Tertiary education minister Alyn Smith: 'Colleges can innovate their way out of funding crisis'

Alyn Smith has said colleges can "innovate their way" out of a funding shortfall that leaves some at “imminent risk” of insolvency.

Most of Scotland’s colleges are “not financially sustainable” as 11 institutions forecast operating deficits for this year.

The Scottish Funding Council (SFC) – which funds colleges and universities in Scotland – said the overall deficit for colleges is forecast to grow from £8.3 million in 2026-27 to £31.9 million by 2028-29.

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Audrey Cumberford, the principal of Edinburgh College said “the situation facing the college sector is dire” and warned “fundamental reform” is necessary now.

However, the tertiary education minister said the claims are an “overstatement”.

Referring to a recent Auditor General report and the SFC report, Tertiary Education Minister Alyn Smith said: “These are two really useful interventions, but they are predicated on the idea that if nothing changes, some institutions will be in bother in five years' time.

“Everybody knows that.

“That's why what I'm doing is urgent, and what I'm doing is necessary.

“Everybody in the sector knows that we need to change what we're doing.

“I want to see more innovation. I want to see more commercial partnerships.

“I want to see more collaboration across institutions.”

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The SFC report warns: “Insolvency remains an imminent risk, with four colleges forecasting negative cash balances at the end of 2026-27 and 13 colleges by the end of 2028-29.”

For 2027-28 and 2028-29, 19 colleges are forecasting operating deficits, the SFC said, adding the figures “demonstrate that most colleges are not financially sustainable despite the increased 2026-27 funding”.

Meanwhile, the “large savings” colleges could need to make would “significantly affect curriculum delivery, student numbers, quality of teaching, staff numbers and morale, local communities and regional economic growth”, it said.

The report added: “Several colleges also indicated that savings of this scale would be unachievable, highlighting risks to their going concern status.

“The financial position of colleges continues to be extremely challenging, and some colleges are forecasting significant deficits for the next three years.”

A separate report from the SFC looking at the financial situation of Scotland’s universities said they “continue to face significant financial challenges”.

A forecast operating surplus of £67.9 million for 2025-26 is expected to fall to a surplus of £36.8 million this year – despite an increase in cash from the SFC.

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A total of 10 universities are forecasting operating deficits in 2026-27, with the SFC warning this could increase in 2027-28 “if planned international student tuition fees are not achieved”.

With the report covering the finances of Scotland’s 15 universities and three specialist institutions – the Glasgow School of Art, the Royal Conservatoire of Scotland and Scotland’s Rural College – it added there are only six universities which are “not projecting any adjusted operating deficits throughout the three-year forecast period”.

Mr Smith, however, said colleges have “brilliant” initiatives happening now and pointed to a recent government uplift in apprenticeship funding.

“We're exploring with the UK government more defence money going into colleges,” he added.

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“I think there's some really good stuff in that space, but I feel very, very positive that colleges are at the centre of our agenda, and I want to see colleges doing well.

“And I expect the colleges and their staff to step up and join me in that effort.”

He pointed to Forth Valley College and Fife College as being excellent examples of innovation, saying they are “booming”.

Mr Smith said: “I think the sector as a whole is the jewel in the crown of what we're looking to do.

“As skills minister, you're going to be hearing a lot from me about apprenticeships.

“Colleges are absolutely crucial on social inclusion, reaching out to disadvantaged communities, also getting away from the idea that the route to success is a bucket of Highers and a university degree.

“It isn't, and colleges are absolutely instrumental to turning that round.”

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Mr Smith added: “The Auditor General's report was really helpful but even it identified that it's a £5.6 million shortfall out of a budget of £760 million.

“That's not existential. We can innovate our way through that.

“We can reform our way through that, and I'll be driving that process in partnership with the institutions.”

Gavin Donoghue, chief executive of Colleges Scotland, said the report “underlines the fact that many colleges are operating in an extremely challenging fiscal environment”, adding there is a “clear need for sustainable investment to safeguard the education, training and support” the sector provides.

He added: “Colleges have done everything possible to balance their budgets, but they cannot continue to absorb current rising costs, or adapt for the future, without additional support.”

Paul Devoy, interim chief executive of the SFC, said: “Scotland’s colleges and universities are operating in one of the most challenging financial environments the sector has faced for many years.

“These reports shine a clear light on the scale of that pressure, drawing on detailed analysis of accounts and forecasts. They are a snapshot in time, but an important one.”