'Fundamentally broken': Financial outlook of Scotland's college funding model leaves future unknown
Auditor General paints bleak picture of bosses forced to take tough decisions over staffing and course provision
The future of Scotland’s colleges is unknown as the current “fundamentally broken” funding model leaves them just “keeping the lights on”, MSPs have been told.
Course enrolment has fallen by 70,000 over the past two years - or 16 per cent - with money spent on “keeping the lights on” rather than delivering reform, a Holyrood committee heard.
Auditor General Stephen Boyle said his recent report into the financial health of the sector could not predict the impact of current financial challenges.
Mr Boyle said: “What we haven't been able to conclude in the report is what that means for the future - will our colleges be delivering for their local communities, supporting businesses in the way that they would want to?”
Neil Bibby, the Scottish Labour MSP, referred to the Scottish government’s decision to award colleges a 9.3 per cent funding increase this financial year.
Much of the money, he said, has been consumed by severance payments and staff pay.
Mr Bibby said: “That [increase] seems to be keeping the lights on rather than delivering any sort of meaningful change or reform.
“Have any colleges been moved to a more sustainable position because of the uplift?”
The MSP added that the current funding model is “fundamentally broken”.
Mr Boyle described the increase as a “short term relief” but one that will not have a material impact on the long-term sustainability of the sector.
The recent auditor’s report found half of institutions are now judged to be at high or very high financial risk.
During Holyrood’s Public Audit Committee, Mr Boyle said colleges were being forced to make difficult decisions over staffing and course provision while awaiting clarity from the Scottish government on the future shape and funding of the sector.
Both enrolment and student numbers are at their lowest level in a decade.
Auditors said they were unable to establish whether the decline was primarily the result of reduced demand from students, colleges cutting course provision because of financial pressures, or a rise in alternative routes such as apprenticeships or university.
MSPs also questioned whether the decline could be connected to growth in apprenticeships and changes in higher education.
Mr Boyle said it was important to establish a root cause of the drop but revealed a recommendation made last year for the Scottish Funding Council (SFC) to analyse “unmet demand” has not yet been delivered.
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The Auditor General said the information was essential to understanding whether the reduction in college numbers represented falling demand or a lack of capacity.
The auditor’s report refers to 2024/25, prior to the Scottish government’s increased funding in last January’s budget.
However, even with the increase, the college sector is still at 7.5 per cent below 2021 in real terms and institutions are increasingly relying on short-term financial support from the SFC to balance their books.
In April 2026, the SFC classed eight of Scotland’s 25 colleges, including seven incorporated colleges, as financially at very high risk, with a further six colleges assessed as at high risk.
Colleges are continuing to cut their workforces in an attempt to balance their books.
The sector saw a reduction in workforce by almost eight per cent in 2023-24 and by a further four per cent last year.
Auditors warned that savings from voluntary severance schemes had largely been absorbed by rising pay, national insurance and pension costs.
“It’s not as if the redundancy savings so far are generating space for colleges to transform and reform,” Mr Boyle told MSPs. “It’s more keeping a head above water.”
The Scottish Funding Council provided £13.9 million of additional financial support to five colleges during 2024-25, while a quarter of Scotland’s incorporated colleges are understood to have relied on emergency cash advances to maintain day-to-day operations.
Mr Boyle also warned that arrangements for providing and repaying financial support lacked sufficient clarity.
He also said the pace of reform had not been fast enough to address the challenges facing the sector.
Audit Scotland has not issued any new recommendations in its latest report, instead assessing progress against eight recommendations made the previous year.
The Scottish government’s Scotland’s Colleges of the Future programme is expected to address several of the issues identified by auditors.
However, Mr Boyle stressed the importance of maintaining pace in implementing change.
Asked whether the reform programme could afford to be delayed beyond the end of the year, he said delays would not be helpful given the financial risks facing colleges.
The Auditor General said medium-term financial planning should be a normal feature of every public body, but colleges had been waiting for clarity over whether they would receive multi-year funding for several years.
He described the current position as a “halfway house”, with colleges receiving financial support when required but lacking clarity over the financial flexibilities available to them.
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