Comment: How to cope with a capital crisis that is shaking us to our foundations

4th September 2009 at 01:00

For the last eight months, the capital crisis has dominated internal debates in the college sector.

Now that two select committees have given their view, the Learning and Skills Council (LSC) chief executive has resigned and decisions have been made to fund 13 new college projects, there is a natural tendency for people to want to move on from the subject of capital.

This won't be easy. The consequences of the present crisis will be with us for years to come.

Take the capital funding decisions. The resolution in late June to fund 13 colleges to take forward projects is good news for the colleges concerned, their students and communities. The LSC selection process in May and June has been demanding - much tougher than the processes that apply in school, academy and university funding. The 13 projects had to be exceptionally good to pass the test. But the colleges concerned will face major challenges over the next few years in delivering their projects.

In the last few weeks, the LSC has sliced millions of pounds off project funding in an attempt to make cost savings of up to 10 per cent. Plans can always be changed but doing this weeks before construction is due to start, when planning permission is fixed, is no easy task. Many of the 13 colleges will, therefore, be borrowing more and taking more risk at a point in the public spending cycle where matters look particularly difficult.

Getting a Yes decision is certainly no picnic, but the No decision for the other 191 colleges is disastrous. The LSC has spent any capital money it has and there is unlikely to be any more funding for several years. As many as 70 colleges had approvals in principle from the LSC to work on projects but there is no realistic prospect of funds for a while yet.

Some money is being paid to compensate colleges for fees but this falls well short of the pound;200 million spent in good faith on projects that are now abortive.

Many colleges have difficult discussions with the LSC and bankers about exceptional funding to tide them over. Others can use their own funds to proceed with parts of their plans on a more modest scale. Some innovative thinking is now going on in the college sector about alternative ways to fund capital investment, but putting these ideas into practice will take time and may only work in some cases.

Meanwhile, the colleges left in limbo by the funding decision face difficult challenges with their existing estates. Buildings that some colleges planned to sell or knock down will now need proper maintenance rather than just emergency work. Others will need to work out how to deliver diplomas and other new courses next year, without the facilities that they expected to be available.

College leadership is strong enough and adaptable enough to deal with a new set of rules and unexpected challenges but the capital crisis has changed the environment in other, surprising ways.

The battering that the LSC has rightly taken for its part in the mismanagement of the capital programme will reduce confidence in the ability of national agencies to run things. This could give colleges an opportunity to take more responsibility for their own future. Having been misled by officials once, college governors and managers will be careful to avoid a repeat. They will also, rightly, want more freedom to make their own decisions about leases, borrowing and design.

Meanwhile, failures at the national level lay the way open for local councils to push for more control. If national government cannot manage things, it is not surprising that local government will make the case that it can do so better - not so much over the allocation of capital funds but in other areas of education and training. Whether local government's capacity matches its ambition will be a crucial question in the next two years.

There are other long-term issues from the capital crisis. This decade has seen welcome investment in college buildings on the back of a rising capital budget. In 200910, total government capital spending on colleges, skills academies and all other parts of the further education system will exceed pound;800 million. Public spending will inevitably go downhill from here.

Yet the need for capital investment will not go away. As government policy documents have said repeatedly, good buildings, technology and industry- standard facilities are needed to provide the right spaces for learning. Capital investment helps improve quality and secure efficiency gains.

Public spending will be very limited in the next few years. The money to deliver what the country wants from colleges will come from other places - from college funds, from borrowing and from the property market. In these circumstances a different approach to revenue funding may be needed.

Colleges will only be able to make capital investments if they can also make adequate surpluses. And this will only happen if funding rates properly take account of the cost of capital and if colleges get more freedom over their costs. Future governments will need financially strong colleges to deliver their targets.

The capital crisis has exposed some of the hidden wiring in the way that national government manages the college system. It has not been a pretty sight. A once-in-a-generation opportunity has been available to some colleges. They have made good use of the chance to create some fantastic new buildings. For the rest, the task is to work out what buildings they can afford and what it is that their students and communities need.

Julian Gravatt, Assistant chief executive, Association of Colleges.

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