There is a “high risk” of a college becoming insolvent within the next 12 months, the FE commissioner believes.

The stark warning from Richard Atkins comes as seven colleges have entered commissioner intervention in the current year so far. Of these, six were due to financial problems, with one – Easton and Otley College – placed into intervention due to concerns over the quality of provision.

While the commissioner acknowledged that government funding levels for FE were a “real challenge”, recent cases of failure were caused by “mismanagement” and could have been avoided by prudent leadership, he insisted.

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College funding 'very challenging'

Speaking to Tes in September, Mr Atkins said he would be “surprised if we didn’t have an insolvency or two, a small number”. When asked again last week if he thought there was a greater risk now, he said: “I definitely think there is.”

Mr Atkins added: “If you look at the cases of intervention this year as the most likely examples of insolvency in the future, with prudent leadership, cautious setting of estimates going forward, cautious targets and forecasts going forward, it would have been possible for those colleges to have avoided running out of money in the way they did.

“I think there’s a high risk of an insolvency in the next 12 months. I think that the funding for the sector is very challenging and my sense is there’s a growing consensus among politicians and stakeholders that the funding for further education has got to be improved.

“But those seven colleges did not run out of money since last August because of the level of funding. They ran out of money due to a combination of poor governance, sometimes reckless management and mismanagement, overambitious growth targets, too much attention to non-core activity.

'Prudent approach reaps benefits'

“Interestingly… a number of those principals were among the highest-paid in the sector. I’ll just leave that for people to draw their own conclusions. But prudency is in the best colleges I visit, a prudent approach to things… over time seems to reap benefits. Taking too many high risks and not concentrating on your core activity seems to lead to a lot of problems.”

A number of FE commissioner reports have been published in recent weeks, including ones on North Warwickshire and South Leicestershire College, Macclesfield College, North Hertfordshire College, John Ruskin College, West Nottinghamshire College, Northumberland College and Ealing, Hammersmith and West London College.

Mr Atkins also reiterated his concerns over funding levels. “I can assure you that nobody argues, here within the [Department for Education] or elsewhere, that there ought [not] to be more funding for FE. I [argue for] it along with everybody else,” he said. “I’m completely supportive of the #LoveOurColleges campaign, and all the others to get more funding into the sector. Many of the diagnostic assessments reveal that the levels of funding are a real challenge.

'An uncomfortable message'

“But in these serious interventions where there’s been a serious corporate failure of governance, and [colleges have] run out of money at very, very short notice, there are always a range of factors that have created that which, with prudent leadership and careful oversight by governors, could have been avoided. I know that’s an uncomfortable message for the sector, it’s an uncomfortable message for me really, but I’m afraid it’s true.”

Mr Atkins also responded to concerns raised by Lowell Williams, principal and chief executive or Dudley College of Technology, in an article for Tes which warned that colleges feeling under pressure to be excessively “risk-averse” could result in “a sector woefully unfit to meet the technical skills needs of learners and employers”.

Mr Atkins said: “I think any ambitious growth targets of any kind need to be very carefully risk-assessed in the current environment. I’m not suggesting you should be risk-averse, but you need to be ever so careful and give an awful lot of thought as to why you are taking any particular risks… You’ve got to run your core business securely. So, unless your core business is breaking even every year or making a small surplus, unless your staffing costs are at 65 per cent of turnover or less, unless you have a good number of cash days in the bank, unless your 24-month cashflow forecast demonstrates that you are in a stable financial position, you should not be taking significant risks.”

Risk of 'uncertainty and fear'

David Hughes, chief executive of the Association of Colleges, said: “It is very disappointing to hear the FE commissioner say that there is a high likelihood that the insolvency regime will be used by the DfE in the near future. Insolvency should be the very last act when all other avenues have failed; it should not be used to punish poor leaders, because in the end it will always be the students and the community that suffer most.

“The FE commissioner, DfE and the Education and Skills Funding Agency have adequate means to improve the performance, both financial and quality, in a college without resorting to insolvency. I would urge them to think carefully about the impact of using the insolvency provisions on other colleges, on banks, on the pension funds and of course on students. The uncertainty and fear it might engender in the college sector and amongst creditors could be counter-productive. 

“It is good to hear the FE commissioner acknowledge that funding cuts and a lack of rates increases have made running a college harder than ever. Those cuts have made it feel like walking a tightrope with any setback being potentially fatal to college viability. College funding has been cut harder than any other part of the education system over the past decade; that’s why we’re calling on the government to provide fair funding for colleges.”