The report's authors hope the new formula will avoid the distortions of winners and losers in the share-out of Scottish Office funds, Neil Munro writes. Large gains and losses should be "significantly smaller", the report states.
The present system has been forced to operate with a safety net for the 43 incorporated colleges, which limited losses this year to 6 per cent of the previous year's grant; 11 colleges were major losers in this category. The formula has also imposed a cap at the other end of the spectrum to ensure there is no runaway growth.
But the effect of the new formula, to be introduced from April 1999, will not be clear until the grants for individual colleges are determined. In another change, the amount of student activity or SUM count will be averaged over three years to determine funding once the new system is fully in place.
"This will reduce some of the worst turbulence caused by the present funding regime," according to Rae Angus, principal of Aberdeen College, who has been a fierce critic of safety net restraints. But he is not convinced that the changes will make fundamental differences: colleges will still not be allowed to lose heavily while others will be able to grow although they will not necessarily be fully funded to do so (similar to higher education).
Mr Angus nonetheless welcomed the concept of "managed growth" and acknowledged that colleges in difficulty had to be supported. "But they mustn't be given lifetime guarantees."
While the proposed methodology tries to ease the worst excesses of the existing one, its replacement is not planned to be a free-for-all. The four island colleges, for example, are to be guaranteed the same proportion of the total FE grant pending a fresh study of their costs. The review group accepted that the funding mechanism should only meet "unavoidable high unit costs" arising from their locations, which make it difficult to achieve efficiencies because of their limited markets.
The four colleges are Lews Castle in the Western Isles, Sabhal Mor Ostaig on Skye, and the Orkney and Shetland colleges which are funded by the Scottish Office through their local authorities.
David Green, the Lews Castle principal, said he was pleased the report recognised the circumstances of the island colleges. But Mr Angus, while agreeing there should be special provision, said these colleges were being funded through FE "when the whole intention is to make them part of HE as members of the University of the Highlands and Islands network".
The review group is also treading cautiously with the fixed cost funding element of Pounds 250,000 which all colleges receive irrespective of their size. While the group suggests this should disappear, it will be retained for three years to avoid hitting small colleges. These colleges will thereafter be able to plead a special case for extra support to maintain the "adequacy" of FE provision locally; this help would come from the new strategic fund since adequate access to FE is seen to be of national importance.
Separate "entry costs" which support recruitment and pre-entry guidance will no longer be top-sliced from next April, and property cost funding for colleges with high rent or interest payments inherited from their previous local authority will be phased out.
These "institutional factors" were a recognition that all colleges carried the same costs such as principals' salaries, management functions and computer maintenance. But the extra funding has been at the expense of the larger colleges.
The protection afforded by the fixed cost element is also seen as a disincentive to mergers, which the Government wants to encourage. Under the present system, three small colleges are entitled to Pounds 750,000 if they remain separate but only Pounds 250,000 if they merge.
Brian Wilson, the Education Minister, told the Association of Scottish Colleges conference in June that he wanted the revised formula to encourage "collaboration". He returned to the theme when he launched the consultation process last week. The present funding arrangements, he said, "run counter to the Government's stated aim of promoting co-ordination between colleges, maximising access to courses and ending needless competition".