Scotland’s colleges spent £54 million beyond their overall income in 2019-20, new figures from Audit Scotland reveal.

A blog by the auditor general, Stephen Boyle, published this morning, says the gap between income and expenditure has grown and is forecast to continue growing, as a result of costs “outwith the sector’s immediate control”, such as pensions and depreciation of assets.

“After stripping out these costs, the sector’s underlying financial position (adjusted operating position) was a surplus of over £3 million in 2019-20,” the auditor general said, adding: “This was a far healthier position than the £9 million deficit colleges had forecasted in June 2020. Colleges will provide the Scottish Funding Council (SFC) with updated medium-term financial forecasts in June 2021.”

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However, the auditor general also says that a significant number of colleges need increased funding, cost-cutting - or both - to deliver balanced budgets in the future.

The impact of Covid on college finances

He says that the full financial effects of Covid-19 were not felt during academic year 2019-20, with management teams able to furlough staff, resulting in some colleges delaying difficult decisions around severance.

Meanwhile, Scottish government funding continues to rise, and the sector received over £615 million of revenue funding in the financial year 2019-20, a 2 per cent real-terms increase. But the auditor general says pre-Covid increases in funding have primarily covered “additional costs from harmonising staff terms and conditions”.

Only a few weeks ago, members of the EIS-FELA teaching union and employer representatives came to an agreement in a dispute over the role of lecturers, ending weeks of strike action. The union had said colleges were planning to replace lecturers with lower qualified, lower-paid staff in a bid to save money. Employers said there was no such plan. 

Today’s blog by the auditor general says that, in response to the coronavirus pandemic, the Scottish government provided the sector with £70 million more revenue funding in 2020-21. “This included money to support students and boost skills through training in response to the economic impact of Covid-19.” 

He adds: “Robust long-term financial planning by colleges will be critical to achieving financial sustainability. Auditors have highlighted a significant number of colleges that need increased funding, cost-cutting - or both - to deliver balanced budgets in the future.”

Mr Boyle points out that with the SFC’s ongoing review of the college and university sectors, “significant changes” to the wider sector are also likely. “Work to review and revise arrangements for the regional strategic college bodies in Glasgow, the Highlands and Islands, and Lanarkshire is also ongoing.”

“The effects of the Covid-19 pandemic are likely to be felt in colleges for years to come. This includes longer-term implications for colleges’ financial sustainability, the experience of students and staff, the college estate and the role of the sector in supporting Scotland’s recovery and renewal. Responding to this will be challenging, but also offers opportunities to learn from what is working well to enable future change.”

A spokesperson for the EIS-FELA union, which represents college lecturers, said: “Education is vital to the national recovery from Covid, and the further education system is key to supporting the recovery process. Government must commit significant additional investment to support a high-quality further education system, with teaching delivered by appropriately qualified professionals, to help deliver the skilled workforce that is essential to the national recovery.”

Shona Struthers, chief executive of Colleges Scotland, said: “The pandemic has undoubtedly impacted students and staff, not least with the shift to online delivery of some learning and teaching.  However, colleges have been working incredibly hard over the past year to ensure that safety, high-quality education, and student welfare have all been protected. It is reassuring that the auditor general has noted that the sector has responded well to these unprecedented challenges. 

“While the ongoing financial issues remain, the real-terms increase in revenue funding last year has helped put colleges in a better financial position than forecast. We will continue to work with the Scottish government and Scottish Funding Council to secure sustainable funding for the sector, enabling colleges to support economic and social recovery.”