Understanding the status of English colleges - an AoC explainer

08 May 2020

Further education and sixth form colleges are run by statutory college corporations and have a public purpose.

Like universities, charities and housing associations, they are classified in the UK national accounts as private sector organisations – as Not for Profit Institutions Serving Households (NPISH).

This note (written in January 2019 by Julian Gravatt) explores some of the issues and the background.

Legal framework for colleges

Further education and sixth form colleges in England were incorporated as corporations as a result of the 1992 Further and Higher Education Act. This legislation transferred colleges out of local government and created a new legal institution. At the same time, central government took on other legal powers which made it possible for systems and rules to be introduced on a consistent national basis.

There have been many changes in the law, rules, agencies and programmes in the last three decades but have not changed the underlying structure of the sector which was set in the early 1990s. The key features are as follows:

  • Distinct legal status: Colleges have a common legal status as statutory corporations with charitable status. Their public visibility between schools and universities means they are typically included in new laws applying to the public services, ranging from freedom of information to the public sector equality duty.
  • Reliance on government for income: Most of college income comes from public sources, from the government. This is a factor in ensuring that colleges are required to apply public procurement law[2]. Government funding restricts college surpluses while making bank borrowing an implied condition for securing capital funding.
  • A distinct set of tax and pension arrangements: Colleges stand outside the public sector in terms of VAT legislation. This, combined with the exempt nature of education, creates a bias in favour of colleges employing staff directly rather than contracting out services. Meanwhile colleges are required by law to offer public sector pensions to their staff. As a result of Local Government Pension Scheme membership, all colleges hold additional debts on their balance sheet

One way of describing this is to say that colleges have been locked into a model in which they are over-reliant on government (which over regulates and under funds them) and guided by a financial model in which they spend more on staff and buildings and less on technology (because this cannot be used to secure private sector loans).