Reclassification

English colleges are now classified in the public sector
 

The majority of colleges were created by local government decades ago. Many councils established technical colleges in the 1890s, many agricultural colleges date their histories to the 1940s, the first sixth form college dates from 1966 but there is no standard date when the sector started. 

Until 1993, there was no doubt that colleges were public sector institutions but he decisions of the then Conservative government to create self-governing college corporations and to transfer them out of the control of local government resulted in a private sector classification from government statisticians. Colleges employed their staff and were able to set their own terms and conditions. They had the ability to decide what courses to run (but only secured public funding if these led to nationally approved qualifications). They could decide how and where to to operate, with decision-making powers over their buildings and estates, including the ability to borrow.

Colleges retain a considerable amount of self-government in all the issues that matter but have also operated with a considerable level of government funding so that they can deliver a public purpose. Funding comes with government control and this prompted the Office for National Statistics to reclassify colleges as public sector institutions in 2010 and then again in 2022. Deregulation measures prompted ONS to reverse its 2010 decision in 2012 but tighter international accounting rules introduced in 2014 prompted ONS to make a difficult-to-reverse decision in November 2022. In that decision, ONS explain that they looked again at the law passed in 1992 and decided to date their reclassification back to April 1993. Government statistics work in mysterious ways.

New government controls

On the day that ONS announced its reclassification decision, the Department for Education published a reclassification statement and sent two letters with instructions (one from the minister and one from the funding agency chief executive)

The key decisions resulted from agreements made within government which were not put out to consultation. These were:

• Ministers accepted the reclassification and did not plan to make changes to the law to reverse it. This also preserved the status quo in that colleges continued to be self-governing corporations with charitable status and with responsibility for their educational character, their own courses, contracts, and relationships with staff and students.
• A number of new controls would be introduced with immediate effect. For most colleges, the most important changes relate to borrowing. There are no changes to existing loans but a clear DfE objective to replace borrowing from banks in the future with grants or borrowing from government. DfE distributed £150 million in spring 2023 in formula-based capital grants to FE and sixth form colleges and brought forward revenue payments by one month to reduce a long-standing need for short-term borrowing each March. There have been no new bank loans taken out by colleges since early 2023. Three years later, the Department for Education is a biggest lender to colleges, as a result of a series of decisions to replace bank loans when they expire with government loans.
• Most of the controls closely mirror those that apply to academies but, significantly, colleges have not needed to obtain prior approval for capital spending, sales or leases. Unlike Scottish colleges, English colleges have retain their reserves, any surpluses they make or assets they sell.
• DfE has taken steps to consolidate college accounts which, following a pilot and discussions within government, will start to take effect in 2026. 

AoC’s view

AoC was set up by colleges in the 1990s when the sector became self-governing and we have continue to work to help the sector work effectively, flexibly and in a way that delivers a public purpose. Colleges work best when they can act quickly and decisively to meet the needs of students, employers and communities.

Colleges retain their reserves and the ability to make capital spending and funding decisions. The new permissions and processes required for borrowing have limit college freedom of action and there is a risk governors and leaders will be constantly looking over their shoulders to check what officials think and to seek permissions. There have been some areas where government has been slow to issue approvals though some action to speed up the process. 

When reclassification happened, AoC identified five areas where government could and should act to reflect the new status for the sector:

1. Implement VAT changes for colleges akin to those for schools
2. Issue a Local Government Pension Scheme guarantee letter as they do for schools
3. Support teacher recruitment, as they do for schools
4. Add colleges to its centralised buying schemes like business rates, licenses, insurance etc. which are all funded for schools
5. Provide capital funding to compensate for borrowing restrictions.

Three-and-a-half-years later, there has been progress on three of the areas listed:

•  DfE stepped up its support for teacher recruitment in colleges in 2023 and has introduced a policy to keep 16-19 funding decisions for the sector in step with those made for schools. However it has not made any progress in closing the school/college teacher pay gap.
• The Skills minister announced an LGPS guarantee for colleges in November 2024 which removed uncertainty about what would happen in case of insolvency (an odd circumstance for a public sector organisation). This measure is estimated to save the sector around £30 million a year.
• DfE's estate strategies and capital budgets include college on a similar basis to schools though have left individual corporations with no funds for major capital redevelopment between 2026 and 2030 unless they have land to sell. In addition there are financial consequences (in the form of interest payments) from the decision to deal with college bank loans only when contract terms expire and to replace them with government loans rather than to repay them in full.

There has been no progress on the other two issues.

I wrote two articles on reclassification, one on the day it was fixed and one a year later. The issues in both articles remain

Julian Gravatt
2 June 2026