New building projects in colleges could face another setback after rule changes that are set to tighten restrictions on borrowing.
The Office for National Statistics has reclassified colleges as part of central Government for accounting purposes, because their borrowing has to be approved by the Skills Funding Agency (SFA). That means their debt will count towards public sector borrowing limits, at a time when the Government is trying to slash the deficit.
Colleges, as independent corporations, had previously been classified as part of the private sector, despite their reliance on public funding.
John Hayes, FE minister, said that as part of plans to reduce the bureaucratic burden on colleges, he would move to free them from the need for SFA approval, which could mean their debt would no longer be counted as part of Government borrowing.
"The Department for Business, Innovation and Skills is exploring options to bring forward legislation that will seek to repeal the requirement on FE colleges to secure the consent of the chief executive of the SFA before borrowing," he said.
Gordon Marsden, Labour's shadow skills minister, wrote to Mr Hayes calling on him to clarify his claim that colleges would be unaffected this financial year, asking him if he had taken legal advice.
"This may produce worry and alarm among FE colleges about their ability to raise funds and borrow - particularly when capital funding from Government is virtually at a standstill," he said.
Mr Marsden said that if the requirement for SFA consent to borrowing was removed, colleges would need new rules on disclosure and transparency to ensure that their work for local communities was not put at risk by excessive borrowing.
He said the decision to classify them as part of Government could also mean tougher, more complex regulation.
"Given that FE colleges are currently free-standing incorporated institutions, the reclassification suggests that their audit and regulatory regimes are set to become more onerous and costly," he told the minister. "Colleges may find it not only unwelcome but also undermining the Government's declared intentions - reiterated elsewhere in your statement to `reduce unnecessary administrative burdens on colleges'."
Julian Gravatt, assistant chief executive at the Association of Colleges, said: "The public sector encompasses Royal Bank of Scotland, academies, Welsh Channel Four and now colleges. It is slightly puzzling that this is an issue 17 years after incorporation."