Cold turns up heat on cash

25th November 2005 at 00:00
Wintry weather could play havoc with college finances, because of the high price of energy, says Jonathan Tilt

FE colleges will face additional financial pressures if projected cold weather sweeps Britain this winter.

After a warm October, temperatures have plummeted over the past week, and the Met Office has consistently been warning of the risk of severe and prolonged cold weather.

Energy prices have already risen by as much as 45 per cent for some colleges, and with large premises and a greater degree of financial autonomy, colleges are among the public-sector areas most vulnerable to the cost of increased energy consumption. Add to this the financial weakness of a significant number of colleges and any prolonged wintry period could trigger the financial failure of several vulnerable institutions.

Recent winters have been exceptionally mild with no prolonged bouts of extremely cold weather throughout much of the country. If temperatures were to fall by only a few degrees, this could cost many colleges up to pound;50,000 a year in additional costs.

If the severe weather warnings do prove correct and Britain experiences a big freeze similar to that of 1963 or 1947, then many colleges could see a six-figure increase in fuel costs.

Energy prices have increased by around 30 per cent during the past 12 months, and continuing high oil prices combined with falling UK gas reserves suggest that further short-term increases are highly likely.

Energy minister Malcolm Wicks has already indicated the potential for industrial shutdowns should cold weather deplete UK gas reverses, which currently stand at about 12 days' consumption compared with 50 days for most other European countries.

Neither the Department for Education and Skills nor the Learning and Skills Council was able to comment on whether FE colleges and universities would be included in any industrial shutdown plans.

For insurance reasons, many colleges would need to maintain basic heating levels during very cold weather regardless of whether buildings were in use. In the worst-case scenario, cancellation of classes could reduce income levels while a college was left with the cost of heating an under-utilised building.

Colleges facing the greatest pressure are those which are already financially vulnerable and those occupying older buildings.

Gas and electricity represents between 1 and 2 per cent of total expenditure for a typical college. A 30 per cent increase in prices combined with a 20 per cent increase in consumption due to cold weather could represent pound;70,000 to pound;100,000 of additional cost for colleges with large or inefficient premises.

In many colleges, this could be the difference between a small surplus and a significant financial loss. It also equates to the cost of annual pay awards in many colleges, and some governing bodies and principals may see cutting or freezing staff pay as the only means of offsetting increased energy prices.

Across the further education sector a 20 per cent increase in consumption resulting from exceptionally cold weather could increase costs by between pound;6 and pound;8 million.

Extensive computer networking and the provision of high-powered PC facilities for staff and students have created increased energy demands across almost all colleges in the past five years.

This growth, combined with the resurgence of space and energy-intensive vocational training areas such as construction, has resulted in the sector consuming far more energy than it did in the past.

The financial independence of colleges means that their increased energy cost cannot simply be absorbed within additional expenditure by central or local government.

Colleges under financial pressure must seek additional emergency funding from the Learning and Skills Council, though it is not clear whether such funding could be used to cover routine costs such as heating expenditure.

Many colleges are open for more than 12 hours a day with rooms heated throughout that time, even though evening usage, typically for adult education classes, can be relatively light.

Tuition fee increases for adult leisure and non basic skills courses could further reduce levels of evening usage, resulting in many colleges deciding to cancel the courses.

Jonathan Tilt is a qualified accountant and former college finance director.

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