College thrift stumps lenders

A new financial guide to further education highlights the private sector's difficulties in trying to establish colleges' ability to repay debt for capital projects.

While the Government is promoting the Private Finance Initiative, colleges have had such low levels of debt under local authority control that they have no track record in repayments, leaving private sector investors unsure as to how safe a bet they are.

Noble Financial Publishing, a division of the independent Edinburgh-based finance house Noble Group, has produced the first financial yearbook for the sector, covering the two full years of financial accounts available.

The book covers 405 colleges, representing 77 per cent of the sector, and is aimed not only at colleges themselves, but at financial advisers and potential investors as well as Government organisations and overseas institutions.

While it is now commonplace for higher education institutions to seek external funding for capital projects, leading to a dramatic increase in the levels of debt in the sector, the yearbook shows that 193 further education colleges record no debt at all, and only 31 have debt equivalent to more than 10 per cent of their total income or net assets.

It also shows that while 165 colleges have had a surplus of income over expenditure during the past two years, more than 220 showed deficits, rising to more than 5 per cent of total income in 57 colleges.

Noble's analysis of colleges' income reveals that on average, just over 73 per cent of the sector's total income comes from the Further Education Funding Councils or the Scottish Office, with a further 9 per cent from education contracts, 8 per cent from tuition fees, and the balance mainly from residential and catering services.

But there are wide variations among colleges, with FEFC funding alone ranging from 35 per cent at Birmingham College of Food, Tourism and Creative Studies to 99 per cent at Xaverian College, Manchester. Sheffield College had the highest total income in 1995, more than Pounds 42 million, while the lowest was Plater College with Pounds 722,000.

Staff costs represent the bulk of total expenditure, at an average of 66.4 per cent. The average cost for an academic staff member is Pounds 20,940, and Pounds 17,892 for administrative or central staff. Teaching staff costs as a percentage of total staff costs range from 93 per cent at Holy Cross College to 48 per cent at Holme Lacy College.

Noble's Further Education Financial Yearbook 1996, Noble Financial Publishing, Darnaway Street, Edinburgh, Pounds 250 (Pounds 185 to colleges).