Watchdog warns Scotland's colleges face increasing financial pressure

Financial pressures on Scotland's colleges are increasing, a watchdog has warned, with the further education sector reporting a deficit for the third year in-a-row.

A new report said the country's 19 colleges had an overall deficit of £5.6m in 2024-25, up from £1.9m in the previous 12 months.

The worsening financial situation was said to be the result of increasing costs - including staff and energy - not being matched by increases in funding.

Public spending watchdog Audit Scotland said funding to colleges had decreased by more than 7% in real terms in the five years to 2026-27.

The Scottish government increased resource funding for colleges by more than 9% in 2026-27.

But the report said: "It is not clear if the uplift in funding is sufficient or if it will be sustained for colleges to deliver the level of reform needed in the college sector."

With colleges coming under financial pressure, the report revealed the Scottish Funding Council (SFC) had had to increase cash advances to colleges, with these rising from £5.4m in 2023-24 to £13.9m the following year.

In 2024-25, 11 of Scotland's 19 colleges had a deficit - up from eight the previous year.

Audit Scotland reported four colleges had a deficit of £1m or more and 10 saw a deterioration in their financial performance.

Overall, the SFC had assessed more than half of colleges as being at very high or high financial risk, the report added.

Eight were classed as being "financially at very high risk", while a further six were "assessed as at high risk".

That comes despite colleges having reduced their staff numbers in a bid to cut costs, with the report saying the workforce fell by more than 11% over two years to 12,575 in 2024-25.

Voluntary severance schemes, said to be the "principal means of reducing staff costs", cost colleges £7.2m in 2024-25 alone.

But the report said: "Staff costs at colleges are rising despite most colleges using voluntary severance schemes in 2024-25.

"Despite the reductions made to the college workforce over the last two years, staff costs have increased and still account for two-thirds of college expenditure (67%)."

The spending watchdog said action on recommendations it had made a year ago was "only at the early stages".

Audit Scotland said it had outlined eight areas where the Scottish government, the SFC and colleges needed to act "to deliver a sustainable college sector that is responsive to Scotland's social and economic needs".

But it said: "Many of these are only at the early stages of implementation."

Stephen Boyle, Auditor General for Scotland, said: "The financial pressure on Scotland's colleges is increasing, and their situation remains extremely challenging.

"Without urgent and successful reform of the sector, it's not clear if colleges can continue to deliver for students and employers."

Boyle added that the recommendations he made in 2025 remained important but were "still in the early stages of being addressed".

He warned: ""The Scottish government, Scottish Funding Council and colleges need to take action to implement them at pace."

Gavin Donoghue, chief executive of Colleges Scotland, said the report "recognises the extremely challenging financial position colleges continue to operate in".

He said: "During 2024-25, an increasing number of colleges needed to rely on short-term support to balance the books.

"This is a clear sign of a sector still under considerable financial pressure."

Keir Greenaway, of the GMB Scotland union, said: "The auditor general is ringing another alarm bell over college funding but too many have been ignored for too long.

"The sector should be driving economic prosperity but without support or strategic planning, is struggling to deliver for students or Scotland."

Scottish Labour tertiary education spokeswoman Jenny Young said: "These stark figures lay bare the pressure Scottish colleges are under as a result of SNP cuts.

"Colleges can be engines of opportunity and growth, but the SNP has cut them to the bone."

The Scottish government has been contacted for comment.