Welcome back. We move to item 3, under which we will discuss the report entitled “Scotland’s colleges 2026”. I welcome our witnesses: Stephen Boyle, Auditor General for Scotland; and, from Audit Scotland, Derek Hoy, senior manager, and Ray Buist, audit manager. I invite the Auditor General to give an opening statement on his report.
Good morning, everyone. I am very pleased to be with you to present our report, “Scotland’s colleges 2026”, which we published on 10 September. The report outlines the financial sustainability and overall performance of Scotland’s colleges during 2024-25.
As the committee will know, colleges play a hugely important role in Scotland’s economy and for the people who use their services. They also play a key role in providing a skilled workforce that meets local and national requirements, as well as offering important learner pathways for people who pass through their doors.
In my recent reports on the sector, I have highlighted the financial challenges under which colleges are operating, given rising costs alongside real-terms reductions in funding. In the current report, I conclude that those financial challenges have deepened. Scotland’s incorporated colleges reported a collective deficit of £5.6 million in 2024-25, which is an increase of £1.9 million on the previous year. They are forecasting further deficits in future years, and the Scottish Funding Council has assessed that half of all colleges face a high or very high financial health risk.
Colleges have already taken steps to make savings, reducing their workforce by almost 8 per cent in 2023-24 and by a further 4 per cent in 2024-25. Despite the financial challenges and reductions in their workforce, colleges are showing resilience. Satisfaction rates among students remain high. A high proportion of students leave college for positive destinations and success rates improved during 2024-25. However, the number of students being taught and trained in Scotland’s colleges has decreased for a second consecutive year.
The Scottish Government recognises the need for fundamental reform of Scotland’s college sector, but progress in delivering that reform has been slow. The committee will note from my report that I have not made any new recommendations to the sector this year; rather, I take stock of what we consider to be slow progress in implementing the eight recommendations that we made in the previous year.
The report recognises that the Scottish Government and the sector believe that their reform programme, college sector of the future, will address many of the recommendations from last year’s report. Progress on that is due to be reported by the end of this year.
As ever, convener, we will continue to track and monitor the progress of reform and the financial health and performance of the sector through future reporting on the college sector. Derek Hoy, Ray Buist and I will do our utmost to answer any questions that you have on today’s report.
10:45
Thank you very much, Auditor General. I will move straight to questions from members.
The headline figure from the report is the £5.6 million deficit, but I note that there is a £7.2 million charge for voluntary redundancy payments. Without that one-off charge, there would be a slight surplus.
You note that the forecast is challenging, and you are forecasting deficit in the future, but are there likely to be many large redundancy charges again, or have most of the redundancies already happened?
I do not know whether I can give you a definitive yes or no answer to that, Mr Kirkwood. Your arithmetic is right. Part of the reason for the £5.6 million deficit relates to a reduction in head count, and that has been the pattern in the sector for a number of years. Colleagues can say a bit more, if they wish, about the detail of that trend.
You also asked about what is coming next. The overall judgment that we make, as I mentioned in my opening remarks, is that the sector remains under significant pressure in terms of its financial position and the number of courses that it can offer. We are seeing a reduction in the number of students passing through Scotland’s colleges.
I particularly highlighted in my opening remarks the strain on the sector and the Scottish Funding Council’s assessment of the need for continued financial support, whether through business planning arrangements, financial arrangements or liquidity support from the Scottish Funding Council.
There is enough evidence, in the round, on course provision, the number of staff working in Scotland’s colleges and the number of students passing through the doors to continue to support the judgment that we make in today’s report that the sector remains under strain.
I again highlight to the committee that there has been talk of reform in this sector for a long time. Indeed, last week, the committee considered our report, “Post-school education and skills reform”, but the pace of delivery has not been quick enough to address the stark challenges facing the sector as a whole.
Derek Hoy will elaborate on that a little.
To return to your original question, Mr Kirkwood, it is difficult for us to say whether we are past the stage where we will see a lot of redundancies. At some point, obviously, the sector has to reach a point at which that simply is not sustainable anymore. As the Auditor General said in his opening statement, the sector has remained resilient so far and colleges are continuing to deliver, albeit for a smaller number of students. However, it is difficult to say how much longer they can keep doing that.
One important consideration in relation to the voluntary redundancy schemes is that we are not aware of those being targeted. They are being applied across the college workforce—to teaching staff and support staff. That could impact colleges in different ways. Teaching staff are the heartbeat of a college, delivering the teaching that the students need, but support staff are crucial as well, especially during a period of significant financial challenge. Finance staff and those responsible for the governance of a college are really important. If staff are being lost in those roles, the capacity of teams to deliver on those fronts could be reduced. It could mean the loss of some of the corporate knowledge that could help to steer the college through difficult times. It would be interesting to look at the profile of the redundancies. As far as we are aware, the approach to redundancies has largely been a blanket one; there have not been targeted policies in that regard.
The other important point to add is that the savings from the voluntary redundancy schemes have largely been eaten up by pay increases, national insurance costs, increased pension costs, et cetera. Those are costs that colleges must absorb, so it is not as though the redundancy savings so far have generated space for colleges to reform; rather, they have helped them to keep their heads above water.
Over the past few weeks, and since taking up my current post, I have talked to quite a few college principals and senior lecturers, and I have been hugely encouraged by the way in which they are approaching their future business plans and the various plans that they have for the colleges. I think that they are doing a good job, given the situation that they are in. A lot of what will happen will depend on what the SFC decides over the next few months in terms of its announcement for future funding.
Obviously, the future framework for universities identified a £200 million shortfall for universities, but that is not particularly applicable to colleges. However, I see the colleges becoming much more financially entrepreneurial and reaching out in relation to commercial activity.
I do not have any more questions at the moment.
I have a follow-up question, which touches on the value of voluntary redundancies. Appendix 2 of your report sets out the situation with voluntary redundancies. It says that, in 2024-25, 36 staff at UHI Perth took voluntary redundancy, with an exit package cost of £651,000, while 37 staff at South Lanarkshire College took voluntary redundancy at a cost of £1.168 million—that is a difference of one member of staff, but half a million in terms of the overall cost.
Further, at Glasgow Clyde College, 17 members of staff took voluntary redundancy at a cost of £339,000, while, at Glasgow Kelvin College, 15 staff took voluntary redundancy at a cost of more than £500,000. There is quite a disparity in terms of the amount being spent, particularly in the first example. Do you have any comments on that? I presume that the issue involves more senior staff.
I am happy to say a word or two about that, and Derek Hoy can offer more detail, if he wishes.
You rightly point out that there can be variation within redundancy schemes. Derek Hoy can tell you how they are framed and then offered to particular types of workers. As you will know, convener, much will be dictated by the age and the length of service of an individual employee, and whether they are deemed to be eligible to participate in the scheme. The variability that you highlight is, therefore, probably to be expected.
The one thing that I would draw the committee’s attention to is that the Scottish Government has issued guidance to public bodies to the effect that there should be a cap of £95,000 per individual employee with regard to voluntary severance and exit arrangements, together with a period of—Derek Hoy will keep me right on this—12 months during which any costs of the severance should be recovered through the overall running costs of the college.
I will make one last comment on the issue. In the previous session, your predecessor committee took evidence on UHI Perth following statutory reports that I prepared on that organisation, given some of the challenges that it had experienced in terms of producing an annual budget and delivering financial balance. We reported that there had been significant progress in that organisation, but I am not surprised to see some of the numbers in the table that you refer to, because I think that they are indicative of the wider trend in the sector of reducing head count and applying voluntary severance schemes.
I have said a few times that I will bring Derek Hoy in, and I will do so in a moment, but first I say that it is worth stating for the record that the college sector is very unusual. Other sectors of public service in Scotland are not yet in a place of reducing head count in a managed way through redundancy arrangements. It is important that, if there are head count reductions as the public sector embraces a public service reform programme, some of the lessons from the college sector are known and shared more widely.
Derek Hoy can say a bit more about the specifics.
In turn, I will pass to Ray Buist, who can talk about the details of the capping guidance and so on.
On appendix 2, we do not have any underlying data on the individuals or the level of staff who took packages. However, as the Auditor General pointed out, there will be variation due to the seniority of staff who left the service.
I invite Ray Buist to say more about capping.
It is worth bringing a couple of things to the committee’s attention. Convener, you compared South Lanarkshire College and UHI Perth. Last year’s report, “Scotland’s colleges 2025”, contains similarly appended data. South Lanarkshire College had no voluntary severance last year, whereas at UHI Perth, I think that 50 staff were affected. It reflects the point that we are going to be seeing a change in the profile of staff and the activity that colleges are undertaking as part of those voluntary severance programmes. The staff profile could be different in those institutions.
So colleges are at different stages of the process, but when you look at it over a two-year period, it is broadly in line.
That is right. Mr Kirkwood mentioned £7.2 million as the cost of voluntary severance schemes. In 2023-24, it was £9.6 million, so there has been a decrease in the cost of those schemes. However, we cannot predict what will happen in future. It will very much depend on the funding that is available to colleges.
I am sure that I read somewhere in the report that the payback period was 24 months.
That is right—it is in paragraph 23.
Has there been any assessment of severances? There is a payback period, so eventually it comes to recurring savings. Has there been any assessment of whether that has created a more sustainable environment? Obviously, there are still pressures, but the whole purpose of severance is to make colleges more sustainable.
That would be a question for colleges, which will have gone through the governance arrangements to determine, in relation to an individual post, what the parameters of any scheme are and whether that translates into recurring savings. Typically, if it is a voluntary exit, it is not just the individual but the post that should be taken out of the structure.
My only caveat is that there is still sustained pressure in the system that probably indicates that a voluntary severance scheme, in and of itself, will not be sufficient to tackle the totality of the pressures that Scotland’s colleges face. That is why, as we step back to consider the evidence before us from auditors, we bring back the point about reform and the funding arrangements; the ask of Scotland’s colleges will be as important in delivering financial balance and clarity for their roles and responsibilities as will equally valid efficiency savings and severance schemes. However, it will be for individual colleges, alongside the Scottish Funding Council, to make an analysis of whether that will be delivered.
If I do a real glass half full, there is a £5.6 million deficit in a budget of £721 million. Is that correct?
Yes.
In that context, it is 0.8 per cent, which is small, in relative terms, notwithstanding the financial challenges.
I accept that, as a proportion of the overall budget allocated to colleges. However, if we look at the trend, this is a sector that has continued to illustrate signs of financial pressure. Some colleges are in that bracket one year, and then out of it, and then back in.
What is really important, though, is the ongoing monitoring of financial health that the SFC is doing. More than half of the college sector is deemed to be at high or very high financial risk. The SFC is looking at the forecasts, colleges’ ability to generate income and the capital maintenance challenges facing the sector. There is enough evidence to say that there is current and projected financial pressure, notwithstanding the fact that, in overall terms, it can vary from year to year and that, compared to the total budget allocated to the sector, it remains small.
Referring to that deficit, the figure that you have quoted is £5.6 million. In exhibit 3, however, you highlight that
“the SFC provided a total of £13.9 million in additional financial support across five colleges.”
In reality, therefore, should the deficit be considered as being the £13.9 million plus the £5.6 million, because of that additional support?
11:00
It is hard to be 100 per cent definitive on this, but your point is not unreasonable. Had the colleges not got that support—and notwithstanding all other things being equal—you could add those two figures together to come up with a larger deficit. Whether that would have transpired in reality, if different decisions had been taken, who knows?
The point absolutely stands: the Scottish Funding Council finds itself having to provide additional funding or financial support to individual colleges to support their ability to deliver financial balance. That feels material in itself and is indicative of financial pressure on the sector.
Is there a danger here? I am looking at the report and at the situation in a cumulative way—such as that cumulative £5.6 million. There seems to be a very mixed picture. You mention UHI with reference to a section 22 report. It is clear that UHI and New College Lanarkshire are the biggest recipients of additional funding. Does that mean that the picture is not quite as bad if you look at it cumulatively, but that individual colleges have far bigger challenges? Would that be correct?
You are right to point out that, as exhibit 3 says, three of the five colleges that received additional financial support from the Scottish Funding Council in 2024-25 are under the umbrella of the University of the Highlands and Islands. I agree with your wider point—that there is variation therein.
Appendix 2 to the report sets out some of the detail on voluntary severance arrangements and also provides detail of individual colleges’ adjusted operating positions. You can see variation therein.
We have not drawn a wider view on the University of the Highlands and Islands—albeit, in the previous session of the Parliament, we prepared a statutory report on UHI Perth and on one of the other UHI colleges. While there is variation, we still make the judgment that the sector remains under significant financial pressure.
To go back to the additional funding aspect, paragraph 16 of the report confirms that New College Lanarkshire was awarded £4.5 million to deal with the nationally agreed pay awards. That jumps out. That seems to have been part of the budget pressures that every other college has been dealing with under the nationally agreed pay award. Why did New College Lanarkshire get £4.5 million of additional support to deal with that when every other college is dealing with it, too? It seems that that £4.5 million has then been labelled as transformational funds. Is there a lack of transparency there? Is there an ongoing issue about the money being rebadged?
I will bring in Ray Buist to give a bit more detail on that. One of the key messages from today’s report is that we think that there is a lack of clarity around how individual colleges that are experiencing financial strain are supported by the Scottish Funding Council. The subheading above paragraph 16, to which you referred, says:
“Arrangements for the settlement of SFC-provided financial support can be unclear”.
We know that the SFC provides a range of supports. That is not just additional financial allocations; the SFC will provide support and scrutiny of arrangements—finance department support, capability and capacity arrangements. “Ambiguity” is probably the word that resonates the most clearly with me: it could be clearer how financial support is provided, how it is repaid and what the overall arrangements are. That is one of the key findings from the report.
Ray Buist has examined that closely, so he can say a bit more.
As shown in paragraph 16, a £4.5 million advance was first approved and awarded to New College Lanarkshire in 2023-24 to help the college meet the cost of the nationally agreed pay awards. It was to be repaid in 2024-25 and, in 2024-25, the college and the SFC came to an agreement that the £4.5 million would be rolled forward for transformational purposes, which is what we have reported in exhibit 3.
Was it repaid and then given back or was it just rebadged?
You are hitting on the point that we are making, which is that it is quite ambiguous. If you ask the SFC, it is clear that the £4.5 million was repaid. The mechanism by which that happened is a reprofiling of the funding allocations for the subsequent year. Each college has funding allocations that it can draw down and, in this case, the college’s allocation will have been reduced by £4.5 million to, in effect, repay that. In a small number of cases, towards the end of a year, a college will again be in a position where it needs short-term liquidity support and it will go back to the SFC to request further assistance.
If I were a college principal—I will be parochial and mention Ayrshire College, which does a great job in my constituency—why would I not get that money to deal with the national pay awards? Is it really just the case that the college has said that, because it is facing such financial pressures, it needs extra support?
You make an important point, and we have previously reported—not just in the college sector but similarly in the NHS—on the circumstances for individual public bodies that face financial challenge and how their funders support them. The SFC’s arrangements are broader than a retrospective analysis—they are not just about funding; they look at the financial health of the sector and individual colleges.
More clarity is needed, because this probably speaks to the point that you are making about equity. I am quite sure that many college principals will think that they are doing all that they can—making really difficult and challenging decisions about their cost base and exploring all available avenues to generate additional income to support their financial position. The situation probably reflects the fact that the sector is not entirely homogeneous. Some will have income-generating opportunities available to them; some have done more on making earlier decisions on their cost base. However, those decisions will be known and understood if there is further transparency from the Scottish Funding Council, and we think that that is the key next step.
I have one more question about finance. A few years ago, Ayrshire College had the big financial burden of a private finance initiative legacy cost for one of its campuses. I think that that has now disappeared, but has any assessment been made of ongoing PFI legacy issues? A lot of those contracts have now come to an end, so is there light at the end of the tunnel for sustainability in some cases, where PFI contracts are coming to an end? Is that being looked at?
Audit Scotland has done a fair bit of reporting on PFI over the years, particularly as we came to the end of the previous session of Parliament. You rightly mention former college PFI contracts, but Kilmarnock prison was the first example of an asset returning to public sector ownership following a PFI contract. The Scottish Prison Service put in place arrangements to have the asset assessed in order for it to return to public sector ownership. The return of other such assets is pending in the NHS and local authorities.
A key role across the public sector estate management is to have a clear understanding of rights and obligations in relation to assets returning to the public sector following a PFI contract, and the Scottish Government and its bodies are looking at that closely. I stress that it will be complicated, because there was no uniformity of contract in some of the early PFI deals, so it will take a lot of preparation time and the right governance to ensure that, when the assets return, the public sector knows what it is taking back.
I was as much thinking that there is a saving in repayments, but you are right—obviously, with the Edinburgh royal infirmary, there is also a potential burden of capital investment; however, that is not apparent in the sustainability analysis that has been done.
Colleagues might want to say a bit more about some of the infrastructure investment planning that is taking place in the sector. It is a significant plank of reform activity. Whether it relates to PFI and the existing estate, the maintenance or the investment requirements, it has to be fundamental to that longer-term financial planning and activity outlook.
On PFI, we have not done any detailed audit work but, as far as I know—I can come back and confirm this to the committee—there are no colleges that still have PFI arrangements in place. The ones that were in place are now done. I think that three colleges have non-profit-distributing model arrangements in place and will continue to incur costs from that. We can certainly look at that and confirm it to the committee.
The general point on estates and infrastructure is interesting. The Scottish Funding Council aims to publish its infrastructure investment plan in the autumn. We do not yet have a specific date for that. That exercise follows on from the SFC’s capital investment strategy, which sets out its overall high-level approach to infrastructure investment. The plan has various pillars, but one of the key exercises is data gathering on the condition of buildings and estates, to identify the costs that would be associated—the needs for colleges when it comes to their infrastructure investment.
The SFC is gathering that information at the moment, and it is taking a bit longer than expected, I think. As far as I know, it has been a complex process. That will feed into decision making on the future allocation of infrastructure investment and any bid that the SFC makes to the Scottish Government for capital funding. Colleges previously provided a figure of around £1 billion that they said would be needed to address maintenance backlogs and meet net zero requirements. We have not audited that figure and we cannot speak to exactly how they calculated it or where it comes from. Obviously, it is a huge figure, especially when compared with the capital funding that currently goes into the sector.
However, importantly, last year, when the Scottish Funding Council talked us through how it was going through the infrastructure investment plan process, we took assurance from the fact that it is encouraging colleges to look at the estate needs of the future—not what they need to maintain what they currently have but what they will need five, 10 or 20 years down the line. It is almost future proofing the situation rather than maintaining crumbling estates—as some might say—as they are. It is thinking about the future needs, which will change. There are all sorts of reasons, including growth in technology, why colleges’ estate needs will be different in future, so it is right that any plans that are made are focused on that, rather than purely on what it would cost to fix what colleges currently have.
Thank you.
To follow up on one of Alan Brown’s previous questions, on page 17 of the report you say:
“College auditors have reported financial management capacity issues at some colleges”.
Is there a link between the colleges that have financial management capacity issues and the colleges that are at very high risk of financial unsustainability?
Colleagues might have that detail, convener. However, you might expect me to say that when, in particular, public sector bodies are under pressure—for example, in their financial position—they will very quickly look at what might be termed back-office functions to support savings plans. However, in going through change, financial pressures and reform arrangements, they need to make sure that they have the right balance between support functions and front-line service delivery arrangements.
I do not characterise it as a universal issue but, in the wider scope of audit, we ask auditors to report publicly on what arrangements were like for delivering financial balance and financial management in the round—for example, on whether they were able to support an annual audit—and some auditors have drawn attention to some of the capacity constraints that exist in colleges. On whether there is a direct connection and whether that is indicative of financial pressures, it can be, but that is not always the case.
If anybody wants to add to that, they are more than welcome.
We have not set out that information in the report, and we do not have it with us today, but we can certainly commit to writing to the committee, if you are interested in having that matching of audit management issues.
11:15
I just wanted to query it because, if some of our colleges are at very high risk, and if those same colleges do not have financial management capacity, that is a serious concern. I just wanted to get further information on that.
We are happy to look at our records and get back to the committee on that in writing, because it is one indicator of financial health and stress in the system.
That would be helpful. Thank you.
I call Dawn Black.
I want to stick with the theme of financial sustainability. We hear repeatedly that multiyear funding is needed in organisations in all sectors. What are the barriers to having a multiyear funding approach that could enable colleges to plan and invest in a more strategic way? As Alan Brown mentioned, some colleges have had single-year uplifts, but that gives them only short-term relief. How do we get to a point where colleges can begin to put a medium-term financial plan in place to better ensure that they are sustainable into the future?
Medium-term financial planning should be a hallmark of every public body, regardless of whether they receive multiyear funding arrangements. This probably speaks to some of the recommendations that we have made in previous years, but there is a certain ambiguity facing the sector. In that respect, I am thinking of much of the work of the Scottish Funding Council; if you go back five years or so, you will find that, in an earlier iteration of its review of the sector, the Funding Council recommended multiyear funding arrangements as necessary. We will take a keen interest, as I am sure the committee will, in the finalisation of the college sector of the future work that is due to conclude towards the end of the year.
The status of the sector has changed over the past 10 or 15 years. During that time, Scotland’s colleges have become public bodies. Prior to that, they operated differently—for a start, they were able to hold reserves—and those arrangements were then moved into aligned charitable and arm’s-length foundations. It matters that the position is settled and that there is clarity because, at the moment, the sector is almost waiting for confirmation of multiyear funding arrangements. Indeed, it has been waiting many years for that. Whether it comes or not is, of course, a policy matter to be decided by Government, but clarity is needed on the extent to which they will or will not have the financial flexibilities that they are asking for. At the moment, it feels like something of a halfway house, with colleges getting financial support when they need it from the Funding Council.
That brings me back to Mr Brown’s point about whether such an approach is equitable across the sector. Can colleges plan for future service models if they do not have all the levers and the clarity that they need? The best outcome would be for colleges, the Funding Council and the Government to be clear on what is going to happen. That is why it is so important for the college sector of the future review to be settled as quickly as possible.
My next question follows on partly from that, but also from other things that have been mentioned this morning. There are the front-of-house and back-of-house functions to think about, but there is the infrastructure, too—that is, the actual buildings that the colleges work in. It is good that a college infrastructure investment plan is coming forward, but how likely is it to meet the capital funding that is required for what is becoming a crumbling estate?
Ultimately, that will be a decision of prioritisation for the Government with regard to the funding that is allocated to the sector—by which I mean not just revenue funding but funding for the management of the estate that you have just referred to.
Of course, estate management is not just about funding; it is also about how buildings are used and having, as Derek Hoy has suggested, a clear and rational approach to what the service models will be, how technology might change the use of the estate and the extent to which there is hybrid course provision or whether it all happens on site. It is all connected, but it will come down to the prioritisation of the funding that Scotland's colleges receive relative to the Government’s other priorities.
That was helpful. Thank you.
The Government has made much of the 9 per cent increase this year, but a lot of that has been consumed by severance payments and pay. In terms of what that is delivering, it seems to be keeping the lights on, rather than delivering any sort of meaningful change or reform.
We have talked about the number of colleges that are at high risk with regard to their financial sustainability. Is there one college that has transitioned from high risk to stable purely because of this year’s uplift? You have mentioned West Lothian College, but there are a number of factors in that regard. Are there any colleges that have moved to a more sustainable position because of the uplift?
My colleagues might have that specific detail.
I think that we mention the issue in the report. From speaking to the SFC about the impact that the 9.3 per cent revenue uplift for colleges could have, I think that it recognises that that delivers some short-term relief for colleges, as you have described, but it also takes the view that it will not have a material impact on the long-term sustainability of the sector. That is why we conclude that we need more clarity in this area. There is ambiguity about how much sustainability exists and how much reform is needed.
It suggests that the funding system remains fundamentally broken if it is not improving the situation significantly.
Colleges are having to live within their means. As well as making savings, another option that they have taken is to reduce service provision. On a national basis, over the past two years, there have been 70,000 fewer course enrolments and a near 16 per cent reduction in student head count. That is partly connected to the Scottish Funding Council reducing the credit threshold or the amount of services that must be provided. Funding is really important to support financial balance, but it reflects what colleges are here to do, and colleges are having to take difficult decisions about what courses they can offer.
We have not been able to conclude in the report what that means for the future. Are colleges delivering for their local communities and supporting businesses in the way that they would want to?
We have had a 195 per cent increase in the collective fiscal deficit of colleges—that is nearly three times the previous position—and a quarter of Scotland’s incorporated colleges now rely on emergency funding cash advances just to maintain daily operations.
We have covered a bit of this already, but at what point do those temporary advances risk becoming permanent, unrecoverable bailouts? Given that we have these deficits, which look like they are increasing, what would trigger Audit Scotland to declare that an individual college was financially unviable?
We would definitely do that individually, following the conclusions of auditors, based on the evidence that they gather. As I mentioned, auditors in the public sector in Scotland who are appointed by me or the Accounts Commission are required to make conclusions on financial sustainability.
All committee members will be familiar with the fact that, in a private sector context, the audit opinion that an auditor makes includes whether something is a going concern. That typically involves a 12-month forward look, based on the assessment that the directors of the organisation have made. For public sector auditors in Scotland, the process goes further, and there is a medium-term analysis of how financially sustainable an organisation is or is not.
Through the work that Derek Hoy and Ray Buist do in engaging with auditors throughout the course of the year, I receive intelligence that enables me to say whether there are particularly acute financial pressures on an individual college, and I will then take a view as to whether to produce a statutory report for the committee on the conclusions that the auditor has made.
However, your wider point has reflected what we say in today’s report, which is that financial pressure remains an issue in Scotland’s college sector.
Good morning, Auditor General. Thank you for joining us. I will return to themes that other members have touched on, because I was interested that you did not suggest any more recommendations as part of the report.
Given what has been put forward by Colleges Scotland on future sustainability, for example, was there no opportunity to look at a sector that is completely reliant on the funding that the Government decides that it will get? Any solutions to get the sector to a better place purely rest on the Government giving bailouts or significant additional sums of money.
Could you have looked back at what Colleges Scotland highlighted around potential diverse income streams and the private sector being more directly involved in the delivery and funding of courses, considering the huge issue of the future capital spend and need of the sector? I can understand the rationale for trying not to add more to a problem, but I wondered whether you had considered trying to find solutions.
We thought carefully about whether to repeat recommendations that we had made in previous years. I refer the committee to appendix 1 in today’s report, where we make an assessment of the progress made on the recommendations that we made last year. We also thought about value, repetition and impact.
As we set out on page 6 of the report, the fact that we have not made any new recommendations is unusual, but so is the reason why. It is the Scottish Government’s view that the work that is being undertaken in the Scotland’s college sector of the future workstream will address the recommendations that we made in previous years.
For us, the pace is what really matters. It is a sector that, for some of the reasons that you have outlined, needs clarity in its roles, responsibilities and funding arrangements, whether those are multiyear or otherwise. It has matters to tackle in its estate and in the contributions that it can make to its communities and local businesses.
What is your opinion on the impact that clawback is currently having on the sector? I used to raise that consistently when I sat on the Education, Children and Young People Committee last session. It seems quite strange for an institution to be given money and then have it taken back, purely because it has not achieved the right head count. Being able to get more students in the future will not be easy when the money has been grabbed back. Have you done any work on that as part of the report?
I can talk about that. Changes were made to the funding allocation model in 2023-24 that were, in general, targeted at reducing the likelihood of funding recovery. Things such as a 10 per cent lower credit threshold were accompanied by an increase in the price per credit paid. In essence, colleges could deliver 10 per cent fewer credits without a reduction in funding, which created a bit of headspace for them to do other things.
Various changes were made around that time. The calculation that the SFC made suggested that, if those changes had not been made, clawback could have been in the region of £12.5 million. In reality, because of the changes, it was £1 million, and the changes remain in place. We are awaiting a more fundamental review of the funding allocation model, but the changes in 2023-24 seem to have reduced the likelihood of funding recovery for colleges.
That is helpful.
The huge issue with the Office for National Statistics classification was touched on. Are there any flexibilities in that? It seems that, until we test it and see where colleges could potentially start to borrow money as institutions, there will be no flexibility for them, and things will just get worse, as we are seeing. On the ability of colleges to invest in the future, to hold reserves and to maximise their finances as they currently stand—as I say that, I am not quite sure what they could do to maximise any finances—could borrowing get them into a much better place, as with other institutions that have the power to do that?
I am cautious about giving a view—
I know that that is a political decision.
Indeed, but I recognise that the change in the status of Scotland’s colleges, and the impact of that on the sector, is a long-debated topic.
11:30
As I said earlier, I think that the issue is clarity. I do not think that it is helpful that the matter of classification remains unresolved for the sector. Colleges need to move forward with a clear understanding of the constraints, or otherwise, on what is available to them, whether they can borrow and what that means for multiyear funding arrangements.
Briefly, on your point about the ability of Scotland’s colleges to generate additional income, we looked at that in section 3 of the report. Again, I think that it speaks to something that I hope that I have made clear this morning: this is a resilient sector, and it is making difficult decisions and looking for other income sources.
In the report, I give examples of a couple of case studies that we undertook during the audits at Glasgow Kelvin College and North East Scotland College. Colleges are all responding to the individual community circumstances that they face. However, the ability of colleges to do that is variable. In exhibit 9 in the report, we set out some of the barriers that Scotland’s colleges are telling us about—the factors that are relevant to their ability to undertake business development activities.
Those are the variables at play with regard to income generation: clarity around funding arrangements, public body status, and borrowing and multiyear funding arrangements. That comes back—I hope that you do not mind me repeating myself—to the real need for clarity, on the completion of the public service reform process, as to what the sector is here to do, so that it can fulfil its duties to people going through college and using its services and to local businesses.
Last week, we touched on the unauditing—if that is even a word—of the apprenticeship levy. Are there any reforms around that which would involve looking for additional income streams? There is a clear connection between businesses who pay into that scheme and the skills that they are looking to have developed for their businesses and, therefore, the ability to access that money. Those are significant sums of money—off the top of my head, £180 million was potentially allocated for Scotland—so that could be another available income stream.
It was not a key feature of our work as part of the college overview this year, but, as ever, we are mindful of its importance, and I think that we can reflect on that point as we develop the scope for future activity in this report. As we touched on last week, we can factor that into our future programmes as we follow up on the progress of post-school education and skills reform.
With regard to the questions about the recommendations not still being outstanding, your previous report talked about plans being put in place within 12 months and the importance of positive reform to transform our colleges for the future, and the timing of that. There is a plan due to be published by the Government later this year. Can I take it from what you are saying that, given the current financial risks to it, the college sector cannot afford for that to be delayed in any way into the new year?
I do not think it would be helpful if there were delays. In my view, given the challenges that are facing the sector, and the Scottish Funding Council’s assessment that more than half of Scotland’s colleges are at high or very high financial risk, the sector needs clarity so that it can spend public money well and deliver outcomes for its students and for communities.
As we have touched on, there are a number of live workstreams, some of which relate to infrastructure, but it is important that pace is maintained in the wider programme.
With regard to providing clarity to the sector, your report talks about the colleges receiving £21 million this year through the Scottish Government’s plan to tackle child poverty. That is to support improved training and development opportunities for parents. It is part of the Scottish Government’s plan to reduce child poverty by 2031—to which the Parliament recommitted just on Tuesday.
If the sector is part of that plan, I assume that clarity from the Scottish Government would be welcome as to whether that money is more than just a one-off, one-year payment. Has the Scottish Government given any indication of why it is only a one-year payment and not multiyear funding, when it is part of a longer-term plan?
We have not specifically looked at that, but we can consider it when we look at the various funding streams as part of the preparation for our following report on Scotland’s colleges.
We currently have an audit under way on the Scottish child payment, which will report before the end of the year. At the conclusion of that audit, we will take stock of our work programme. As we have shared with the committee, we are considering when to undertake any further audit work on the progress that has been made towards meeting child poverty targets. We will factor all of that into our work, but that specific question may be for the Scottish Government or the Funding Council.
Yes, I am sure that we will take it up with them.
Finally, I will ask about student head count, which you have talked about already. We have talked about a lot of numbers and budgets, but we need to fully recognise the impact that those have on students. The student head count has plummeted by 16 per cent, which is a drop of almost 40,000 students, and the number of course enrolments has dropped by more than 70,000. Both figures are now at their lowest level in a decade. Has that decade of decline been driven primarily by a lack of student demand, or is it a direct result of colleges intentionally shrinking course availability?
The statistics that you mentioned are really important. There has been a reduction in the number of courses and in the student head count, with fewer people working in Scotland’s colleges. Those statistics are indicative of some of the colleges managing finances in the ways that they need to in order to deliver—we have already talked about variability in the ability of colleges to generate additional revenue streams.
We also draw out in the report that three quarters or so of students fully complete their courses, with the non-completion rate nearly 13 per cent. Separately, about 20 per cent of student withdrawals from courses are undertaken for unknown reasons. Therefore, there are opportunities to better understand the learner journeys that students are taking through Scotland’s colleges.
One point of resilience that I will reiterate is that students are generally happy with the services that they receive from Scotland’s colleges—there was a 95 per cent satisfaction rate in the sample that was undertaken. There is resilience, but there is also still significant pressure, and colleges are cutting their cloth to deliver services within the financial resources that they have available.
That is certainly my experience of dealing with my local college. Student satisfaction is high and colleges are resilient, but they are under significant pressure, which we have seen from the significant reduction in the student head count.
Your report rightly warns not just of the impact on potential students but that, without urgent reform, colleges may fail to deliver for employers. You also talked last week about the importance of having joined-up education and economic policies. How has that decline in student head count impacted Scotland’s key growth sectors, and has Audit Scotland quantified the broader economic cost of that reduction on the regional workforce?
We have not done any dedicated audit activity on the connection between economic performance and some of the challenges that Scotland’s college sector is facing, but we are actively thinking about undertaking some audit work on economic development activity. We have not set out the timescale or scope for that work yet. However, I reiterate the point that I made to the committee last week about the success—that is, having better outcomes and better value from public spending—that will come from having a more connected policy and delivery landscape than has been the case.
The sector is not operating in isolation. The success of outcomes for people who pass through colleges will, of course, be felt keenly by them, but it also affects the contribution that they can make from an economic perspective. We are thinking carefully about what future audit work we can undertake in that space.
That is welcome, because it is difficult to see how the Scottish Government or the Scottish Funding Council could argue that their national skills targets are being met or that they are supporting economic growth with such a reduction in student head count.
I will just follow up on that point about the reduction in college student numbers. To what extent does the increase in apprenticeship numbers and the uptick in apprenticeship schemes actually impact on college courses? It used to be that people who wanted to do vocational courses went to college to do them, but now they have another potential pathway.
That is a really important point. We have to understand why there has been such a significant change. As well as apprenticeships, there are also higher education options.
In the report, we note that about 85 per cent of students go on to positive destinations. However, we do not have the granular detail that sits beneath that statistic about what happens thereafter. The statistic might not be indicative of a successful transition into longer-term employment, because “positive” also includes short-term and interim arrangements.
I agree with the point that better data supports our understanding of the choices that people make, whether they are in further education, apprenticeships or higher education. It is also vital to know what happens thereafter and whether they made a successful choice or otherwise.
In response to the deputy convener’s question, and one of the convener’s previous questions, I point to one of last year’s recommendations, which was that the Scottish Funding Council should carry out some analysis on unmet demand in order to understand demand among students and employers and what is not being met. It is important to highlight that, as far as we know, that analysis has not yet been done as part of the review of the funding model.
To cover both lines of questioning, I hope that the analysis will provide some information on what is missing and on what learners and employers are looking for.
I was about to ask about unmet demand, which you just touched on. You recommended that the analysis should have been undertaken last year. Does it not need to be done alongside the work and reports on future costs and future investments? We need to understand course demand and actually plan for the outcomes. Is it not a key piece of work that needs to go alongside the other work?
That is a really important point. Understanding what happens to people, whether they are able to access a college course or not, means that there can be a rounder assessment of whether the investment that supports various streams of public funding is delivering as intended. The committee might wish to further explore that with the Government and the Scottish Funding Council.
To go back to the 40,000 headline figure, it might be because, in some cases, people are, as you said, going into higher education or taking up apprenticeships. Whose responsibility is it to analyse that data? Do we know how the 40,000 reduction is spread across colleges? Is there a much bigger reduction at certain colleges? Do we know the demographic spread in terms of the student number reduction? That is also really important.
I think that the Scottish Funding Council collects and reports on the number of student enrolments at individual colleges. I do not have that detail to hand, but we can certainly point the committee to those statistics.
To address the point about responsibilities, I would note that, in light of some of last week’s discussion at committee on post-school education and skills reforms, one change that has been made is that the Scottish Government itself has taken more of a direct responsibility for skills planning arrangements. Reliable data is fundamental to understanding that, to supporting policy decisions and then to assessing whether the outcomes intended from those policies are actually achieved.
Returning to the unmet demand analysis, what is required? If there are 40,000 fewer people at college, is that because of fewer applications? Do we know the trend in applications compared with successful entrants?
11:45
That information is missing, Mr Brown. There are various parts to the analysis. It is about understanding the demand and where it comes from. Has the level of demand decreased? Is it the case that not as many students are looking to attend college in the first place, or are there still as many as there ever were, or possibly more, but that colleges do not have the capacity to take them in? That is the fundamental reason why we included the recommendation in last year’s report and carried it forward this year.
We also need that information to understand which courses are oversubscribed, which are undersubscribed, and whether people who start a course are taking their second choice.
There are two important parts: learner demand and employer demand. What skills are employers looking for? What skills are learners looking for? Is there a mismatch? Are learners looking to attend courses that employers are ultimately not looking for? Understanding that will help to feed into the discussion on whether our colleges are delivering what the key economic sectors are actually looking for in terms of skills and future employees.
Are there any timescales for the SFC to produce the unmet demand analysis?
Ray Buist might be able to say more, but I believe that it will be produced as part of the funding model review that will take place over the next couple of years or so. I do not know when that specific analysis will take place, but it will be part of the funding model review.
As we point out in appendix 1, the SFC is progressing the recommendation to identify and understand unmet demand as part of its fundamental review of the funding model. That work is ongoing, and the expectation is that recommendations will be due at the end of 2027 and for any changes to be implemented in the academic year 2028-29. I expect that addressing the unmet demand recommendation will go hand in hand with that piece of work.
I will get this clear in my mind: we have a college of the future report coming out imminently, and we have a future investment plan coming out imminently, but the actual college funding model review is coming later, and the unmet demand analysis will follow those reports. Is that not a bit out of kilter, potentially?
What we have found through our work is that reviews are regularly undertaken. The sector is perhaps no different from others in that respect, but the pace of the delivery of recommendations is not always aligned with what was initially intended. I accept your wider point, which is that it is clear that reviews of future provision, demand and funding arrangements are all important, but the alignment and scope of those reviews have to be really clear.
We will welcome the next steps and the clarity that that provides and we will take a view thereafter about what it means for future arrangements, but a lot of ongoing threads need to be addressed.
Thanks.
There were some really important points there that I am sure that we will want to take forward.
Thank you for your evidence this morning. We look forward to taking further evidence on the issue in due course.
11:49
Meeting continued in private until 12:19.