Why some of Scotland's colleges could run out of money in July

Financial pressures in Scotland’s college sector are so severe some could run out of money within a few weeks, it has been revealed.

Shona Struthers, chief executive officer at umbrella body Colleges Scotland, told MSPs there were institutions expecting to have “no cash of their own by July”. The stark warning came during an evidence session of the education committee at Holyrood on Wednesday.

MSPs also heard from Karen Watt, the chief executive of the Scottish Funding Council (SFC), who said the nation’s colleges were now forecasting a £17 million budget deficit.

She said the organisation, which oversees the finances of the further and higher education sectors for the Scottish Government, was working with struggling colleges to help them balance the books in this academic year.

Scottish ministers cut funding for colleges by £32.7m this year, the equivalent of 4.7 per cent, following an 8.5 per cent real-terms reduction from 2021 to 2023.

The sector has also been hit by the loss of the £10m flexible workforce development fund (FWDF), and has been engulfed in ongoing industrial action over several years.

No college reported a cash deficit at the end of July 2022. However, the SFC said in January that four colleges were forecasting a cash deficit by the end of July 2024, increasing to six colleges by the end of July 2026.

It is understood the colleges on the brink of running out of money are the same four referenced by the SFC earlier this year. The funding council has been unwilling to name the four colleges facing deficits.

However, The Scotsman reported earlier this month how senior figures at the University of the Highlands and Islands (UHI) - a network of 13 colleges and research institutions - discussed “rising deficits across much of the partnership of circa £15m”, in March.

Freedom of Information requests revealed a dispute over restructuring plans behind the scenes at UHI, with court chiefs accused of “intimidating” colleagues.

Giving evidence on Wednesday, Ms Struthers said: “The college sector right now, I would say I've never quite seen it in the way that it is. We have many, many of our institutions who are forecasting a deficit position, cash reserves are definitely on the decline.

“There are some colleges talking about having no cash of their own by July. That's not to say that someone can [not] come in and help them. But for me, when I look at the college sector just now, it's such an important sector to deliver on Scottish Government priorities. It slightly beggars belief that it is not invested in.”

She added: “It is a bit of a perfect storm in terms of the college sector, in terms of funding, in terms of industrial relations."

Ms Struthers was asked by Labour’s Pam Duncan-Glancy about SFC evidence warning of a risk there could be a 21 per cent reduction in full-time equivalent staff in the college sector between 2022/23 and 2025/26, or 2,387 staff, with most being cut as a result of voluntary severance or not replacing departing employees.

“I think it would be catastrophic,” Ms Struthers said. “I think the impact it would have on students, if you’ve got less staff running colleges, it would impact on the curriculum offering, it would impact on the pastoral support staff give to students, and it also then just puts an extra burden on the staff that are there to do more with less,”

Cash reserves across the college sector are expected to have dwindled from £141.4m at the end of July 2022 to an estimated £45.9m by the end of next month. Giving evidence to the education committee for the SFC, Ms Watt said: “We monitor things very closely, and when we see institutions getting into difficulty... and you will know that there are a small number of colleges that we are working extremely closely with, because they do have quite significant cash flow difficulties, and we are working on a range of measures.”

She added: “A very high proportion of colleges are actively looking to reduce operating deficits. So we are seeing a number of colleges that are working very hard at this. When we get mid-year review forecasts in, so that tells us what is happening this academic year, we are seeing a forecast underlying operating deficit of about £17m.

“Now that is actually 7 per cent better than they were forecasting originally, which show there are activities in play at colleges to deal with this. But it is a big deterioration on the surpluses that were being posted even as soon ago as 2021/22. We’re seeing a reduction of cash balances across the entire college sector.”

Ms Watt said the SFC would support recovery plans and “stabilise things” in the sector, including the four colleges with particular problems. It could include funding for voluntary severance schemes, and deferring loan repayments.

After the hearing, Scottish Liberal Democrat MSP Willie Rennie, who sits on the committee, said: “The warnings in the education committee this morning were stark.

“Colleges have faced year after year of cuts under an SNP Government, which has deprioritised the sector. Now we are seeing the results. Without a thriving college sector Scotland won’t live up to its economic potential. The evidence we heard this morning should jolt ministers into action. They need to put colleges at the top of their agenda.”

A Scottish Government spokesperson said: “While the 2024-25 Budget is the most challenging to be delivered under devolution, we have protected as far as possible investment in the college sector, with more than £750 million to support their delivery of high quality education and training.

“The Scottish Funding Council will continue to support colleges in developing their own mitigating strategies to minimise any negative impacts on short, medium and long-term sustainability.

“Ensuring our institutions are on a sustainable trajectory is at the heart of our considerations to reform the post-school system, so that the significant investment we are making delivers the best outcomes for learners, the economy and society.”