Private companies are queuing up to run further education colleges but are put off by the cost of their pension arrangements, according to a report recommending radical structural change for the sector.
While there is extensive "pent up" demand from private and voluntary providers for greater involvement in FE, the sector's expensive final salary pension plans, like the Teachers' Pension Scheme, are seen as major barriers, according to the report from accountancy firm KPMG.
"For true competitive neutrality it will be essential to address the issue of pensions which are a huge deterrent to the entry of private sector providers into the market. We found a perception that FE is a `tough nut to crack'," the report says.
It says that consultation had shown that private and voluntary training providers (PVTPs) were actively interested in taking over colleges' entire delivery.
The report, Delivering Value for Money through Infrastructural Change, was commissioned by the former Learning and Skills Council (LSC) last July.
It recommends a radical overhaul of England's FE sector so it can deliver better value for money in the face of cuts to public funding. KPMG says that the financial pressures could lead to the loss of 50 of the country's 270 general further education (GFE) colleges over the next few years.
The report adds that many in FE are now calling for scarce resources to be spent on strong, high quality providers and not propping up weak institutions.
"The financial health of the FE sector is in general deteriorating rapidly, and requires urgent action," the report says. "Our consultation indicates that the FE college sector shows appetite for major change. Several commented that to do anything less was `tinkering at the edges'."
Systemic change is the most radical of the three possible change models presented by KPMG, the other two being evolutionary infrastructural change and radical infrastructural change.
The systemic options include splitting the sector by age, with GFEs focusing on adult education, and creating fewer bigger colleges.
Options for radical infrastructural change include allowing principals to operate like school "super-heads" so that they can run a number of federated colleges.
The report also calls for a more transparent benchmarking framework for FE along the lines of the National Challenge Schools initiative, which can ultimately lead to the closure of failing schools.
"It would also enable colleges and potential investors from the private and voluntary sector to identify which colleges within the sector needed support," the report says.
John Hayes, the new FE minister interviewed in this week's FE Focus, said: "Once colleges are freed from much of the micromanagement they've struggled to cope with during the dark Labour years, all kinds of models might emerge," he said.
KPMG's head of education, Mike Rowley, said that a separate analysis of college performance suggested that an increasing number could be potentially vulnerable unless they improved their efficiency.
"In our view this supports the need for a reasoned debate and consideration of a wide range of options and innovative solutions to allow the sector to continue to deliver successful outcomes in a time where its role in supporting skilling and re-skilling the UK workforce has never been more critical," he said.
Editorial, page 6.