MPs fear for colleges with more debts than income

31st July 2009 at 01:00

Colleges may have been forced into taking on more debt than they can repay, MPs have warned in a report on the capital funding failings.

A public accounts committee report said that at the end of 2007-08, 23 colleges had borrowed more than 40 per cent of their income. The MPs feared they could be vulnerable to low demand for courses.

According to last year's accounts, submitted to the Learning and Skills Council, among the most indebted colleges are Chamberlain Sixth Form College, Birmingham, which has borrowed 134 per cent of its income, and Epping Forest College, which has borrowed 106 per cent. Middlesbrough College and City College Coventry have both borrowed 99 per cent of their income.

Edward Leigh, committee chair, said: "There remains a risk that some colleges are taking on more debt than they can reasonably service. The council must keep under close review the financial health of the further education sector, especially in the current economic downturn."

The Association of Colleges said that in general, repayments were manageable and colleges were in good financial health. Martin Doel, the chief executive, said: "Our analysis, which is ongoing, indicates that as a whole the sector is financially healthy - as verified by at least two of the major banks.

"However, where institutions have been placed in difficulties with debt, the LSC has a duty to assist them and ensure stability so that they can best support students, businesses and the wider community."

The MPs criticised the LSC for being "reckless" in raising expectations of financial support for new buildings which it could not meet.

But Geoff Russell, the funding body's chief executive, said: "Where colleges are in difficulty, the LSC is able to intervene through the financial intervention policy to assist in re-establishing financial stability.

"Where capital-related costs have been incurred inappropriately, we will take steps to address any failures in governance that led to public money and institutions being put at undue risk."

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