Last month the Institute for Fiscal Studies reported that the further education sector had been hit hardest by the policy of austerity.

To the point where funding for technical education has gone from being 50 per cent higher than education in schools in 1990 to 8 per cent lower today.

In recent years the sector has moved from wafer-thin financial margins to thin negative ones. Tight margins are manageable, though not desirable, in a very stable environment.

They are not manageable in an environment where your funding correlates exactly to hard-to-predict demand.

‘Enormous risk’

You are asked to take on enormous risk in developing new provision such as apprenticeships or responding to serious policy change such as a requirement that 30 per cent of your young students must be taught GCSE maths by specialist teachers you have never previously employed.

The only stability we enjoy is the one-year reprieve that is lagged funding for our 16 to 18 cohort.

In most public services senior leaders are permitted to adapt to funding cuts by cutting activity or prioritising particular services.

Local authorities can close libraries without it affecting their income. Police authorities can spend less time working on “low-level” crime like minor burglaries yet keep their precept.

‘Stitched up sector’

In further education, government stitches us up and leaves almost no room for manoeuvre. If our income falls we cannot reduce the number of hours a young student receives.

If we cut course hours our funding gets cut just as hard. If we seek to be tougher on our suppliers such as subcontractors the government insists we can’t, so we end up giving away more to partners than our internal departments would ever dream of receiving for the same volume of work.

Controlling both our funding and our input costs is unusual and problematic.

Even in areas where we could, in theory, cut costs, we are given obligations that prevent us from doing so or even add cost pressures. We have to offer great pension schemes yet have no control over employer contribution increases.

Increasing group size

In theory, we could dismantle almost all of our student services activity - we are funded to provide learning - but the government requires us to deliver new careers standards with no extra cash but the threat of a poor inspection grade if you fail to invest.

The only real avenue out of this binary control is to increase average group size but even this is difficult.

Despite colleges training several thousand people they tend to break down quickly into smaller units - the thousands become hundreds when broken by subject, then tens by the time you get to levels, or year groups.

The idea that we have say 10 groups of 16 people doing the same course that could easily become eight groups of 20 is simply wrong.

Colleges need higher surpluses

Mine is a big college with big group sizes but the most common number of groups doing a particular course at any campus is one. In small schools, they often combine year groups but even that is difficult in colleges and not generally educationally effective or attractive to students.

We also suffer uniquely from the approach to capital funds. New schools and new school buildings are always fully paid for by the taxpayer.

We rarely get more than a meagre contribution. That means colleges have to generate higher surpluses than schools to generate cash for future investment. 

Schools often treat depreciation as an irrelevance, for us, it is a real cost we cannot ignore.

‘I dislike bail-outs’

When the IFS report came out the BBC’s education editor Branwen Jeffreys tweeted that FE was less willing to discuss bail-outs and why some need emergency cash. The combination of low margins, big risks, little capital, and this control of funding and input costs is the main reason some need them, and this combination is unique to colleges.

I really dislike bail-outs, at least in theory. Money that could, and probably should go to colleges doing the right things and managing themselves well is instead diverted to those doing a bad job.

Why should failing colleges get away with it? As with the banks, the argument seems to be that many of these colleges are too big to fail but wasn’t the whole point of area reviews to produce larger, often near-monopoly colleges, on the grounds these would be very financially stable?

The proposed insolvency regime for colleges will focus minds but in some ways makes things worse. Banks, in particular, will not accept the greater risks the regime imposes on them and will pass them back onto us in the form of higher rates and charges, or simply cut off credit flows.

Better funding is needed, not bail-outs

Ms Jeffreys specifically mentioned colleges but of course, schools are getting enormous bailouts, often in disguised form. New schools often get much higher per-capita funding in the early years to mitigate the risk of under-recruitment. Colleges extending their offer in similar ways don’t get similar support.

You could even argue the extra funding being given to schools to help meet teacher pay awards is a bail-out given the DfE doesn’t think colleges need that extra support.

In practice, for the reasons set out earlier, I can see why bail-outs happen. We don’t want students or communities to suffer, and the people deemed responsible for failure usually lose their jobs.

The precarious nature of colleges though makes for a higher probability of failure, and a single bad year can tip you over the edge. What we need to do is make sure that bail-outs work in the long term.

My personal prediction is they won’t, and the prescription will be repeated. In the end, we will find the only effective medicine is to fund us properly in the first place.

Ian Pryce is chief executive of Bedford College