutting staff, many colleges are having to resort to selling off land and buildings to stay afloat. The value of fixed assets, such as land and buildings, held for sale tripled from £25.4 million in 2015-16 to £77.4 million in 2016-17, the latest college accounts showed.
The research “underlines yet again the continuing fragile state of many of our FE colleges”, according to Gordon Marsden, Labour’s shadow minister for FE. “This is a result of the cumulative underfunding by government in the sector, as well as their failure to expand initiatives such as traineeships, which could broaden the reach of those colleges,” he said.
More than 40 colleges currently have notices of concern against them due to their financial health, which means they are failing to meet acceptable financial standards, and Department for Education officials are currently reviewing the funding arrangements for FE.
Julian Gravatt, deputy chief executive of the Association of Colleges, said: “Colleges are under increasing financial pressure because the DfE hasn’t changed post-16 funding rates to take account of inflation for five years, while staff costs and expectations have continued to increase.”
The financial health of the FE sector is “of growing concern”, according to James Kewin, deputy chief executive of the Sixth Form Colleges Association. “Even the most efficient sixth-form colleges tell us that their expenditure will soon start to exceed their income. We are hopeful that the government’s review of FE funding will provide an evidence-based assessment of what the national funding rate should be. We conducted our own research in 2015 that concluded 16-19 funding needed to be increased by at least £1,000 per student.”
A DfE spokesperson said: “We have protected the base rate of funding for all 16- to 19-year-old students until 2020 to make sure every young person has access to the education or training they deserve. Exceptional financial support is available to make sure learners at FE colleges facing financial difficulties have the provision they need.”
This is an edited version of an article in the 18 May 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.