 Welcome to the 22nd meeting of the Public Audit and Post-legislative Scrutiny Committee in 2018. Can I please ask everyone in the Public Gallery to switch off or turn to silent their electronic devices? Item 1 is decision on taking business in private. Do members agree to take items 3 and 4 in private this morning? Item 2 is Scotland's Colleges 2018. I'd like to welcome our witnesses today, Paul Johnson, director general education communities and justice, and Aileen McEchnie, director for advanced learning and science, both from the Scottish Government. Dr John Kemp, interim chief executive of the Scottish Funding Council, and Andy Whitty, director of sector policy from Colleges Scotland. Each of the three organisations are going to make a brief opening statement this morning, and can I ask Paul Johnson to start, please? Thank you very much, and I'm grateful for the opportunity to provide evidence to the committee in response to the Auditor General's report on Scotland's colleges 2018. I am the relevant accountable officer for the Scottish Government and have responsibility for ensuring that the Scottish Funding Council's strategic direction is aligned with the priorities of the Scottish Government and that it has the necessary controls in place to safeguard public funds. The accountable officer for the Scottish Funding Council is Dr John Kemp, and the funding council is accountable for the delivery of Scottish Government policy objectives, for the deployment of resources to deliver these, and for associated planning and risk management. I welcome the Auditor General's report. It highlights what is working, where on-going work needs to be concluded, and where there is scope for further improvement to be made. Colleges make a vital contribution to the Government's commitment to improving the lives and the employability prospects for many of Scotland's citizens. Scotland's college sector is one that is continuing to develop new and enhanced relationships with employers in areas such as curriculum planning, work experience and employability skills. Colleges have a clear role in delivering the skilled workforce that we require to generate inclusive economic growth. I am pleased that the report identifies that the sector has continued to exceed the national target for learning and highlights the significant role that the sector is playing in widening access to learning, with the proportion of learning hours to students from areas of deprivation, ethnic minorities and those with experience of care or disability all continuing to increase in the 16-17 year. Student satisfaction remains high, with more than 90 per cent of full-time and 94 per cent of part-time students satisfied with their college experience. The report also emphasises that there is regional variation in relation to student attainment. That is a complex area, and there is an interplay of many factors, including deprivation and labour market conditions, but the Government is determined to see attainment figures improve for all learners. We will continue to work closely with the funding council and the sector to drive that forward, building on emerging learning from our national improvement project. I am happy to leave it there, given the other statements that you have, and I look forward to answering any questions. Thank you very much. Dr Kemp. I thank you for the opportunity to discuss the Auditor General's report this morning. First, I could have said that the Scottish funding council accepts all of the recommendations in the report relating to SFC and has already implemented some of them. The report has many positive aspects. Our colleges are generally serving people well. Over 90 per cent of students are satisfied with their college experience. The majority of college leavers are in a positive destination six months after graduating. Colleges continue to excel at widening access to both further and higher education. There was an increase of 43 per cent in care-experienced enrolments in 2016-17, compared to the previous year, and a doubling in a number of senior phase age pupils studying vocational qualifications. SFC has used its outcome agreements to work with colleges to encourage and support those changes, and we will continue to do that. We do recognise that there are challenges. Colleges operate in a changing world. The sector will need to continue to make sure that they are delivering the skills that people need through learner journeys that involve working even closer with schools and universities. We in SFC, in the enterprise and skills strategic board, want colleges to be part of the upskilling system for people in work as well, and we want to develop that further. Most importantly, we want to improve success rates for students. Colleges support some of the people with the lowest prior attainment before they enter the system, but we should aspire to do better and improve success rates for all. SFC will continue to work with colleges to deliver all of those things while they are remaining financially viable. I look forward to discussing how we do that with you this morning. Andy Whitty Good morning. Thank you for the opportunity to provide evidence today at the committee on behalf of Colleges Scotland, which is the voice of the college sector. Scotland's colleges have an incredible depth and variation to them, and whether that comes from access-level courses to degrees, professional development and modern apprenticeships, college learners have many diverse requirements. It is through their flexibility that colleges provide the high-quality courses that meet the needs not only of learners but also of communities and employers. The Scotland's colleges 2018 report details many positives for the college sector in Scotland as well as some challenges. The Audit Scotland report outlines tangible progress being made by colleges in key areas. It is encouraging that student satisfaction levels are rising at over 90 per cent, and 95 per cent of confirmed college leavers are going into positive destinations of employment, further studying or training. Colleges have surpassed the Scottish Government's learning activity target of a little over 116,000 full-time equivalent learners. We embrace diversity in the college sector, and the Audit Scotland report confirms that the proportion of credits being delivered to students from ethnic minorities with care backgrounds, with disabilities and from deprived areas is increasing. Atainment levels for SIMD 10 and SIMD 20 have increased for both full-time FE and full-time HE students since 2011-12, and colleges continue to play a significant role in widening access. There are some financial challenges outlined in the report for colleges. Colleges Scotland is working in partnership with the Scottish Government and the Scottish Funding Council to help to deliver a sustainable funding model that will enable colleges to continue working with employers and producing the skilled workforce that our economy depends on while providing considerable benefits to students. Colleges are making a significant positive impact on Scotland's inclusive economic growth agenda. Fraser Vallander Institute report published last autumn concluded that college graduates contribute an additional £20 billion to Scotland's economy over their working lives. I am happy to engage with the committee this morning. I am going to ask Ian Gray to open questioning for the committee. One of the key aspects of the Auditor General's report this year was that colleges were in a better financial position than, for example, a year ago when she reported, but she raised some concerns about the sustainability of the financial position of the sector going forward. Notably, she notes that all of the savings from the reform programme, the mergers, and most if not all of the increase in revenue funding that has been provided will be absorbed by the costs of national bargaining and termination. Is it fair to say that our colleges have in fact no increase in funding in order to deliver their core functions? I am certainly happy to take that. It is important to emphasise, as you recognise, that the financial health of the sector has improved. The report is quite different to the one that we were looking at last year. There has been a significant real-terms increase in revenue funding to the sector. We absolutely recognise that harmonisation has represented an investment in the workforce and that additional funding has been provided this year to deal with the costs of harmonisation. The auditor general is entirely right that the savings from mergers a few years ago were £50 million and the eventual cost to national bargaining is £50 million. It is important to recognise that those are two things some years apart and that the additional funding for national bargaining so far has resulted in additional funding. It is not a cost. I would not like people to imply that the savings from the mergers are in fact funding national bargaining. That is not the way it has happened. There is additional funding for national bargaining so far. It is another year where it is to be implemented. If the savings from mergers had not happened, it would be in a different place where national bargaining, if it was going to happen, would cost even more. The two things do cost £50 million, but they are quite separate. The auditor general is pretty clear that the real terms increase of 5 per cent on 2016-17 most of that will also be absorbed by the cost of national bargaining. Is there any increase in funding really for the coloured sector at all? Yes. Between 2017-18 and 2018-19, a large chunk of the additional funding has gone into national bargaining, but there is also an increase of 1 per cent in cash terms to colleges to deal with financial pressures as well. Most of the additional increase is 1 per cent cash, not 5 per cent real. The actual increase in academic year terms that colleges would receive—we are funded on a financial year basis by the Government, which is where the 5 per cent comes from—is near 10 per cent, because some of that academic year is in the next financial year. Colleges have received an increase nearer 10 per cent in real terms, of which a good chunk is going to national bargaining, if you are correct. Paul Johnson I refer to Exhibit 1 in the Auditor General's report at page 10, in which it is pointed out that, on the left-hand side, SFC income is described as up to 6 per cent from 2015-16, and on the right-hand side, staff costs are up to 1 per cent from 2015-16. That is quite a helpful graphic that points to the additional investment that has been made. In key message 4 on the previous page, the Auditor General says that a real-terms increase of 5 per cent on 2016-17 most of that is to meet increased costs associated with national bargaining. Most of the uplift has gone to national bargaining. Dr Kemp says that what is left is 1 per cent cash. Paul Johnson That is correct. Most of it has gone to the cost of national bargaining. The Auditor General said in his opening statement that the money had increased, but the fact is that it is not going to students. Is that right? Paul Johnson It is correct to say that most of the increased money is meeting the cost of national bargaining. That is in order to ensure that we have a workforce that is able to support students. I would not wish to suggest that investing in the workforce is not providing help and support to students. How about the colleges that met the costs of harmonisation when it was proposed a few years ago? For instance, Dundee and Angus College in my area paid for that themselves but then did not receive a kickback from the Government. Are they going to have that money refunded? Paul Johnson It is important to note the distinction between some of the original approaches to harmonisation that were taken and national harmonisation. I know that Dr Kemp has got more detailed financial information about what is happening with specific colleges, so perhaps I could turn to Dr Kemp for that one. Paul Johnson It is important to draw a distinction between regional harmonisation and national harmonisation in that colleges that harmonised internally, in the case of Dundee and Angus College, what used to be Dundee College and Angus College, did not necessarily harmonise up to the same level as the national harmonisation that happened a few years later. The two processes were quite different. What is correct, and several colleges have raised that with me, is that colleges that have higher wage rates prior to the national harmonisation will have received a smaller amount of an increase between 17, 18 and 19 than if they had a lower wage rate at the time. The crucial thing there is not whether they harmonised at the time but what the level of wages were in the college. Almost every college did receive an increase related to harmonisation for 17 and 18. In the case of Dundee and Angus College, it was about £2 million of an increase related to national bargaining. That reflects the fact that, even though they had harmonised before, there was still a gap between their wage rates and the level to which it was harmonised. There was also a difference in the hours that worked and the holidays and so on that had to be paid for. Even though some colleges would receive more, in the Highland colleges, for example, the increase was about 20 per cent between those years. For the other colleges, it ranged from about 5 per cent up to around about 10 per cent and 10 per cent was the average for the sector as a whole. All colleges received some increase, some were bigger than others. It still seems to me that those colleges with good governance who could foresee and were listening to Government and implementing things as they went are being penalised financially. That does not seem to me fair or a good signal to send from the Government. I think that if we were, over time, just to freeze those increases as they are in this year and next year, you are quite right that that would be unfair. The reason that we have given some colleges a bigger increase than others because they have a bigger gap this year is reflecting the very tight financial situation in colleges and you are trying to do this in the most efficient way possible. Once it is fully implemented, our intention is to move to a funding system that is based on a cost per unit of education, which is the same across Scotland with allowances for rurality and deprivation and so on. Over time, we are moving away from funding people based on what their wages were a few years ago to one that is based on what they are delivering. Paul Johnson, will you look at the colleges who attempted to make early arrangements for this and see whether they have been financially penalised and put that right? I am conscious that my colleagues in Scottish Government and colleagues in funding council are in regular dialogue with colleges from across Scotland. Where colleges wish to raise particular issues with us, we will consider them carefully. Willie Coffey, thank you very much, convener. I suppose that it is really very much in the same theme here, but in relation to Ayrshire College, particularly to you Dr Kempe, I wrote to you to ask you for information about the colleges that it did receive funding support at the point of merger and you are unable to provide me with the figures that it says here in your letter. It is not possible to provide an accurate costing for harmonisation at the point of merger as the FFC did not hold detailed records of staff numbers etc. Why is it not possible to tell us how much was paid to those colleges at the point of merger who did not harmonise? The essential point is that we did not pay for harmonisation in most colleges. In my letter that I sent to you recently, I did point out that there were two colleges where we did make a contribution towards harmonisation costs, but for most colleges in the 2012-13 merger programme, we did not. What I was saying in the letter was that because wage rates were up to colleges and we were not funding directly, we do not have an accurate costing of exactly what harmonisation would have costed in every college. One of the things that has been evident as we have assisted the colleges with national bargaining, trying to work out exactly what the hours worked, the contact hours, the holiday payments for colleges and adding that up into a national figure is not a simple piece of arithmetic. We have done that now, but it was not done in 2012-13 for each college as they harmonised. It would have been done by the colleges themselves, so they will know the cost, but we did not fund it, so we do not have that. Are you sure about that? I have got the post merger evaluation document in front of me here, and it clearly shows a table of those colleges who paid their own harmonisation money at that time. Dundee and Angus is one of them, and they paid £750,000 at that time. Ayrshire College paid £565,000 at that time. There are about nine colleges in total who paid £4 million out of their own resource at that time, and I have continued to pay that as a consolidated harmonisation sale. How come you do not know that? Those are the figures from the colleges that were in the post merger evaluation. What I was nervous about doing was validating those costs. Was it that it has been a tricky thing to do as part of national bargaining? I accept that colleges did incur costs in harmonising, and we encouraged them to harmonise because it would lead to a better merger. It was part of our mergers guidance to do that. It was not done as a precursor to national harmonisation, although many colleges knew that that was likely to happen. It was done because we encouraged colleges to do it in order to have better mergers. We do accept their additional costs, and we do acknowledge that colleges have incurred those for some years. As I have said, colleges that ended up with higher wage rates as a result of harmonisation or other decisions at the time would have got a smaller increase in 18, 19, than if they had not. We acknowledge that that is something that cannot persist and that, over time, we will need to find a way of moving back to a cost-times-price way of funding. That is what you have just said. There has been confirmed by the cabinet secretary who wrote to me and said that it is recognised that had Ayrshire and others not harmonised its terms and conditions at the point of merger, it would receive a higher level of funding now. That would have been carried on until the point where it began to make additional harmonisation payments. What the convener asked you and what I am asking you is, to Mr Johnson, will you revisit that? In my opinion and the committee's opinion, some of the colleges have suffered detriment as a result of their own good practice? They have not got the same level of income. The Ayrshire colleges increase was 6.8 per cent of which £1.9 million was for the national bargaining cost. There have been some amounts of funding to Ayrshire, Dundee and Angus and other colleges that have been harmonised that are supporting the national bargaining. I accept that that is less than it would have been had lower wage rates at the time that national bargaining was coming in. We intend, over time, to address that. Do we retrospectively go back and address this for colleges that had lower wage rates over the past five years? I think that that would be very difficult to do and I am not sure how we would do it. I think that Mr Coffey and I are looking for a commitment from Paul Johnson and Dr Kemp that you will look at this and come back to us and see if there is a potential solution here for the colleges that we mentioned. From my part, we are clearly committed to the success and the sustainability of the college sector and the individual institutions within it. That is a very wide statement, Mr Johnson. We are looking for a specific commitment on the issue that we raised. I wanted to emphasise, though, that we clearly are looking at an overall financial settlement that has constraints, but, as I have already said, we will absolutely look at the specific issues that the committee has raised today and are happy to engage directly with the colleges and, indeed, the committee wishes further information from us. I think that that would be good, because I do not think that this Government would want to be penalised in good governance and I think that that is what has happened here. Colin Beattie. I would like to have a look at the question of repairs and mentors, which is a very obvious highlight out of the Auditor General's report. From looking at paragraph 25, just to look at the headline figures, your state's condition survey in December 2017 identified £163 million of repairs and mentors needed over the next five years. The first thing that jumps out at me is that if they take account fees, inflation and other costs, suddenly it becomes £360 million. That is more than double. How does that work? If you want to affect those repairs, you have to take into account more than the actual direct cost of affecting the repairs. Fees, VAT, contingencies and optimism bias all need to be built in if you are going to have a realistic costing of what it will do and what costs will be incurred. The way that we approached that was consistent with the Treasury Greenbrook and the ways of looking at optimism bias and costing for fees. Had we done it the other way around and said that there is £163 million backlog there and then said that it would cost far more than that to deliver it later on, we would have been dishonest. So the £163 million did not include VAT on the works to be done? No, that is the way that it was worked out. The £163 million was direct cost and then VAT, optimism bias and so on, and fees were built on top. It sounds like an incredible increase to me, but maybe that's the way it works. Looking at the high-priority works, £77 million identified over the next two years. How serious is high-priority work? What sort of examples would that be? The Gardner and Theobald report, which we published in December, categorises into very high and high priority. Very high priority is stuff that has essentially already failed, a roof that is leaking, and high priority is the next one down, a roof that is expected to fail within the next two years. Against the £163 million, it is quite a high proportion that is very high priority. It is about 20 per cent of the £300 million. I think that you are quoting the figure for the proportion of the £306 million. I think that it is important to understand which figure we are comparing that £77 million against. It is the gross figure that includes the fees and the opt-ins and bias. The bigger costs are in the low and medium priority, which will be done in years three, four and five. However, it is a significant amount. If you would say £77 million over the two years, you are providing £27 million this next year. Are you going to be providing the funds for the second year? The £27 million is for £18.90 million, and that is already in place. We are in discussion with the Government about next year's budget. I am unable to say how much we will be able to allocate in future years, but the state-conditioned survey was commissioned and is there in order to give us a firm evidence-based for discussions with the Government on budgets. You look across colleges and many have first-class facilities, which reflect the investment that has already happened in the college sector, but that is not consistent. Clearly, the state-conditioned survey reflects that. Obviously, I am grateful for the very high priority funding for this year. The £77 million needed over the next two years following that for the high priority became part of Collegy Scotland's spending review submission by putting half of that £77 million in for 2019-20. We are looking for that funding to be able to do those high priority issues. Colin Beattie, what extent is the Government committed to meeting those repairs over the next five years? Is there a plan to try to address that? We accepted the recommendation from the Auditor General last year that this work should be done, and it is good to see that the work has now been completed. Indeed, the highest priority work is being addressed. We need to consider the specific funding allocations as part of the budget process this year. You will appreciate that I cannot confirm today what the precise capital allocations would be for the sector, but I can certainly confirm that those issues will be considered fully as part of that process. Liam Kerr, if I may, is absolutely clear. If I am a college, I need to find £77 million across the sector sometime in the next two years to deal with the high-priority works. Am I going to get that, or am I not going to get that? I think that my colleague Gailin would like to add. I wonder if I might supplement what Mr Johnson has said. We are in the middle of a budget process. We are working closely with Collegy Scotland and the Funding Council to understand what the priorities are. As Collegy Scotland has said, it has bid for half of the £77 million, so that is in our thinking for the 19-20 budget process. We are equally inside government thinking about an infrastructure investment plan for the next five years into which the Funding Council's report plays. All of that is currently subject to discussion, but because the budget process is live for 1920 just now and clearly we cannot pre-empt further-year budget processes, we cannot commit, but we are working very closely with the sector and the Funding Council to understand what the needs are and how we might best address those. Can you give me any reassurance with my college hat on as to when I might know whether I am getting the money or not in order that I can make business plans for my estate? Every college will hear, as other parts of the system will hear, when the budget statement is made in Parliament and we expect that to be in December. Right. Just a very final bit of a daffladi question, if I may. The paragraph 27 of the report talked about, in Scotland's colleges 2017, the Auditor General recommended that the Funding Council produce some criteria so that it can decide where the funding should go. I understand that that was produced in December 2017, but it has not been published. Has that now been published? If not, when will it be? The criteria was not for the dispersement of the £360 million, but for new capital projects that would be over and above and would be for replacement of campuses and so on. The criteria were in the letter that I sent to the committee a couple of weeks ago that included in the papers. Some of the factors that would be included in that criteria were also signalled in the circular in which we published the estate condition survey back in December. We are still discussing those with Collegy Scotland and have not completely finalised them yet, but they are in the public domain now. First of all, the role of the regional bodies. For example, I noticed that Glasgow, which has got three colleges, spends £430,000 on a regional body. Lanarkshire, which has got two colleges, only spends £50,000. What is the value of those regional bodies, particularly Glasgow? Where is the added value for that money? John Henn. The added value comes in bringing the colleges in Glasgow together to have a coherent curriculum across the city, to plan that, to allocate funding, to fund that coherent curriculum, to offer one point of contact for businesses, for things like the flexible workforce development fund and foundation apprenticeships and so on. The intention and the legislation that set up the regional strategic bodies was that, if the SFC is to fund a region as opposed to a set of colleges in a region, there needs to be somebody—where there is more than one college in a region—there needs to be somebody who is pulling together the colleges in that area, making sure that they are funded at a local level to deliver the needs of that region, to be responsible for the outcome agreement for that region, and to ensure that the region is getting what SFC is funding. That is the purpose of the RSVs. You are quite right to point out that there are differing levels of costs and that Glasgow is the most expensive one. That is because all three of the regional strategic bodies are unique, but Glasgow is the only one that is a separate board, i.e., it is not a university or an existing college. It has higher costs. However, those costs amount to about 0.4 per cent of the funding that it handles, and that is broadly in line with the costs of the funding council. It is a more modest cost than it could have been. If you look at the financial memorandum for the legislation when regional strategic bodies were being set up, they assumed that a regional strategic body would cost well over half a million—it was 560,000—was the assumed cost of a regional strategic body, and all three are operating well below that. Sorry, Alex Neil. I realise that it is 0.4 per cent, but £430,000 would help quite a few students if it was given to them in terms of bursaries. When I'm perplexed in Lanarkshire, it's an average of 25 kPa per college, and yet in Glasgow it's well over 100 kPa—well, nearly 150 kPa per college. Where's the added value? It's absolutely right that we consider every pound that's spent on administration and whether that could be better spent on provision in colleges. However, Glasgow and Lanarkshire are in very different circumstances. In Lanarkshire, there are two colleges, and 80 per cent of the provision is in one college, the larger one, new college Lanarkshire, which is the regional strategic body. It's a different model. In both cases, part of the reason there isn't a separate strategic body in Lanarkshire is to save on administration costs and have a leaner model. That's why it's done that way. Eileen McEchnie Mr Neil might be helpful if I list some of the successes that we've seen from Glasgow. Clearly, the regional board has produced its strategy. I'm sure that you and other colleagues will have seen this, and if not, we'd be happy to share it with you. It's a demonstration of ambition for the city region of Glasgow. Successes include greater cross-college working and curriculum planning and organisational development in student experience and delivering developing the young workforce, institute of data systems and regional capital distribution in regional approaches to procurement and shared services, in collective delivery of foundation apprenticeships, in a collective approach to the delivery of our ambitions around early learning and childcare, in collective approaches to delivery against the flexible workforce development fund. There's a long list of activity that the regional board is driving in a collective pan Glasgow way across the three colleges, and they are significant in terms of scale. We reduced through the reform 10 colleges to three, so I think it's really appropriate that we have a body that sits across that and really drives the collaboration and alignment that we need to see to get the maximum benefit for the Glasgow city region. Did that be achieved without this extra bit of bureaucracy? I'm not convinced it wouldn't be. I think that that's a fair question. We have recently commissioned the funding council to do an exercise of understanding better the value delivered and secured from the regional bodies and the regional system, so that's a live piece of work. Has that been done by outside consultants? Well, I don't think that the funding council has determined. But we will do that. I've got a meeting with the college chairs, the funding council, College of Scotland and the colleges development network next month to have a conversation as a collective about how we best do that, how we best understand what we deliver, how we deliver it, how we secure best public value from the delivery of that regional approach across Scotland, so that's a piece of work that we're now taking forward. Can I just ask more specifically about inside the colleges, because clearly how the money is spent inside a college matters in terms of maximising its impact on the local economy and local people? We took evidence from new college Lanarkshire, which has not had its problems to seek and still hasn't resolved quite a number of those I mean the relationship between management and the staff could all be described I think is appalling. But one of the issues also is that there seems to be a lot of money being spent on layers and layers of management and we've had similar submissions say on Edinburgh College and down the years on other colleges as well and not enough on the provision of the front line lecturing services. Is that something that you're monitoring, that you're looking to colleges because I'm sure they are not the only two colleges in Scotland who may be a bit top heavy on the layers of management and a bit light on the money that's percentage of the money being spent on the front line service? We don't decide on the structures within colleges. I didn't ask if you decided to ask if you monitor it, you're supposed to monitor performance. We have, and as you'll know when I was in this room talking about new college Lanarkshire, we did look in response to one of your questions at the proportion of staff above I think 60,000 and found that new college Lanarkshire is broadly average. There is a variation in the way that colleges arrange their internal management. Were we to be concerned about a college having an excessively heavy senior management? I'm stressed that I've not seen strong evidence that any are way out of line on that. We would be discussing that with the board and so on, but it's primarily an issue for the board and the management to decide on their structure. They have the responsibility of running their colleges efficiently. We're concerned about any efficiency of any kind. We will discuss that with the college board and their senior management. You picked 60. It's a fairly arbitrary figure. I didn't say senior management, I said layers and layers of management. There are some people who are managing one person, for example. I'm not saying that new college Lanarkshire is the only one with that problem, but what concerns me is that are we maximising the resources that need to be spent on the front-line service? For example, I'll give you an example. In new college Lanarkshire, there was one class that went for six weeks when no lecture turned up. I don't know how often that goes on in new college Lanarkshire or in other colleges, but I found that a polyg. That, to me, is ranked bad punishment. I wouldn't want to comment on that specific incident, but if things like that are happening, we would be working with Education Scotland through— How do you know that you didn't know what was happening? I didn't know about that specific one, but we are looking with College Scotland at how the outcome agreements have been implemented by each college and how they are supporting students and doing an annual engagement that would uncover issues about students not being taught. I don't know about that particular case and I wouldn't like to comment on it, but I'm happy to look at it further if you want. I think that the other issue, John, is the relationship between management in the unions and staff. Again, it's not confined to new college Lanarkshire, but, from the evidence that we have taken, it's a pretty bad situation. It would appear that there's an on-going situation at Edinburgh College and no doubt at other colleges as well. What are you doing about it? About the relationships between management and staff in the individual group? And the consequences of that poor relationship. We actually had the principle in here a few weeks ago that described some of his staff as troublemakers, I think, was a phrase, am I right? He didn't use that phrase, I think. He endorsed it. He endorsed it. He endorsed it. That's correct. Yes. Well, that's pretty well the same thing, isn't it? I was sitting next to him when he did it, so I remember. Dr Kim. Relationships between staff and management in colleges are issues for staff and management in colleges. The funding council cannot get involved in that. We would encourage college management to work closely with their trade unions and to consult, and to make sure that they are operating in a collaborative way. However, the prime responsibility there is the management of the colleges, the boards of the colleges to work with their staff. College boards include staff members, so they are at the table when these discussions are happening. We would want colleges to be working as effectively as possible, but the prime relationship there is between the management and the staff. I'm not asking you to micr-manage the colleges. Clearly, that would defeat the whole purpose of having college management, but you are the guardian of value for money. You are the accounting officer, effectively, for all that money that is spent on colleges, which is an essential part of an economy. I get the impression that your attitude is that, once you've dished out the money, it's laissez-faire. I would have to say that if you asked colleges that, they might say different. I'm more often accused by colleges of being a micr-manager than of running away and not asking what they're doing. We, through the outcome agreements and through our work with Education Scotland, do look closely at where that money goes, how effectively it's being spent, whether it's meeting the skills and needs of an area, whether it's delivering what students want. There is always a balance to be struck between what is the role of the senior managers and the boards of the colleges and what is the role of the funding council, but I have to say that I'm more often accused of being a micr-manager than the opposite. I wanted to move away from finances such a little bit, Mr Johnson. In your opening statement, you said that, as accountable officer, your responsibility was to ensure that the sector was aligned with the policies of the Scottish Government and were delivering those policies. In the college sector, there was a pretty clear government policy, which was a concentration on full-time courses leading to employability qualifications in students aged 16 to 24. In previous years, the committee has discussed the consequences of that, which was a very significant drop in student numbers at over 140,000 or 150,000 at the peak, with the decreases in part-time and older students. However, that seems to have changed, and this year the Auditor General reports an increase in part-time students for the first time in a number of years. However, she also points out that 70 per cent of that increase is an increase in students of school age, 16 and under, rather than older students. Is there any clarity about government policy in terms of what is requiring colleges to do? I would quite like to know from Mr Whitty if the college sector feels that they are clear about what the government is asking them to do, because it does seem to be changing all the time. I accept that there was a very deliberate decision to concentrate on full-time courses for young people a number of years ago, which reflected the labour market conditions at the time. I will turn to my colleague Eileen McEchnie in just a minute, because this year we did make changes to the letter of guidance that was sent to the funding council, quite explicitly asking them or recognising the need to widen out the range of individuals to whom college placements would be offered. Now, there has always been a range, but it has indeed, as the Auditor General recognises, widened further. However, it may be helpful to have some specifics on what we asked the funding council. In our outcome agreement guidance letter to the funding council on October last year, we were quite explicit in saying that colleges are not required to prioritise full-time provision for 16 to 24-year-olds, but rather should be responsive to the current needs of learners and the economy. That was to enable the sector to respond to the emerging conclusions of the enterprise and skills review and to respond to the strategic boards emerging strategic plan and to enable the system to respond to changed economic needs. As Mr Johnson has said, at the time that we introduced the focus on young people, it was a peak recession and we felt that it was an appropriate thing to do. The fact that we have achieved our developing young workforce target four years early demonstrates that that was a successful exercise and that was absolutely supported by the college sector in terms of delivery, but we recognise that the economy has changed and we need to refocus and enable the college sector to refocus its efforts in terms of reaching out to a wider economic requirement. We are working closely with the college sector in relation to the strategic boards' expectations about upscaling and reskilling of those in the workplace. The College of Scotland is represented on the strategic board to allow the sector to hear directly some of the emerging policy thinking as it is being developed. The college sector responded to the developing new workforce direction of government policy and understood and was happy to do that. As has been explained, the labour market is changing. The increase in part-time students, although the majority at this point are under 16, I can touch on that in a moment. The increase in part-time learners is reflective of the work-based learning and the in-work contribution that colleges can make, which is going to be absolutely vital for driving up productivity in the Scottish economy. I think that also colleges have a very strong link to SMEs, which are the backbone of the Scottish economy. The increase in part-time courses and part-time learners is a positive development in those areas. Yes, there is a considerable number below 16 years of age at this point, but that is through the stronger links between schools and colleges through the developing new workforce, which is providing a need to help to skill people in the areas and to help them to find the right place for them to learn going forward. It is trying to provide what is needed in order to build that skilled base going forward. That is a contribution that colleges traditionally made. Where is the college sector at the instruction of the government stripped out the contribution to in-work learning, increase in productivity and returners to work all of that? Are you saying that, Mr Whitty, your understanding as a Government now wants you to put all of that back in again? My understanding is that the college sector was responding to the Scottish Government policy direction for developing new workforce, and we understood that and supported that. As the labour market needs change and the Scottish Government policy needs change, we will be responding to that as well. That is what we are seeing in the start-of, and that is what colleges have the flexibility to be able to deliver on, and ultimately we will be a linchpin in delivering that need. Those 140,000 students who were stripped out of the college sector and the Auditor General in the past were largely women and people with disabilities who were affected by that change. Is the Scottish Government saying that they want to put that activity back into the sector now? We are not saying that we are retreating to a position that we were in before we introduced the reform piece and before we introduced our focus on young people. What we are saying is that the college sector needs to be flexible and responsive to the needs of economic shift. The college sector has always delivered part-time places. We have encouraged it to be thoughtful, and that is part of the regional ambition. What is the regional need? Every college region delivers slightly differently, and that is part of the expectation because of the geography, the economic impact and the economic need. We are working, as I said, closely with the strategic board, and the college sector said to understand what the national need and what the regional fit might be into that. Our emerging thinking from the strategic board is that there needs to be a greater emphasis on in-work upskilling and retraining. The bulk of the workforce is being ready for the jobs of the future, the jobs that we do not know yet, what they might be and are already in the workplace. How do we train those in the workplace better? There are live conversations with the college sector about what its offer is and how it might flex. There is something about learners coming in for full-time or part-time learning, but people in work being able to access upskilling and retraining so that they are better able to progress through the workplace or into other types of occupation and opportunity. You feel that that is a clear strategy for the sector going forward because it does not sound very clear. It sounds as if the sector has been asked to make a very significant strategic shift and now it has been asked to do something different all over again. If I was a college, I would feel that that makes it quite difficult to plan my activities. The college sector is a very adaptable sector. It is a sector that responds very quickly to change. The change that we were talking about earlier about prioritising young people was 10 years ago, and that has worked through the system. By and large, the number of part-time and older people has stabilized over the past few years. What we are now talking about is the emerging conclusions from the strategic board of pointing into a different direction. It is not starting from a base where all places and colleges at the moment are full-time for young people. There are still 200,000 people on part-time courses in colleges. That is down from where it was 10 years ago, but it is still a fairly strong base. The issue that we now face is how we use the capacity in colleges to respond to the current economic need—rather than the economic need that there was 10 years ago. We were working with the colleges. That is not done as a complete surprise to colleges. We are working with colleges on that so that they can adapt. Dr Kemp's foundation apprenticeships are an integral part of the discussion that we have just had. Paul Johnson, the national target for 5,000 foundation apprenticeships, has that been met? I do not have that figure in front of me, but I will see my colleague Eileen McEason. It is due to be met this year. Our ambition is to secure 5,000 FAs by next year, I think. Do you know how far we have got? From memory, we are a third or more of the way through. I am looking to John. If he is funded by SDS rather than the Scottish Funding Council. Yes, but remind me who exactly is responsible for delivering foundation apprenticeships. They are commissioned by SDS. They are largely delivered in colleges, but often the commissioning is through local authorities. Paul Johnson, would it surprise you if I said that for Dundee we have a target of approximately 250 and approximately only 13 foundation apprentices at the moment? That is something that we should absolutely take away from based on what you have said. I would be happy to write to the committee to provide an update on how we are getting on with the target. Does that represent the situation with foundation apprenticeships across the country? Eileen McEason is mixed across the country. The foundation apprenticeship we introduced is part of the development of the young workforce programme. It is a new qualification and is equivalent to higher. We have had to engage hard in the system, schools, colleges, employers and teachers and parents to understand what the value of it is and why their young person would want to take up a foundation apprenticeship as opposed to a higher. That exercise in marketing, promoting and influencing choice is work in progress. Fair enough, but if you have to reach the 5,000 target by next year, then the figure of approximately 13 out of target 250 in one area must surprise you. I was not aware of that and that is disappointing. We will take it away and look into SDS, as Mr Kemp has said, is the lead agency for this. It has offered assurances about ability to deliver, but what we want to be clear is that, while we have a target for foundation apprenticeships, what we are delivering is the best outcome for the young person. It worries me greatly because of the situation that we have with youth unemployment and opportunities for young people that figures can be as stark as that and so low. If you can commit to looking at that and coming back, that would be good. Bill Bowman. My question is principally to Dr Kemp, but maybe Paul Johnson would want to come in as well. In your submission, you talk about the college's financial position and the remarks made by the Auditor General, which I must say concern me at the time, about the college's inability to calculate their underlying financial position consistently and also that the forecasting returns did not use common assumptions. To me, that means that, if they could not calculate their underlying financial position consistently, some were doing it right, some were doing it wrong, and if you are not using consistent assumptions, you are comparing apples and oranges. A lot of the discussion today has been about finance and what goes where, but if we do not actually know the base information, then I think that we are struggling a bit. You say that you have addressed these recommendations, but I hope that that is more than a stern memo to the colleges to do something. Perhaps to use your own phrase, here is a time for a little bit of micromanaging. Can you maybe tell us how you are making sure that this is done? It might be fair to describe this as a little bit of micromanaging in that the financial forecast guidance that went out after the Auditor General's report was published in July was far more detailed on how colleges should work out their forecasts and the assumptions that they should make. Previously, there were a range of things that they could look at, and they would interpret them in different ways. In defence of the college sector, I would say that, in the year that the Auditor General was looking at, it was quite a difficult year to make assumptions in that, depending on whether you are optimistic or pessimistic about national bargaining with funding, you could end up in a different place where your financial forecast was a very difficult year. What we have done this year in our guidance is to be far more specific about the assumptions that they should use and give a far more detailed set of spreadsheets that they should fill in and how they should treat things in their accounts. The guidance is up on our website for all to see, and we are anticipating that it will lead to a far more robust and comparable set of financial forecasts from colleges. The deadline for those was last week. They came in on 28 September, so we are now working through them, but I am anticipating that they will be far more consistent in how they have treated what is likely to happen over the next few years. My concern is with the term guidance, as opposed to instruction. Is it closer to instruction? How would you know that they are actually doing it? College boards have responsibilities to manage their own finances and their own financial sustainability. I would not want to go too far down the line of instruction from us. It is very specific guidance that says how they should treat particular things. If they do not treat things that way, they would need to explain to us why. Colleges are independent bodies. They are part of the public sector and subject to the Scottish Public Finance manual, but they are independent bodies. We would want colleges to be managing themselves, to be entrepreneurial and so on. We need to strike at the correct balance, but on that we need to understand what their financial forecasts are. We have been very specific. Are you supportive of that? I absolutely agree that consistency is important when it comes to forecasting so that we can get a clear picture of the sector as a whole. I welcome the work that has just been described, and my expectation is that that will deliver improvements going forward. I am sure that that is something that Audit Scotland will continue to be commenting on. Liam Kerr, I am going to move on, if that is okay. Very briefly, if I may, I looked when Audit Scotland ran about the gender balance on boards. What we looked at in the report was that all but three fall short of the statutory gender representation legislation. What is the timeline in which colleges need to change the composition of their board and comply with the legislation? What happens if they fail to do that? I might say a few words about what we are doing to seek to improve that position, because we, like you, recognise that it is not good. We are working closely with College of Scotland, CDN and the funding council alongside the chairs to encourage greater diversity across boards. We offer advice from our public appointments team, and from the commissioner for ethical standards and public life. We invite board members to our on-board conferences, and we make clear our expectation about shift in diversity on boards in our annual missed year letters of guidance. We are holding our second annual event for college chairs and vice chairs in November, and one of the key items on the agenda is the gender act and the gender balance on boards, which we discussed the last time we met. We work closely to encourage shift and change. We use those events to share good practice and learning, and one of the case studies on that day will be from Dundee and Angus College, outlining its success in taking forward diversity. It has really shifted its approach to how it advertises and recruits, and it has changed the balance on its board quite substantially. CDN is responsible for offering training and development to all board members, and it is working hard to encourage boards to be more thoughtful and creative about how they advertise, because part of the issue is about the number of applications that they get, so that they can only be selected from the pool that is placed before them. There is a lot of work going on in terms of being thoughtful and creative about how adverts look at what they say and where they are placed, and how they reach out. The other thing that we are working hard on is talent management and succession planning. How do you identify individuals and gender balance matters? Of course it does, but diversity in the widest sense equally matters on boards, so we are thoughtful about diversity in the widest sense in terms of how we encourage people to apply to. Andy Witty Thank you very much for coming on this. In on college, boards have increased by 9 per cent since 2014. Over the last four years, it has moved from females being 35 per cent of boards to 44 per cent of boards. I think that there is a strong direction of travel there. Clearly there is still some work to do and Aileen's outlined elements that will help to continue to drive that, but there is a good progress towards that 50-50 split on college boards. Liam Kerr I hear the point. Can you clarify again, because there will be colleges watching this. What is the timeline by which they have to have complied with the objective and what happens if they fail to do that? By the act. That is my understanding, but equally we have previously articulated an ambition for 50-50 by 2020, so we are not comfortable being slow in terms of delivery, which is why the long list of activities that I outlined earlier are part of a hard drive across the sector to ramp up the diversity and balance across sports. As I said, I would not be comfortable saying that we are happy to wait until 2022. The actions that we have in train demonstrate that this is an area that we think is hugely important and that we want to drive change. As Mr Whitty has said, we are seeing change in improvement, but there is more to do. Thank you very much. Willie Coffey I returned to the financial matters and raised the issue of the PFI contract that Ayrshire College has. It is perhaps the last milestone around the neck of the college from a bygone era, but nevertheless it is having a major impact. It is mentioned by the auditor general in her report and it is providing a significant challenge for the college. I wonder whether Paul or John are aware of the letters sent by the college, signed by the students, signed by the union, signed by the management. A warning of the dangers of what could happen. The initial college, if that is not addressed, is talking about a potential significant reduction in workforce. It could damage the services of the colleges that it will be able to offer to students and so on and so forth. What is being done to try to address that problem? I am aware of the issues that you have raised and they will be considered carefully. I know that Dr Kim is looking into them just now, so perhaps he can say a bit more about what he is doing. I wrote to Heather Duncan, the principal at Ayrshire College yesterday in response to that letter to the First Minister, but also to one who sent me on a similar issue the day before. We have been working closely with Ayrshire College recognising that there is an additional burden on that college caused by the PFI contract. That contract has been there for some time, it has been dealt with by Ayrshire College and its predecessor colleges for well over a decade. Given the very tight financial circumstances that all colleges are in, we are working with Ayrshire to look at potential solutions. For 1819, there is a solution in place where the receipts from one of the buildings that were surplus because of the new campus is funding it for 1819. We are in discussion on ways of helping them in the future. As I have said in my letter to the principal, I think that it is premature to be talking about reductions in staffing on the scale that is mentioned in that letter at this stage, given that we are currently in discussion with the college about potential solutions. The funding support so far is a one-off payment in receipt from the old command college building. That is a one-off. It does not address problems on as you well know. I know you guys well. It addresses it for 1819, I acknowledge that. At the time, we managed to buy out to the West Lothian College PFI a number of years ago to the tune of £27.7 million, because, as you say in your letter, John, that was unaffordable for the college. The PFI contract is unaffordable for Ayrshire. I accept that it is a burden on Ayrshire College. The scale of the burden is quite different. In Ayrshire colleges, the auditor general says in the report that it is about 4 per cent of their income. The West Lothian one was about 20 per cent of the income, so it is a heavier millstone. That said, we recognise the burden on Ayrshire College in our looking at ways that we can come up with a different solution. That might not be buying out the PFI, because this one is far more advanced and that might not be the cost-effective way of doing it, but we need to look at ways of supporting the college. The payment that Ayrshire has to make is about £2.2 million, but West Lothian, at the time, is paying £2.7 million, so Ayrshire's payment is less. What the West Lothians was, but yet we managed to buy that one out furiously in March 2007, just before the election. I was not involved in the West Lothian one, but West Lothian is a far smaller college. That was 20 per cent of their income, and it is a smaller burden on Ayrshire. That said, I am accepting that it is a burden and we are discussing with the colleges ways that we can mitigate that. Did you finally accept that it is a bit of a double whammy that Ayrshire is having to face in relation to the harmonisation element that we have already discussed and this millstone that is still hanging around their neck? I do not want to be trapped into saying double whammy, but I am accepting that Ayrshire has particular financial challenges, as do many other colleges, and we will work with Ayrshire to address those. Thank you very much. I thank our witnesses very much indeed for your evidence this morning. I now close the committee's public session.