Strained college finances meant the government was intervening in nearly half of colleges earlier this year, the National Audit Office has said.

It added that financial constraints have meant that colleges have narrowed their curriculum and reduced broader support for students, such as careers advice and mental health services, with a likely detrimental effect on students and the development of skills.

According to its report on the financial sustainability of colleges in England, published today, in February 2020 84 colleges (35 per cent of open colleges) were in early intervention because of their financial health, while 31 (13 per cent) were subject to the more serious formal intervention.

The NAO said examples of courses being dropped were modern languages and some science, technology, engineering and maths subjects. Enrichment activities for students were significantly decreased, it added.

The report says: “This was the case at several of the colleges we visited, which had cut careers advice and employability activities, and were particularly concerned about reduced mental health support for students.”

Background: Ney Review on college financial oversight published

More: Keegan says five colleges needed extra funding owing to Covid

FE commissioner: 30 to 40 colleges ‘at risk’

In its report, the NAO points out that core funding to colleges has fallen, as has total funding for adult education and support services. It said that in 2018-19, the sector overall reported a £45.7 million surplus, which followed a £70.3 million deficit in 2017-18. The proportion of colleges reporting an operating deficit dropped slightly from 37 per cent in 2013-14 to 34 per cent in 2018-19. The NAO stresses that although government had put in place measures to support colleges, more colleges are expected to face financial difficulties following the pandemic.

Colleges hit by the coronavirus crisis

Despite these financial pressures, at August 2019, more than four in five colleges were graded as “good” or “outstanding” by Ofsted.

The government’s planned 10-year reform programme for FE should “set out a clear vision for the role, structure and funding of the college sector”, says the NAO, adding that the DfE should systematically assess the extent to which colleges have dealt with financial pressures by narrowing their provision and reducing support services.

Gareth Davies, the head of the NAO, said: “Colleges play a crucial role in many people’s lives and are vital in the development of the skills and knowledge the country needs. While there has been some progress in improving financial security in the sector, this has cost a lot of money, and systemic long-term weaknesses remain unresolved. The DfE needs to seize the opportunity presented by its 10-year reform programme to set out what it wants from the college sector and ensure it is funded accordingly.”

Association of Colleges chief executive David Hughes said the report provided detailed insight into the complex financial system that colleges operate within and the funding changes over a decade of neglect.

He said: “It shows that colleges have done a remarkable job to cope with real-terms cuts while focusing on the quality of the student experience. They should be applauded for that, but it has to change. The government has made clear that it appreciates the vital role colleges play in every community, but to deliver on that, colleges need a stable, long-term and fair funding settlement.

“That’s why I am pleased to see recommendations for the DfE to evaluate the intervention regime and the impact on students and breadth of offer. The cuts have hit colleges hard, but even more importantly, they have resulted in the most disadvantaged students in our society bearing the brunt of austerity. Drops in pastoral support, enrichment opportunities and teaching hours have meant colleges have had to do their best with ever-shrinking resources.

“The improvements in college finances in the last few years were positive steps, but the pandemic, lockdown and the aftershocks will mean colleges find themselves in a much more precarious situation now and for the next few years. That comes at the same time as colleges being front and central in the recovery effort. Skills shortages will need to be filled quickly and those made redundant given access to retraining. Young people will need even better education, skills and support to enter a tougher labour market. Colleges can deliver on all of that with the right resources.”

Mr Hughes added: “With college resilience at an all-time low, the White Paper and spending review will be critical in turning that around over the next few years and allowing colleges to play their full role in the country’s recovery. The government and DfE must make the White Paper a real turning point for colleges and create a stronger, more resilient and stable education and skills system that works for everyone.”

Bill Watkin, chief executive of the Sixth Form Colleges Association, said: “This is a helpful report that provides further evidence of the damage a decade of underinvestment has had on college finances. As the NAO highlights, funding cuts accompanied by rising costs and competitive pressures have hampered the financial sustainability of colleges and led to a reduction in the support available to students.  

“The scope of the report only allowed the NAO to focus on colleges. However, we believe the Department for Education should focus on ensuring that all 16- to 18-year-olds in England are receiving the right level of investment in their education, not just those that attend a particular type of institution. The Department must ensure that all young people have access to a high quality of education, irrespective of where they choose to study - the best way to achieve this is to raise the rate of sixth-form funding in the forthcoming spending review.”   

UCU head of further education Andrew Harden said: “This study shows the current college funding system is not fit for purpose. Severe cuts to further education have led to job losses, course closures and fewer learning opportunities. 

 “We need a radical overhaul where colleges are brought back into national ownership and funded properly. Colleges must be a vital part of our national recovery plan, but they can only do that with proper funding and support.”

Meg Hillier MP, chair of Westminster’s Public Accounts Committee, said: “This NAO report paints a stark picture of the college sector’s plight. Funding has been cut while costs keep rising - and too many students are getting a hollowed out, pared-back education.

“The government has propped up some colleges at great expense, but this has only papered over the cracks in the system. Covid-19 is hammering the whole sector right now. It needs simpler, clearer funding arrangements to put it in pole position to support the recovery.”