The #163;40 million campus for Hackney Community College is the largest further education project in the UK and will enable the college to operate on three sites, rather than the existing 13 largely Victorian centres.

Earlier this year, inspectors from the Further Education Funding Council gave the college top marks for its responsiveness and range of provision. Exam results were above average for a college of its type, and it attracted many students from groups that have not usually entered further education.

Only last month the college was awarded a Queen’s Anniversary Prize for higher and further education. These are awarded to colleges and universities that demonstrate achievement in work that benefits the nation.The award is agreed by the Queen on the advice of the Prime Minister.

Hackney Community College was said to have created an “exemplary learning environment in which female science students are thoughtfully nurtured” and was credited for its outstanding results.

So all in all a good year for Hackney. And yet in mid-December it announced 47 redundancies, on top of the 98 job cuts it had identified at the end of November. It needs to reduce its spending by #163;1.4m this year and #163;1.5m next year.

Anxious meetings have been taking place with staff to find other ways of reducing the bill: a pay freeze, a shorter working week, reduced notice period for redundancy, renegotiated contracts, canteen closures, price rises.

Since incorporation there has been continuous restructuring and reorganisation. “Most people have had to apply for their own job every year for the past three years, ” said a Unison spokeswoman.

So how did Hackney get to where it is now? The biggest problem is the funding council’s policy of convergence, and the acceleration of that policy. The aim of convergence is to ensure colleges are funded at a broadly similar level.

“On incorporation we inherited large costs and it was clear that convergence would have a direct impact, ” said Chrissie Farley, the principal.

At #163;26.20 per unit, the college has the second-highest average level of funding (ALF) in the country. The FEFC wants colleges to move closer to this year’s average of #163;18.65 and then to around #163;16.50 - a formidable task.

“We have managed to reduce our costs significantly, by over 20 per cent since incorporation,” said Ms Farley. “This is in the face of a declining income from three sources, the FEFC, the training and enterprise council and the local education authority.

“We have been preparing for convergence. We knew we would have to employ fewer people. So far we have done this though voluntary redundancy and early retirement, but they do carry a cost.”

Hackney has some stark social problems. The borough has some of the highest rates of poverty and poor housing in Britain and the highest unemployment of any London borough. One-third of incomes in the borough are below #163;5, 000 per year, two-thirds below #163;10,000.

Hackney has the highest percentage (40 per cent) of children in households without a person in employment. It has the highest rate of lone parents in London. Hackney is also traditionally an area that attracts refugees and migrants. Over 100 first languages are spoken.

Ms Farley believes a weighting factor for areas of high deprivation must be introduced into the funding methodology.

Research would seem to support this view. A survey commissioned by the Association of Colleges,

carried out by the LSE, said the FEFC understated the costs of working in the capital by more than 10 per cent.

The local branch of NATFHE also criticises the funding methodology but it does not acquit the college. “It is appalling management, ” said David Rose,an official. “They have known about convergence for three years, they have had all that time to plan things in advance. There is inefficiency and waste.”

It cites specific examples: missing student registers, overvaluation of buildings, leading to a #163;4m loss, (a book loss on inherited assets, says the college), subsidy of the catering costs, excessive use of mobile phones, increasing consultancy fees.

“What we really want is management to take a higher profile and join us in a political campaign,” said Mr Rose. “We want to up the pressure on the FEFC. ”

One of the problems is retaining students. Angela Rose, executive officer of the students union, said the jobseeker’s allowance was forcing some students to leave. Others were on income support and could not afford to stay on; still more had transport or child care problems.

Other colleges have solved their problems and now have a low ALF. Why should they have to subsidise the Hackneys?

“I do not believe that is the argument, ” said Ms Farley. “It is about increasing the level of resources for further education.”

She is not sitting idly by. She has told the FEFC: “Unless the convergence mechanism is slowed down, the result could have a devastating effect both on further education in London and FE’s ability to contribute to the national training and education targets. The impact of convergence could be to place the FEFC in breach of its statutory obligation to provide sufficient and adequate provision in the capital. ”

For example, if the cuts mean they have to reduce specialist provision, which the council has to ensure is provided, it creates a problem. It puts the ball back in the FEFC’s court.

Can the college reach the figures the FEFC is demanding?

“We have said we do not believe that is where we can get to. We will be particularly interested in the findings of the Widening Participation committee and the impact that will have on funding and student entitlement.”

On a worst-case scenario, and without alleviation, the college might face cuts of around #163;5m the year after next. It looks bleak.

But onwards and upwards. The college is proud of its achievements and is strengthening its links with the City and actively looking for non-FEFC income.

“We have put a lot of emphasis on maintaining the delivery of high-quality education to our students,” said Ms Farley. “We are still seeing staff and student success. Life is still moving on.”