Background to the report

At April 2020, there were 242 colleges in England, comprising 192 further education (FE) colleges and 50 sixth-form colleges. Colleges educate and train around one million adults and 660,000 young people aged 18 and under each year. In 2018/19, colleges’ income totalled £6.5 billion, of which £5.1 billion (78%) was public funding. Most college funding follows the learner. Colleges must attract students, competing with each other and with other types of education and training provider. Colleges can borrow commercially, own assets, employ staff and enter into contracts, and they may make financial surpluses or deficits.

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A financially sustainable college sector is vital to delivering the education and training that the country needs. Government expects colleges to play an increasingly prominent role in the coming years – to help meet the need for a more skilled domestic workforce following the UK’s exit from the European Union, and to support the government’s plans to develop national infrastructure, increase the number of public servants, and ‘level up’ skills and prosperity across the country. Colleges will also be important in developing the skills of people who retrain or change roles as a result of the economic impact of the COVID-19 pandemic.

Content and scope of the report

We reported on the financial sustainability of FE colleges in 2015.  We concluded that government had taken steps to improve its oversight of the sector but that these actions were not likely to be sufficient to address a growing structural problem. Since then, government has made changes aimed at producing a more financially resilient college sector and improving its oversight and intervention arrangements.

This report focuses on the financial sustainability of FE and sixth-form colleges, providing an update to the assessment we made in 2015. We examined the financial health of the sector (Part Two), and the effectiveness of the oversight and intervention arrangements (Part Three). We collected most of the evidence for this report between November 2019 and March 2020. With the exception of paragraphs 1.13 to 1.15, the report therefore reflects the position of the college sector and the Department for Education’s actions before the COVID-19 pandemic.

Report conclusions

A thriving college sector is crucial to developing the knowledge and skills that the country needs, and therefore to the success of the economy and society more generally. However, the combination of funding constraints and uncertainty, along with cost and competitive pressures, present significant challenges to colleges’ financial sustainability. Since we last reported on this topic in 2015, the Department has strengthened its oversight and intervention arrangements, and now has a range of options aimed at preventing colleges from getting into financial difficulty and supporting them when they do. However, these approaches have absorbed considerable amounts of public money, while many colleges remain in financial difficulty.

Overall, the financial health of the college sector remains fragile. Ofsted inspection ratings suggest that colleges are generally maintaining educational quality, but other evidence shows that financial pressures are affecting wider aspects of provision such as the breadth of the curriculum and levels of student support. The programme of area reviews led to structural change and had some success in making the college sector more financially secure. The Department is now formulating a strategic reform programme intended to remedy systemic long-term weaknesses in the sector. This is a welcome development but, until such a programme is in place and achieving results, we cannot conclude that the Department is responding effectively to the financial sustainability challenges that colleges are facing.

“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.

“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.”

Gareth Davies, head of the NAO

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Publication details

Press release

View press release (16 Sep 2020)

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