David Willetts

Further Education Minister Sion Simon admitted this morning that Further Education colleges could go bust due to the freezing of the Government’s bungled college-building scheme:

• 144 colleges have had vital building projects frozen. They now face significant financial losses, and some could face bankruptcy.
• Sion Simon admitted that colleges could face bankruptcy: ‘I can’t give you [an assurance they won’t go bust]’
• The Government has known about the crisis since November, but ministers consistently denied there was a problem. John Denham claimed as recently as January that ‘there is no freeze in that spending programme’.

In response, the Shadow Secretary of State for Innovation, Universities and Skills, David Willetts said:

“Sion Simon’s comments show that the Government clearly hasn’t got a grip on the situation. We have minutes to prove that departmental officials attended meetings where the funding crisis was discussed, and that there were serious concerns about the programme as far back as October.

“Now 144 colleges have had their building projects frozen, millions of pounds have been lost, and some institutions are facing bankruptcy. Yet the Minister offered no reassurance that the Government would ensure the colleges’ survival, and just passed the buck to the Learning and Skills Council. This is not acceptable.”

ENDS

Notes to Editors

• Sion Simon: no guarantee for colleges facing bankruptcy. Speaking on the Today programme this morning, Sion Simon, the Parliamentary Under-Secretary of State for Further Education, refused to give an assurance that colleges would not face bankruptcy: ‘I can’t give you [an assurance they won’t go bust]’ (Today, 19 March 2009).
• 144 colleges face significant financial losses. In March, the Government announced that it would be freezing the approval process for 144 college building projects. Seventy-nine of the frozen colleges are awaiting approval in detail (the final stage of the approval process). Many of these colleges have already begun building work. The value of the government contribution required for these 79 projects is £2.7bn. Almost £6bn would be needed for all 144 projects to go ahead (DIUS, Press Release, 4 March 2009).
• The Government has known about the funding crisis since at least November. Concerns over the affordability of the capital programme were expressed at a November 2008 LSC meeting. The November minutes had claimed that capital projects had not been considered due to a lack of time. But this was misleading. The December minutes contain a correction, stating that the ‘main underlying reason’ capital projects had not been considered was due to ‘concern over affordability’ (LSC, Minutes of National Council Meeting, 17 December 2008, released to the Conservative Party under the Freedom of Information Act). Sources say the LSC had ‘known for months’ but that DIUS had vetoed any advanced notice of the freeze (Guardian, 20 January 2009). The December meeting was attended by representatives of the Department for Innovation, Universities and Skills.
• Ministers denied there was a problem. John Denham claimed as recently as January that ‘there is no freeze in that spending programme’ (Hansard, 29 Jan 2009, Column 441). And ministers have refused to give a straight answer to written questions, letters and questions in the House of Commons about which colleges will be affected (Hansard, 5 Feb 2009 : Column 1443W; Conservative Party Press Release, January 27, 2009; Hansard, 29 Jan 2009 : Column 440 and Hansard, 3 Feb 2009 : Column 720). The Government was forced to admit the problem only after persistent questioning and a series of Freedom of Information requests from the Conservatives.
• There are worries about legal challenges over the effects of the freeze. The minutes of the December meeting (which was attended by a DIUS official) state: ‘Members asked that a clear action plan be in place to respond to any legal challenges arising from its decision to carryover project approvals from its December 2008 meeting until March 2009.’ (LSC, Minutes of National Council Meeting, 17 December 2008, released to the Conservative Party under the Freedom of Information Act).
• High costs of delay. The freeze will mean high costs for colleges. Responses to a survey by the Association of Colleges show at least £100m would have to be written off if colleges’ capital projects did not get LSC backing. 15 colleges would end up having to write off between £2m and £5m, and 10 would have to write off more than £5m (BBC, 19 March 2009). Abingdon and Witney College has had its £30 million project frozen and ‘the college is currently paying £40,000 a month for the 57 temporary cabins into which all 600 full- time students, plus staff, on its Witney campus have been decanted since September’ (Guardian, 10 March 2009). Colin Booth, principal of Barnsley College, says that the situation ‘could end up bankrupting the college’ (BBC, 19 March 2009). The Association of Colleges says that many colleges have contacted them to highlight the effect the freeze is having on them. Some of the issues colleges are concerned about are:

o ‘The risk that they will not be able to hold contractors to time-limited tender offers and will incur additional construction costs. Some Colleges estimate the extra costs could run into millions of pounds.’

o ‘Extra charges incurred in retaining professional advisors for a longer period’

o ‘Extra costs incurred if contracts have to be re-tendered’

o The ‘…inability to complete property transactions by agreed dates, either to sell buildings or to rent space for temporary accommodation. In a normal property market, these transactions take months to organise giver the specialist nature of further education property use. In the current market, delay could kill a transaction.’

o Costs levied by banks if loans have to be renegotiated or taken out later

o Risk that projects will not be completed on time for new academic year

(Letter from the Chief Executive of the AoC to the Chief Executive of the LSC, 8 January 2009 and AoC, Briefing, 8 January 2009)

• David Cameron and David Willetts to visit FE colleges tomorrow. David Cameron and David Willetts will both be visiting colleges in their constituencies tomorrow. Abingdon and Witney and Havant Colleges are both affected by the funding freeze.