Finance - 'No effort' made to mitigate woes of reclassification

29th November 2013 at 00:00
Government did not act to save colleges, politician says

An opposition politician has accused the government of misleading colleges over a decision to reclassify them as public bodies, a move which will reduce managers' control over their own budget surpluses.

Liam McArthur, education spokesman for the Scottish Liberal Democrats, said that a letter from the government in 2010 had led principals to believe ministers would seek to mitigate the impact of the decision and help them to retain financial independence. But the Lib Dem said that this effort was never made and added that the education secretary had even sought to tighten his grip on colleges by introducing the Post-16 Education bill in 2012.

The Office for National Statistics (ONS) first announced plans to reclassify colleges as public bodies in 2010. In May this year, it was revealed that the change would take place on 1 April 2014.

The reclassification will affect the way in which colleges are able to accumulate and retain surpluses, because it restricts their ability to carry them forward from one financial year into the next. Concerns have also been raised about existing reserves, as it is feared that these will have to be handed over to the government.

In England and Wales, reclassification was avoided through legislative changes that removed institutions from the control of government.

A Freedom of Information Act request by the Scottish Liberal Democrats revealed that in October 2010, a senior Scottish civil servant at the Employability, Skills and Lifelong Learning directorate wrote to college principals saying: "Scottish ministers are clearly of the view that the future success of colleges rests significantly on their ability to operate with the maximum possible degree of autonomy, recognising their expertise, and with the minimum of interference by ministers."

The civil servant explained that a review of the situation was already under way, which was intended to "examine the scope for removing further ministerial powers over colleges".

He added that the review would also consider what changes would have to be made to the law to give Scottish ministers the option of seeking a reversal of the reclassification of colleges.

However, in November 2012, the government launched its Post-16 Education bill, which many in the sector argued would increase ministerial control over colleges. Then in May this year, it was confirmed that reclassification would go ahead.

Mr McArthur told TESS: "The truth is that the Scottish government initially raised false expectations about how the ONS reclassification would be dealt with, then sat back and did little or nothing at all.

"When ministers were finally stirred into action after the last election, it was to chart an entirely different course and one which has made life markedly more difficult for Scotland's colleges."

A Scottish government spokesman said: "We have always made clear we find the ONS decision, its consequences for our colleges and the HM Treasury's refusal to allow flexibility most unhelpful. When we wrote to colleges in 2010, we made clear our plans to review college governance."

The spokesman said that the work had subsequently been taken forward by former college board chairman Professor Russel Griggs, who concluded that greater public accountability for colleges was important, a position incompatible with the action necessary to avoid reclassification.

Colleges are now working with the Scottish Funding Council (SFC) to try to minimise the financial impact of reclassification. Most are choosing to establish their own arm's-length trusts to help retain any surpluses, and the funding council is also setting up an umbrella trust that colleges can join.

Martin Fairbairn, senior director at the SFC, told the government's public audit committee earlier this month that he had been told colleges were making good progress in establishing these arm's-length foundations.

"At the moment, I am reasonably confident that all those arrangements will be in place in time for 1 April," he said. "However, if any college hits a difficulty, it can fall back on the umbrella foundation that we are establishing, which can be used where necessary."

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