Hansard

As the committee is aware, we published a report in October last year that assessed the financial standing of Scotland’s colleges immediately before the structural reforms and planned public sector spending reductions took effect. That report also summarised progress towards the establishment of 13 new college regions, with the intention of establishing a position against which the progress of the reforms could be measured later.In August this year, we published an update report, which covers colleges’ financial standing in the academic year 2011-12 and how much learning they delivered. The report also summarises the college sector’s recent progress towards regionalisation and examines some of the key issues that colleges are likely to face in the coming years.We found that the overall financial standing of the college sector continued to be generally sound. Colleges reported an overall operating surplus of £2 million compared with an overall deficit of £29 million in 2010-11, but most colleges continued to operate to tight financial margins, with the amount of the surplus or deficit rarely being more than 3 per cent of their income. Some colleges appear more financially sustainable than others, but there is often no discernible pattern in their ability to achieve a surplus from one year to the next.Colleges’ income has fallen in recent years, and that will continue for the foreseeable future. A £56 million real-terms reduction in grant funding from the Scottish Further and Higher Education Funding Council contributed to colleges’ overall income falling by 9 per cent between 2010-11 and 2011-12. The Scottish Government has announced budget increases for colleges totalling around £130 million since 2011, but colleges still face an 11 per cent real-terms cut in revenue funding between 2011-12 and the end of the current spending review period in 2014-15. Some college regions will face larger reductions in funding than others and will therefore need to reduce their costs more.Colleges achieved their sound overall financial position by reducing spending, mainly on staff. Between 2010-11 and 2011-12, there was a net reduction of around 1,200 full-time equivalent staff, with most reductions in teaching staff. Colleges reduced their recurring staff costs by £56 million in real terms. Staff costs form about 60 per cent of a typical college’s spending, so it is understandable that reducing staff numbers is the key way in which colleges have made savings. However, that creates risks, and it is important that colleges retain the right skills and experience that they need to maintain the quality of education that they deliver.On the issue of regionalisation and reform, most colleges are currently either merging or forming federations with other colleges to create the 13 new college regions. The structural reforms are aimed at helping colleges better to meet local needs for further education and to make savings through increased efficiency. The restructuring represents a major change for the sector. Colleges aim to complete the process as planned by the end of 2013. The total number of colleges will reduce from 37 in 2011-12 to just 21 by the end of this year.The funding council is providing around £54 million to help to fund regionalisation. Colleges are expected to meet up to half the total cost of individual mergers, but the amount that each college will contribute varies widely. The costs of recent and current mergers have still to be finalised, but the funding council expects the reforms to generate around £50 million in savings each year from 2015-16 onwards. We will monitor colleges’ progress on achieving those efficiencies and the other benefits that are planned from the reforms. We will also continue to monitor the sector’s progress towards other aspects of structural reform, including the further development of the outcome agreements that set out what colleges are expected to do in return for funding council funding.Colleges continue to meet their annual targets for providing education, but an increased emphasis on longer courses has led to a reduction in the total number of students who attend college. In line with Government policy, colleges are increasing the emphasis on full-time courses and prioritising education for younger students. That might limit learning opportunities for older people and other groups who prefer to study part time. It is therefore important that colleges monitor the demand for places to help to meet national priorities and local needs for further education.Finally, following a decision by the Office for National Statistics, all colleges in the United Kingdom will be reclassified as public bodies from 2014. That will require Scotland’s colleges to operate within the same system of annual budget limits as other Scottish Government bodies. In turn, that will restrict colleges’ ability to build up financial reserves. The Scottish Government and the funding council are currently engaging with the college sector to investigate ways of minimising the impact of reclassification on college finances.The report makes a number of recommendations to the Scottish Government, to the Scottish funding council and to colleges about what needs to happen to help the sector to address the future challenges. That includes: monitoring progress in achieving savings and the other benefits from mergers to help with financial planning; assessing and managing the impact of reclassification on the financial standing of colleges; identifying risks to future capacity, such as colleges’ ability to meet learning needs in the context of reduced staff numbers, and mitigating those risks when necessary; and monitoring the impact of prioritising younger students and full-time courses on the opportunities for older people and other groups and taking appropriate steps to address those needs when necessary.I intend to produce future reports on progress with reform to allow the committee to keep oversight of how this important policy initiative from the Government is progressing. For now, my colleagues and I will be happy to answer any questions that the committee might have.