Private businesses are planning to take over inadequate colleges and will urge ministers to make legal changes to pave their way after the election.
Companies and venture capital backers are waiting to see if the next government will permit private takeovers of some of the dozen or so colleges rated “inadequate”.
John Hyde, managing director of Hospitality Industry Training (HIT), said he was in discussions with Hugh Pitman, who sold JHP Training for pound;56 million in January, to form a new organisation to own and run colleges.
But plans have been put on hold until after the election because their lawyers believe current regulations stand in the way of a company taking over the assets of a college corporation.
“There is a variety of organisations that could take over colleges in the same way as academies are taking over schools,” said Mr Hyde. “The issue is it’s uncertain how the assets could be disposed of. That’s a technicality, if ministers want to do it.”
The proposed new organisation had venture capitalists interested in financing takeovers, he said.
A report by the 157 Group of leading colleges in January predicted that the private sector was increasingly likely to try to compete and work with FE institutions, including taking over ownership.
Glynne Stanfield, a partner at Eversheds law firm and author of the report, said: “Am I aware of private sector companies interested in further education? Yes. Am I aware of lots of them? Yes.”
He said they generally did not distinguish between opportunities in FE, HE or schools, and that the current rules were so far preventing them from proceeding.
Mr Stanfield said he did not believe the private sector would try to make profits by asset-stripping colleges. “To be fair to the private sector, I don’t think it’s coming in to rip off the taxpayer,” he said. “They’re saying they can provide at least as high quality education, maybe higher, for a lower cost.”
He believes the Government would be “daft” to allow private companies to take the assets of colleges at low cost and sell them on at market value. He added that companies were waiting to see if a Conservative government is elected, which would be expected to produce an education bill in its early days, and which might make some of the changes they need.
Among those changes would be new contracts with providers that would allow college owners to keep profits, and addressing liabilities such as debt, staff contracts and pensions.
Private investors would not want to take on the debt of a struggling college, may not want to take on existing staff on the same contracts, and public sector final-salary pensions would be unaffordable for them.
Julian Gravatt, assistant chief executive of the Association of Colleges, said it was “a valuable sign of confidence” that private companies saw FE as an attractive investment despite declining funding rates.
But he foresaw significant problems: the current trend was for merging colleges to inherit the debt because the funding body could no longer afford to pay it off for them, and the same rules may apply to private enterprise.
“There is nothing to stop the funding body from winding up a college now and transferring the assets and the liabilities to someone else,” he said.
But colleges’ charitable status and aims may be barriers to the profit motive, with Mr Gravatt suggesting any profit from selling land or other assets might have to return to a charitable trust.
“Would they be taking on the social obligations that fall on colleges?” he said. “The duty to promote social and economic well-being? Private companies might be able to make a return if the Government allowed them to be shot of these obligations. But then the question would be whether anybody in colleges could get shot of them as well.”
