Hansard

This is the fifth report that I have produced on the further education sector. It follows the reports that I made in 2003 on financial performance and performance management in the sector. Members will recall that the committee took evidence from accountable officers and produced a report in 2004 in which it asked me to revisit the issues and make a report in autumn 2005. This report follows up on the Scottish Further Education Funding Council's progress on a range of initiatives that were contained in my earlier report and on which the committee took evidence and made its report.In October last year, the Scottish Further Education Funding Council merged with the Scottish Higher Education Funding Council to form the Scottish Further and Higher Education Funding Council—the Scottish funding council. However, I suggest that the main findings and conclusions in my report apply equally to the new funding council.The funding council has made most progress in areas where it has been able to take direct action, such as improving the financial health of colleges, developing better performance information and funding estates capital projects. It has made slower progress where strategic influencing is required, so there is scope for further improvement in that area.My report covers three main areas: the financial health of the sector and the financial health and stewardship of individual colleges; the progress that has been made on four funding council initiatives to address the adequacy and efficiency of the provision of further education; and the progress that the funding council has made in addressing the issues that were identified in its performance management action plan, which it agreed with the Scottish Executive. I shall comment briefly on each of those areas and outline my key findings.First, on financial performance, the funding council has made good progress on its campaign for financial security. Operating surpluses continue to rise across the sector and the number of colleges with operating deficits is falling. Financial stewardship in colleges is sound, but some concerns remain over two colleges that still have recovery plans in place. The funding council has continued to develop its monitoring arrangements for colleges in poor financial health; it is important that that work continues in order to help colleges to address their financial problems.Inverness College still faces the greatest problems with its financial health. I have made a separate report to Parliament on that college, and that is the next item on the agenda today.One of the reasons for the improved financial position of most colleges is the increased grant-in-aid funding that has been made available to colleges by the funding council. Total college income has increased by 13 per cent in real terms during the past five years. In addition, the funding council has made available targeted grant funding amounting to £38 million to help colleges to improve their financial health and address other key priorities such as the Disability Discrimination Act 1995 and the Special Educational Needs and Disability Act 2001.I would like to touch on the funding council's progress on its four main initiatives that seek to address the adequacy and efficiency of the provision of further education.First, the funding council has been reviewing the progress of colleges in addressing the issues that were identified in SFEFC's management review of 2000. The funding council believes that the exercise will show that colleges have made good progress in addressing their management action plans, which focus on the colleges' approaches to governance; strategic and operational planning; quality assurance and enhancement, marketing; human resources; financial management; and estates and facilities management. The funding council has stated that it intends to hold regular meetings with colleges to discuss progress against their strategic objectives. Secondly, a report on the supply of and demand for further education in Scotland was commissioned by SFEFC in 2004 and published in April 2005. Both the Audit Committee and I, in my previous reports, stressed the importance of that work, which SFEFC acknowledged would help it to assess the extent to which the statutory requirement to secure provision of adequate and efficient further education in Scotland is satisfied. Information that was collected from employers and students during the exercise indicated that the demand for further education outstrips supply. The new funding council is considering the strategic direction of future work on the matter and I imagine that that will also tie into addressing ministerial priorities.Thirdly, my previous reports covered the benefits of merger and collaboration in the further education sector. Three mergers took place during 2005: Fife College of Further and Higher Education and Glenrothes College merged to form the Adam Smith College; Falkirk College of Further and Higher Education and Clackmannan College of Further Education merged to form the Forth Valley College; and Glasgow College of Building and Printing merged with Glasgow College of Food Technology to form Glasgow Metropolitan College. More generally, collaborative work between colleges has been increasing. There remains potential for further collaboration and merger, particularly in Glasgow, where the discussions on those issues that started in 2000 are continuing.Fourthly, the funding council is in the process of providing significant capital resources—amounting to £250 million—to the colleges to improve the quality of their estates.The third main part of my report covers performance management in the sector and it might be helpful if I touch on the progress that the funding council has made on performance management since my previous report and the Audit Committee's report. The council has agreed with the Scottish Executive a 15-point action plan to address the committee's concerns on the performance management of the sector. The council has improved the information that is available on the sector's volume, quality and finance and holds regular accountability meetings with the Scottish Executive. It has also developed performance measures that help to present a balanced scorecard of performance across the sector. That balanced performance assessment focuses on the critical business areas of quality, financial performance, volume and satisfaction, which allows the funding council to explore how all the different college activities interrelate. Following a cost benchmarking of all colleges, the funding council is encouraging colleges to form benchmarking clubs to help to improve their efficiency and effectiveness through the identification of good practice. The funding council has stated its intention to continue to refine and produce that information annually.The funding council has not benchmarked the sector with the sector elsewhere in the United Kingdom, because it still believes that differences in coverage, structure and funding approaches make that difficult. However, it intends to explore the potential for such an exercise based on the information that it draws together from its cost benchmarking exercises. My report concludes that the financial health of the sector and of individual colleges has improved and has been helped by significantly increased funding. The funding council has also improved performance information and acted in areas such as the funding of estates capital projects. However, there remains scope for further improvement in eliminating all the remaining accumulated deficits and addressing the problems of colleges that have financial health concerns; further developing the sector's strategic direction in accordance with ministerial priorities; continuing the development of strategic leadership to ensure that the benefits of merger and collaboration in areas such as Glasgow are fully achieved; continuing to encourage colleges to achieve benefits from the improved performance information; and continuing to build on the quality of that information and how it is reported.As ever, my colleagues and I are here to answer the committee's questions.