Colleges are being discouraged from pursuing mergers as the Government tries to promote new types of federations as an alternative way of cutting costs, it has emerged.
Kingston College's proposed merger with Carshalton College, also in Surrey, was put on hold earlier this year, with governors saying that they had been given a "distinct policy steer" that the Government wanted to encourage other kinds of partnerships.
Instead, the colleges agreed this week to form a "hard federation" in which they will retain two governing bodies, to meet Government concerns about local accountability, but will appoint a single principal and management team.
Kingston College principal Peter Mayhew-Smith said he believed the outcome could be "the best of both worlds", allowing it to save pound;1 million a year in costs - similar to the savings anticipated in a merger - while reducing the amount of organisational upheaval.
Differences between the governing bodies would be settled by the casting vote of the person appointed principal of the federation, he said.
But Mr Mayhew-Smith added that colleges needed clearer advice about cost- cutting strategies that would gain Government approval if mergers were now out of favour.
"It would benefit us all to have some sense of a provider strategy from the department," he said. "There seems to be a policy on mergers that is not currently communicated absolutely clearly."
He said the Skills Funding Agency (SFA) had been helpful, but that colleges needed guidance to plan for the next four years.
A three-way merger between Lambeth College, Lewisham College and Southwark College, all in south London, has also come to a halt after similar discussions with the SFA, although FE Focus understands that some of the potential partners may pursue a smaller-scale merger.
Despite the concerns expressed to some colleges, the SFA has approved five mergers in recent months and proposals for new mergers are continuing to be made, with Newcastle College and Northumberland College the latest to go out to consultation last Friday.
But analysis of mergers in recent years by consultancy W3 Advisory showed that colleges only improved their financial position in about half of cases post-merger.
In four out of nine cases examined, colleges saw their pay costs rise instead of making savings. And the largest increase in costs was greater than the largest of the savings made at the other five colleges.
There was a similar divide in the effect on a college's ability to generate surpluses: four saw a decline in their financial performance 12 months after merging, while the other five saw improvements. But none of them had returned to the levels of financial performance seen two years before merging.
The SFA was unavailable for comment.
Original headline: Merger hopefuls told to take a different tack