 Good morning and welcome to the 20th meeting of the Public Audit and Post Legislative Scrutiny Committee in 2017. Could I ask everybody in the public gallery to switch off any electronic devices so that it doesn't interfere with the committee's work? Monica Lennon is not able to attend and send her apologies. Item 1 is to take item 3 in private. Are committee members agreed? Item 2 is Scotland's colleges 2017 and will now take evidence on the Auditor General's report. Can I welcome to the meeting this morning Paul Johnson, who is director-general of education, communities and justice, and Aileen McEchnie, who is director of advanced learning and science, both from the Scottish Government, Dr John Kemp, who is the interim chief executive of the Scottish Funding Council, and finally Shona Struthers, who is chief executive of Colleges Scotland. Welcome to you all. I understand that you would like to make a brief, I emphasise brief, opening statement, and I invite Shona Struthers to perhaps go first. Thank you very much. Good morning and thank you for the opportunity to present evidence to the committee today on behalf of Colleges Scotland representing the college sector. The Audit Scotland report demonstrates that colleges continue to be great places to learn and their focus on education provision and innovation, and the benefits that that brings to Scotland's wider economic ambitions is recognised and valued by all. It highlights that colleges remain at the heart of a world-class education sector and that they deliver the right education and skills in the right place at the right time. It is encouraging that the report recognises that most college students are satisfied with their experience and go on to further study, training or employment, and while colleges continue to meet the Scottish Government target of 116,000 full-time equivalents to deliver training and learning, the sector is also playing a part in helping to close the attainment gap, and we are pleased that the report notes that attainment in colleges has improved over the last year. We acknowledge that the report highlights some of the challenges facing the sector. As noted in the written evidence, the news comes as little surprise. As the 2016 Audit Scotland report highlighted, a growing number of colleges face financial challenges, and the college accounts published in April 17 confirm that. We appreciate the Scottish Government's additional funding that was made available in 1718, which recognises the circumstances that the sector faces. However, the overall number of colleges forecasting deficits is increasing, and we continue to voice our concerns that this is not a sustainable situation. We agree with the report that national bargaining is a significant financial challenge for the colleges, and without additional resource, year on year, the on-going costs are not affordable for the sector, without impacting severely on quality and or the student experience. However, colleges continue to manage their finances well, and the pressures highlighted in the report reflect tighter public finances, changes in accounting rules and increased cost pressures outwith the control of colleges. Most colleges are operating at a near-break even position, and all our colleges continue to be well managed and remain resilient in difficult financial circumstances. Nevertheless, we are focused on moving forward and we continue to deliver on the key Scottish Government policy drivers. We continue to work with the Scottish Government and the Scottish Funding Council to understand student demand and to develop long-term financial plans, as well as to ensure sustainable funding for the sector and to manage the cost pressures. As a sector, we need to ensure that college education continues to be available to all and that colleges working with employers continue to deliver the skilled workforce needed in our modern economy. Thank you very much, Dr Kemp. Again, thank you for this opportunity to discuss the Auditor General report. As you will see from my letter to the committee, we have accepted the recommendations of the report. It is to the great credit of the college sector that it has continued to deliver well against our shared ambitions. For example, it continues to meet the 116,000 FTE target for volume of teaching. Student satisfaction is at 90 per cent. There is very good representation in colleges from students from deprived postcodes and by disability, ethnicity and gender. There has been a steady increase in the number of learners articulating from college to university with advanced standing. There has been a strong trend for improved success rates for students achieving recognised qualifications. The vast majority of college leavers were in a positive destination six months after graduating. The number of senior phase pupils studying vocational qualifications as part of the DYW programme, delivered by colleges, has increased and further growth is projected. However, as I made clear in my submission, the college sector faces significant challenges, including continuing to improve retention, the implementation of national bargaining and improving financial planning and financial health. We will continue to work with the college sector and the Government to address those challenges and the report's recommendations. I am very happy to answer your questions on how we will do so. Thank you very much, Paul Johnson. Thank you for the opportunity to provide evidence to the committee in response to the Auditor General for Scotland's report on Scotland's colleges 2017. As the director general for education, communities and justice, I am the relevant accountable officer for the Scottish Government. I have responsibility for ensuring that the Scottish Funding Council's strategic direction aligns 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 Scottish Funding Council is accountable for the delivery of the Scottish Government's policy objectives, for the deployment of resources to deliver and for associated planning and management of risk. I, too, welcome the report Scotland's colleges 2017. It highlights what is working, where on-going work should be concluded and where further improvement should be made. Colleges have a clear, focused role in delivering a skilled workforce for their regions, and they have developed new and enhanced relationships with employers around curriculum planning, work experience and employability skills. Their focus is on learning opportunities that lead to recognised qualifications and employment. We are pleased that the report identifies that the sector has continued to exceed the national target for learning and that student attainment has improved. We are working to improve performance further. In that regard, the Minister for Further Education, Higher Education and Science has announced a national college improvement programme to raise attainment and improve retention in Scotland's colleges over the next two academic years. The report also identifies that the financial health of the college sector is relatively stable and that total Scottish Government funding to the sector will increase by 5 per cent between 2015-16 and 2017-18. Negotiations on national bargaining remain on-going, therefore the full costs have still to be determined, but those costs will be considered carefully as part of the future budget settlement. On student head count, official figures from the Scottish Funding Council show a small increase in head count from the year 1415 to the year 1516. We have also seen an increase in the numbers of students studying from areas of deprivation. At least 83 per cent of students who achieve a qualification go on to a positive destination, such as further study, training or employment. Colleges are not only delivering for our young people. The number of full-time students aged 25 are over has increased by more than 12 per cent since the year 1112. Colleges are also playing a key role in the delivery of higher education. Over 41 per cent of all full-time college activity in 2015-16 was in higher education, which was the highest proportion ever. There are a lot of successes that all those working and studying in the sector can be proud of. However, we recognise the challenges that are identified within the report and will continue to work closely with the Scottish Funding Council, Colleges Scotland and individual colleges on the report's findings, and we will work to address the recommendations that are for the Scottish Government. Thank you all very much for your opening statements. We will move straight to questions and Colin Beattie. I would like to explore one of two issues around budgets, which is obviously a major thing. I am looking at the number of people employed by colleges. They have increased by 6 per cent over the past two years, and yet every college has had a voluntary severance scheme. What does that 6 per cent represent? Are they cleaners? Are they lecturers? Do you have a business case for each person who is going through a severance programme? How does this work? You are hiring people, in fact, and getting rid of people. What we have seen over the past few years is an increase in staff, both on support and on lecturing. Some of that is down to services that have not been brought in-house, for example, that used to be outsourced like catering. It is also a result of some curriculum changes and the employment of more apprenticeships. On the lecturing side, we see a genuine increase in activity, as well as a change in the curriculum. It is more to do with changes that are happening currently and working more with employers. We have seen that requiring an increase in staff. You are talking about bringing services in-house. Presum that there is a business case for each of those? Does it go to SFC? A contract for bringing something in-house would not come to us. It would not. It would sit with the college and the college governance structure on a cost-benefit basis. We are confident that, in every case, there is a cost-benefit analysis as to bringing it in-house. I am sure that there are processes and procedures in place around procurement and governance procedures to take account of that within each college. But we do not know for sure. I am speaking on behalf of the sector, I am sure that there are processes and procedures in place for all those things, absolutely. The people that have been given voluntary servants, are any of them being re-employed back into the sector? I personally do not have that information to hand. We do not have any information across the sector on how many people who have taken voluntary servants, perhaps from one college or in another, are working elsewhere in the public sector. There would usually be rules against it being re-employment in the same college, but I think that there are people who might have left one part of the public sector and are working elsewhere. We do not have any information on that. I am concerned that we are following perhaps the same process as some councils follow who they give voluntary servants and bring the person back as a consultant or whatever. Within the same college, that would be very unusual. I think that most of the voluntary severance schemes would specifically preclude that. I am aware of cases where people have taken voluntary servants and work elsewhere in the college sector, but not in the same college, coming back to do the same job as you have suggested. Is it possible to quantify that? I can undertake to find what information we have on it. The other thing is that there is a concern about the national bargaining. Originally, back in 2016, college Scotland estimated £80 million. Now that has gone up to £117 million. When we did the £80 million estimate back in 2016 at that point in national bargaining, it was very early stages of negotiation. We did a best estimate with the information that we had at the time. Between that submission and the spending review and where we are currently, there are as much more of the agreements that have been agreed, so there are elements agreed and therefore can be costed at a much greater level of detail. That is where we find ourselves with a very detailed costing of national bargaining down to a college level, sometimes down to FTE within colleges. However, it is not a concluded process because not all the parts of national bargaining have been fully agreed. It is our best position at the moment, although we have been there or thereabouts for the last three or four months. You are talking about £117 million over the first three years, with a recurring annual cost of £50 million, which is a fairly substantial increase. Does indeed. The Scottish Government obviously provides the bulk of the funding to the college sector. Has any part of the national bargaining been factored into the budget process? Yes, certainly. My understanding is that the budgets that have been made available for this financial year will allow the payments to be made that have been agreed to date, but, of course, in terms of future years, we are aware that there are cost implications of national bargaining. As you would expect, we will be working closely with the funding council and Colleges Scotland to scrutinise in real detail the figures and the estimates that are provided and the future budget settlement will be set in light of the conclusions that are reached. To be clear, the figures that we have had from Colleges Scotland, as I think Shona Struthers recognises, are not yet the final position and are still subject to that further scrutiny from both the funding council and the Scottish Government. You are saying that, effectively, you have already covered part of the national bargaining, which I believe is something to do with the lecturer's settlement. How much was that in value? Does that come off this figure of £117 million? I will pass over to Dr Ken Seaf. He has got the precise figures. There is about £44 million of the £117 million, which is accounted for by what has already been agreed in the lecturer's pay scale. That is cover. That is the three-year figure. The figure for 2017-18 has been covered as well. In part, that was covered by an increase in funding to Colleges Scotland, which was intended for financial pressures, including pay, which we allocated to Colleges Scotland provisionally in the spring. In the light of the eventual deal, once we knew exactly what the cost would be in each college, we had held some money back in reserve knowing that the pay impacts differently on different colleges because it is a harmonisation deal and some colleges are near what will be the top of the scale and some are far away from it. The costs in each college vary quite a bit, so it is not a flat rate to give every college x per cent, and that meets the deal. We had held back some money knowing that the pay deal would be asymmetric in that way. We have now allocated that to colleges, so there is sufficient in the 2017-18 budget to meet the costs of the lecturer's pay deal, which is the bit that has been agreed at the moment. From what you are saying, you have accepted the figure of 117 million over the next three years as being a reasonable estimate. I am glad that you used the word reasonable estimate. There are elements of that 117 million where we still do not know exactly what it would cost. We know about the lecturer's pay deal and that that has been agreed. There are discussions on going about lecturers' terms and conditions and working hours, which will have a financial impact. Then there is a process to be gone through for support staff involving job evaluation, where we have put an estimate in that 117, which we think is robust, but there is a process to be gone through there, which could produce a slightly different figure. We think that it is a robust estimate that we have worked with Collegy Scotland and the Government on, but I would stress that there are elements that still have to be negotiated with the staff over that time that we cannot be precise about in this time. Just to be clear on this, the 117 million over the three years that you have said, 44 million of that is effectively covered. If we are looking at the recurring additional cost of 50, I accept that it is still an estimate. What proportion of that will be covered going forward? That would be an issue for the current spending review. We have our budgets at the moment for 17.18. There is a spending review going on with the Government, and part of the purpose of being so precise about these estimates at this stage is to feed that into the process so that the Government is aware of the potential costs as it decides on budgets in future years. Just to be clear, the 44 million is a recurring cost, a recurring payment to the colleges. It is not just a one-off to get them through this. To clarify, the 44 million is the element of the pay deal, which has now been agreed, and we can forecast very clearly. For 17.18, that money is in the budget. The years beyond that, we await the spending review, but that bet is absolutely fairly cast out, and we know what it will cost. I am just trying to understand what the potential liability would be, because what we are seeing is that the projected liability is reducing, as the Scottish Government has funded part of that, therefore it is not such a cliffhanger. That is a very fair point. If the Government funds this pay deal, I would again caveat it, because it cannot be absolutely precise about the cost, then there is not an issue for the colleges if that funding is not there, there is. I would like to start with a question to Shona Struthers, if I may. Your statement that you put in is extremely interesting. You talk about the unprecedented level of cuts, figures that were picked up by Audit Scotland, and you conclude by saying that the overall financial position that the sector faces is unsustainable. Is there an inevitability to Shona Struthers about where that might go, or can that position be wound back from? I hope that my opening statement laid out a very good case for the college sector. They are absolutely integral to how our economy runs. They play an important part, not only in the economy, but in society, not just for our young people, but for all learners. Colleges absolutely have a place in our society. Colleges are now part of the public sector, and with that there are responsibilities. What we would like to see is a college sector that is funded adequately and that has a future that is a sustainable funding model. What we are trying to draw attention to are some of the issues that, if they are not addressed, would leave us all in a very perilous situation. It is our job to make sure that colleges are valued and recognised. That is what I hope by highlighting the issues that we are doing. You talked a bit about funding. I would like to ask the Scottish Government, just so that I am clear how that works, at least in relation to some of the areas. The structure of the funding stream goes from the Scottish Government to the SFC to a regional body to various colleges in that region. Am I roughly correct? Yes, that is correct. Certainly, if I can speak first of all for the way in which that has dealt with the Scottish Government, the entirety of the budget for colleges that is agreed by Parliament is passed to the Scottish Funding Council alongside a very detailed letter of guidance that sets out expectations for the way in which that funding is deployed. I would correctly say that in three regions, in Glasgow, Highlands and Lanarkshire, there is an arrangement where there is a regional strategic body of three different kinds. Those regional bodies each have a board with presumably some kind of chief executive, a finance director, and then each individual college sitting underneath will have a board and senior staff. It is slightly more complicated than that. In the case of Glasgow, there is a body, the Glasgow Collegy's regional board, which has a small staff and its own board. In the case of the Highlands and Islands, the regional strategic body is the university of the Highlands and Islands. The support structure within that is essentially part of the university. In the case of Lanarkshire, the regional strategic body is an entity of the Lanarkshire board, which is in essence a new college Lanarkshire, so there is not a separate body in Lanarkshire or the Highlands there is in Glasgow. It is complex. Given that structure, given the staffing issues that Colin Beattie was looking at earlier on, given the national bargaining issue that is coming up, what is the Scottish Government's view of a 20 per cent pay rise to the executive director of the Glasgow region board? The Scottish Government has been liaising with the funding council on that matter. The Scottish Government is concerned to hear about particular bodies that are awarding pay increases, which seem to be well in excess of what would be expected in terms of public sector arrangements. It has discussed that matter with the Scottish funding council, which is the body with the direct powers in relation to the regional board. My understanding is that the matter is not yet fully concluded, but Dr Kent may wish to say more about it. We were made aware by the GCRB some time ago that they were contemplating and changing the salaries to their senior staff, largely as a result of taking on a finance director and restructuring the organisation because of that. They had been in discussion with us for some time about the salaries. Initially, it had been a far higher salary rise that they were proposing. We made it clear that we could not really see the case at all for this rise. They had the posts evaluated and they took it to their nominations and remunerations committee. When they shared with us the recommendation of that nomination and remunerations committee, I wrote to the chair and asked that my letter be shared with the board, making it clear the factors that they should take into account in deciding this, and making clear my view that such a rise was very hard to justify in the current climate. Unusially, I have a power to direct GCRB on its staffing. For most colleges or universities, that would be a decision that they would take entirely on their own and I wouldn't have a power to direct. In my discussions with GCRB, I did consider extremely carefully whether I should use that power of direction, which in my view is something that you should use in extremists and whether you feel that there has been a serious failure on part of the organisation. In this case, I said to GCRB that I did not intend at this stage to use the power of direction, because my view was that the GCRB has fairly recently been given its full powers of spending the money in Glasgow. Before doing that, we spent quite a lot of time going through a governance checklist with them and assuring ourselves that their governance and procedures were robust, and we are assured that they were robust. In that context, I decided that it would be inappropriate for me to use the powers of directions at that stage. I wrote to them, making it clear that I had considered using the power of direction, making it clear that I did not think that the rise was justified, but recognising that that was a decision for the board. The board took the decision, and they slightly amended the recommendation from their nomination and remuneration committee, and the sum that was eventually awarded was a bit less than was reported in the Herald. However, it was fairly close to it. My view remains that that is quite hard to justify in the current climate. But didn't the previous post-holder get 15 per cent, give or take, pay or rise? There hasn't been a directly equivalent previous post-holder. The current structure of GCRB with its executive director has only existed in that form. There's only been one post-holder. Prior to the formal creation of GCRB, in the interim period before it had full powers, there was a different structure, with a clerk to the board who had a salary rise, I believe, but that was a fairly different structure. That wasn't the same post-holder. A salary rise of about 15 per cent, I think? I don't have in front of me the exact salary rise at that time. Right. I think that the previous year, the chair may have had, give or take, about a 30 per cent pay rise. The chair of GCRB? I suspect that that might be additional daily rates related to national bargaining, if there had been such a rise. So, there was no rise as such. There's a day rate paid for chairs of regional boards. The then chair of GCRB was investing a lot of time on national business in relation to national bargaining and was submitting claims for additional days. On top of the regional contribution that she was making, she submitted claims for additional days for the national contribution that she was making on behalf of the employers association. I don't have the detail in front of me in relation to how much those claims were, so I can't comment on the extent of those claims. That's where I'm going, as I'm sure you've worked out, Eileen. You talk about a contribution. My concern is that we have a number of different strata, a number of different levels, administering funding at great cost to the public purse. I note that the interim chair at GCRB says that the pay rise that we were talking about will enhance college education and generate cost savings that will benefit students. How? You would have to direct that question to the interim chair of GCRB. I think that, as my colleagues have both said, we have concerns about the conclusion that the board has reached in relation to the salary increase. Tid, on those concerns, who is regulating this relationship? I think that John Kemp explained the action that he has taken, so he has written. He has discussed this with the previous chair and the current incumbent of GCRB. He has written once. There have been various correspondence from the chairs, but I did write immediately before the board took that decision, making my view very clear. Since then, the board has taken a decision, the chair has written to me explaining that decision, and you are quoting parts of the explanation, which was also given publicly, and I need to decide what I do next. I would stress that my view prior to the board meeting was that, because we were satisfied with the Government's arrangements at that GCRB, it was appropriate that we allow the board to take that decision and not use the power of direction. That said, I do not agree with their decision. If I can just ask what, in your view, perhaps in the Scottish Government's view, what is the value add of the regional bodies? If we have the Scottish Funding Council distributing money, what is the value add of having a regional body to do effectively the job that the Scottish Funding Council does? I can certainly answer that. That is part of the arrangement that Parliament clearly approved when going through college reform. The regional body is responsible for funding the colleges in the region, but beyond that it has overall responsibility for the strategy that is going to be pursued by the colleges across the city, trying to ensure that there is real alignment between what the colleges are offering and what the skills and needs of the city are. It is a body specifically there to ensure that there is a clear offer from the combined group of colleges that will meet the needs of the region and ultimately will be to the advantage of Scotland's economy as a whole. Wouldn't the principles of the colleges that know the colleges inside out individually, just speculating, be better placed to do that exercise? The principles are all absolutely involved in the work of the regional board. The regional board serves to bring them together and to ensure that there is coherent overall strategy that is pursued by the colleges in the regions in the interests of skills development and ultimately economic growth. Finally, you talked about the structure that Parliament approved when the colleges sector was going through reform. We have heard right at the start from Shona Struthers that there are some challenges ahead and there are some things that need to be done. Is it now time for the Scottish Government to review the structure that was put in place a number of years ago and say what may be required here is fundamental reform? What we are certainly committed to is to ensure that there is continued improvement in the system. We are conscious—very aware—and we have discussed in front of this committee before some of the governance issues that have arisen. In response to that, we have had a group doing work on good college governance, which continues to operate in order to ensure continued progress with the governance arrangements that will be considered by the auditor general. I agree that there is a need to ensure that the governance arrangements are kept under review and are as effective as possible. I do not think that there is any evidence that I have seen which suggests that it is a fundamental overhaul of the arrangements, rather that it is about continued improvement. There was a very fundamental review of the college sector just a few years ago. The structural changes affected almost every part of the sector through a series of mergers to create regional colleges. Even in Glasgow, a pre-merger had seven colleges down to three, so there has been a fundamental reform in the college sector. I think that it is incumbent on all of us to continually review what needs to be changed, but I think that the argument for another fundamental reform right now would need to be balanced against the need for some stability in the sector. As we go through the very challenging period that we have outlined in our opening submissions, where settling down and dealing with national bargaining and dealing with some of the changes that affect learners as part of the learner journey are probably more important than another structural reform at this stage. That said, we need to make sure that we are operating as efficiently as possible and that bodies such as GCRB provide good value for money. Is that a guarantee from the Scottish Government that the continued improvement process will result in a sector that is sustainable, contrary to what Shona Struthers is concerned about? Is there a view, Dr Kemp, that you talked about the student experience on whether the region boards, as an extra tier, absorbing money for whatever product they are putting out, could negatively impact on that student experience, perhaps in the case of national bargaining, perhaps in the case of the actual students, perhaps in the case of assets? That is part of the question, which is to affirm that the Scottish Government is absolutely committed to securing the success of Scotland's colleges and to seeing a college sector that flourishes. If I can quote just one sentence from our most recent letter of guidance to the funding council, it says, colleges are at the centre of our efforts to build the workforce Scotland's employers and economy needs. I think that that captures the commitment that the Government has to this sector. In response to your question about student experience and the value that you added, in the perfect world, every penny would be spent at the chalk face on student experience, on teachers and so on. However, there needs to be a level of administration to ensure that the colleges serving Glasgow and the way that Paul suggested operate to a coherent strategy that they are not competing with each other, that they add up to something that is greater than the sum of the parts. That needs some degree of administration that can pull that together. That needs to be done in a way that is cost effective and meets the needs of Glasgow, but there will always be some cost to it. It is easy to say that every penny that is spent on administration is not being spent in the classroom. You need to balance the two things, but we need to do it effectively. Can I just stay on this Glasgow regional board? To begin with, John, you said that the final recommendation of the remuneration committee of the board is a figure close to 20 per cent. How close to 20 per cent? As I understand it, the range—well, they were looking at a range for that post between £95,000 and £98,000—settled on £95,000, which would increase from £81,000. It is still a very substantial increase. Is that the decision that they have taken, or are they waiting on your final decision? In my letter to them, prior to their board meeting, I said that I did not intend to use the power of direction at this time. They are not waiting on final sign-off from me. However, following the board meeting, I asked them after the board meeting to write and let me know what the decision was, which they did the day after the board meeting. That was in the middle of last week that I got the letter. I have not responded to that letter yet. Just to be clear, do you still reserve the right to exercise your powers? I made it fairly clear in my letter that I would not exercise those powers. At that time, I said that I was not subject to them being above the range that they had set. However, what I want to look at is that I asked them to take on board a range of some information on the comparators and so on. I want to assure myself that they have done that. However, if they have, let's stress that this is a decision that I do not agree with, but it was properly taken. We are still in the year when we are telling nurses that they get 1 per cent. We are talking about a nearly 20 per cent rise for somebody who is already on a very substantial salary, which you clearly have indicated that you do not agree with. Why are you not using your powers? We have seen what happened over the co-bridge college, which was about a leaving package. However, the public are really getting pretty fed up. The people in the nurses, for example, who are paid about one third of the chief executive's current salary in some cases, their taxes are funding those increases. Why are you not using your powers to set an example if you do not use your powers just sending out the wrong message to the rest of the co-bridge sector about those excessive pay rises? Yes. Let's be clear, I did consider carefully whether I should. The easy route would have been to use my powers, to say to a body that is responsible for spending £82 million of our spending on Glasgow that I do not trust you and your board to make a decision on the difference between £81,000 and £95,000. I did consider that, because I do not agree that there is a rationale for the change to the salary. I did consider carefully whether I should do that, but my view was that I had confidence in the governance of GCRB. I have to say that my anticipation was that, after having seen my letter and considered all the facts, it was unlikely that it would take the decision to increase the salary. I am disappointed that they have, but my view was that it would be inconsistent of me to trust them with £82 million, but not with the difference between these two salaries. That was my thought process. I have to say that if I go ahead with this, I would not trust their judgment, because clearly to do that in the current climate is absolutely beyond belief. I think that, convener, we should invite in the chair of the board, the chief executive of the board and the chair of the remuneration committee, because we should express our opinion on behalf of the long-suffering public, many of whom are very low paid, having to fund increases of this amount when the general increase limit is about 1 per cent. It is outrageous that you are not using your powers quite frankly. We will certainly consider that when we take forward our work programme, but I wonder whether I could just ask a supplementary question. Dr Kim, did you at any point in arriving at your decision consult with the Scottish Government and what was the discussion? Yes, I did consult with the Government. I made them aware that this was happening and I also consulted widely with colleagues. Could I ask the advice from the Scottish Government? Mr Kim and I discussed the matter in relation to the letter that he was sending out. I reminded Mr Kim of public sector pay policy and expectations that we have in relation to pay restraint, both in relation to the funding climate but equally in relation to GVs active salaries, where, when we are recruiting a new GVs active of a public body, our expectation is that the salary decreases by a certain percentage. We offered some commentary on the letter that Mr Kim wrote to the board and we were absolutely supportive of his position that we should make it clear that this was a matter that the board should consider very carefully because it was very hard to justify given the current financial situation that the college sector in entirety but equally the public sector faces just now. I understand that. In essence, you agreed with Dr Kim's actions not to use the powers of direction. At that stage, I was reassured by Mr Kim's expectation that the board would take sufficient cognisance of his letter to make the right decision. Given that they have not and given what you have already heard from colleagues around the table about and that you yourself have mentioned about public sector pay constraints, do you regret now not suggesting that those powers of direction were used? I think that we remain in close dialogue with the funding council about next steps. As Mr Kim has said, he has yet to respond to the formal letter from the chair and John Jones is thoughtful about what his response will be, so we will continue to engage in dialogue with the funding council about that. I just seek clarification on the Government position, Eileen. Obviously, the Government supported the position when John Kemp said that he wouldn't exercise his powers at that time. However, in the Government's view, there is still time to exercise the power. John Jones has made clear that the powers of direction are there to be used in extremists, and we all want to be very thoughtful about where and when we would utilise such powers. I will repeat that we are in close dialogue with the funding council about appropriate next steps. We will be very thoughtful about what the right next step is. The power of direction lies with the funding council. In the Government's view, is it still an option? Yes or no? I imagine that it must be. John Jones has written to say that he did not intend, but, as you say, at that time to utilise his power of direction. John Jones, as Eileen said, that this power is for in extremists. I would suggest that this is in extremists. I think that there will be public outrage if this goes ahead and deservedly so. I do not disagree with you on that point. The board has taken a decision that I disagree with everyone around this table disagrees with. I need to consider what we do next. As I said in the letter, I did not intend to use the power because I was satisfied with their overall governance and was subject to them not exceeding the amount that they had already looked at. I hear what you are saying here, but whether the option is to use that power or to engage with GCRB in the light of what you have said and what others have said since the decision was made, the power that I have to set or not set salaries should not be used lightly. In most cases, if you are setting up a separate structure to take decisions, there will be times when they take decisions that I do not agree with and that the Government does not agree with. If the structure was that all decisions were taken by me or the Government, you would not have set up a structure that allowed that to take place. It is not just about the structure. There is a very clear public sector pay policy. Public sector pay policy does not allow for and does not promote excessive pay rises, particularly for people at the top end. The rest of the public sector is confined to 1 per cent, including low-pay public sector workers. Over £21,000 is still pretty low-pay compared to this person. You have to implement, surely, the Scottish Government's pay policy. It is very clear that the pay policy is designed to try to be fair and it would be very unfair if somebody got a 20 per cent rise when you are against it and you recognise the unfairness of it. Presumably, the funding council recognises the unfairness of it and the Scottish Government clearly recognises the unfairness of it. It is an extremist. It is just making a mockery of the pay policy. From a Government perspective, we will take this issue and ensure that there are further early discussions with the funding council about the most appropriate way to proceed and we will ensure that this committee is kept fully up-to-date in terms of where we get to. We will absolutely consider carefully all that has been said on this issue. I think that that is very helpful. I cannot agree more with Alex Neil, but I would also point out that it strikes me, based on your responses, that the Scottish funding council has acted consistently with the advice that they have given from the Scottish Government and perhaps you would both go away and reflect. I think that that is helpful and that that will be done. Can I ask a short now questions and our responses to get everybody in? Just going back to the general issue of the national pay bargain and the cost of it, can I first of all clarify the cost estimates, the £117 million? Given that the Government has since that figure was published indicated that from next year, certainly the pay cap will be lifted, does the £170 million figure include any additional cost arising from the lifting of the pay cap? The £117 million figure is the cost of the harmonisation and the implementation of national bargaining. It does not include any cost of living increases over that period. So any additional cost arising from the lifting of the cap will be on top of the £117 million? The second question, I will get three questions in this, the second question, all of them factual, is that we are saying that the £117 million is over the next three years, it is over a three-year period, which clearly averages at £39 million per year, but subsequently it will be an additional estimated £50 million a year. Now clearly there is an £11 million a year difference between £39 and £50 million, so it seems to be a hell of a big percentage jump in the fourth year. Why is that? The way it works, I might want to come in and say, that is the implementation period of, in the case of the lecturers, them moving all towards the new pay scale over three years in several crunches over that time, so that it does not leap up to the final amount in year one. In the case of the support staff, because in year one of that the job evaluation will not have been done, there are no costs, so that is phased in throughout that period as well. If you have any indication of the £117 million over the three years, what is it in year one, year two, year three? If you do not have it ready to hand, you can send it to us, but it is useful to see that it would not be an excessive jump in year four. It is just a phasing issue, and for lecturers, for example, year one is 25 per cent, 25 per cent, and by year two it is 50 per cent, so there is a phasing, and for support staff it is next year before the job evaluation is looking to be started, so again it is a back-end loading. Can you just to clarify, when you are saying over the three-year period, is this the year one or is next year the year one? This is year one, this is year one. We have heard from the Scottish Government that this year's rise has been fully funded. I know that it is asking too early before the budget for next year, but clearly to fully fund next year, have you at the moment any estimate of how much would be required additional money into the college sector if the Government was to fully fund that rise next year? That gets into the territory of the further scrutiny and work that we need to do together on those figures to ensure that we in Government, so I cannot give a figure to the committee today. Bill Bowman, who has been waiting patiently. Thank you, convener. I think that some of the items may have been covered. I do not know if it is encouraging or not to know that we still act on expectations, but anyhow, when you gave your opening statements, my impression was that everything is going swimmingly except for the money. We have dealt with some of that in terms of the national bargaining and the sustainability of the current operation of the colleges, and in the colleges submission that is quite clearly set out. If I can turn to a different aspect and the long-suffering students under the capital investment section that you gave us, I am talking about the condition of the colleges' status variable. Some campuses in a very poor state of repair require urgent attention, and there is clearly investment needed. How is that being dealt with? As is mentioned in the Auditor General's report, there is a condition survey that has been carried out in the college sector. That condition survey reported to us in the summer, where in the process of beginning validation of individual campus figures with colleges, but the overall figure will feed into the spending review. That is the first time that we have done a major estate survey for several years, in part because many of the colleges' estates have been renewed fairly recently. There are quite a number of large new estates projects that have just come on stream, but there are still some bits of the college sector estate that have not been touched by that, and the survey looks at the cost of bringing those up to various standards. That will be fed into the spending review. It is said in the submission that somewhere in a very poor state of repair require urgent attention. Urgent would suggest that you should be doing something now? Yes, and that is why we are feeding it into the spending review. That sounds like a process that could take some time. The capital funding that we have is fully utilised. It is out with the colleges that what the estate survey does is indicate what is needed over the next few years, and that will be fed into the spending review. So, some students are suffering. Disadvantage, however you want to call it. There is a variety of different levels of estate in the college. There are some very new buildings that have excellent facilities, and there are bits where that is not the case, and those need to be dealt with. Need? It does not sound that something is going to happen for this year. People are going back to college now. Well, to take one example, one of the state projects that has been identified in recent years is the Falkirkart campus of Forth Valley College. There is a project on-going there, which, if it is not in the ground already, will be in the ground soon building a new campus in Falkirkart. There is an on-going programme of looking at campuses of repairs and replacements where necessary. What the future looking estate condition survey does is look at where we go next with that programme. However, there are things already on-going. City of Glasgow's cathedral street campus opened quite recently. There was a new campus opened in Kilmarnock. As I say, Falkirkart is being worked on. There is a programme on-going, but there is more to be done. Could this be amended to say that we are in a very poor state of repair and are receiving urgent attention? Yes, some of them are, but clearly not all of them in the future, because we need to feed that into the spending review and work out plans for those. When might that be? When the spending review is on-going at the moment and we will hear later within months. If we look at the figures for this financial year, capital investment in the college sector has increased by more than £20 million to £47.4 million. That includes some of the big projects that Dr Kemps referred to and some of the more routine work that is needed. We will work with the funding council on receipt of the detailed estate condition survey and ensure that future decisions on capital funding reflect what that says. I wonder whether I might pursue that slightly further. Obviously, we have seen coverage of buildings being at risk. We would want your assurance that there are no buildings that are critical or at risk now and that there is money available to deal with those urgent health and safety issues now. I would say that the health and safety of students and those working in colleges is absolutely paramount. I wish to give an assurance that, should any issues arise that are required to be addressed immediately for health and safety reasons, that will be done. I think that that is very helpful. Thank you. Willie Coffey. Thank you very much, convener. I am delighted, Dr Kemps, that you mentioned, that the wonderful Cymarocampus is an absolutely stunning building and the students there and the staff really enjoy the experience that they are having there. I wanted to talk about the student experience, the kind of broad student experience, as well. Mr Johnson, you mentioned, of course, that the whole purpose of the colleges is to prepare students for the workforce, for employment and for further education. The satisfaction rates in the auditor general's reports are quite clear and quite impressive. 90 per cent of students are satisfied with the experience, but also, probably more importantly, 80 per cent go on to positive destinations. I want to ask whether we track where the students are going within the local economies to work, because, as you probably know, Ayrshire has a particularly difficult problem in terms of overall employment compared with the rest of Scotland. I would like to ask how we shape the colleges and the courses that they offer to serve the needs of the local economy. How do we track that, and what is the engagement with Skills Development Scotland to try to make sure that the students coming out of Ayrshire College are able to fit in the workplace in the economy in Ayrshire? I might say a few words before I pan across to the funding council. This absolutely fits with the ambition of the Government's reform agenda, where we create new colleges of scale that are better able to engage with national agencies such as Skills Development Scotland, national employers such as the health service, universities, schools and industry to absolutely and better understand the needs and opportunities in their region, and to refocus their curriculum so that they are delivering a curriculum that best meets the needs of the region and delivers people who are employable and qualified in courses that are absolutely relevant to the needs of the region. There is much closer working with Skills Development Scotland, which is really important, and the greater scrutiny of the Skills Investment Plan so that that evidential base underpins the delivery of college. That absolutely demonstrates the success on the journey that we are on in relation to the college reform agenda that we have. As you probably know, we fund colleges through outcome agreements. We have an outcome agreement with Ayrshire College on what is delivering for its local area. That is built in part on a regional skills assessment, which SDS leads on. We expect the two things to fit together, so we work closely with SDS on that. With the conclusion of the enterprise and skills review and the setting up of the new strategic board, one of the work streams of that is closer alignment between SFC and SDS. We are currently exploring how we bring that process far closer together so that in your case, Ayrshire's needs for people in college, apprenticeships and all other kinds of provision is linked to what your economy needs. Something that happens already, but we can take it to another stage after the enterprise and skills review by being even closer to SDS. How do we, as any other committee of the Parliament, get some kind of glimpse of that where the students end up in terms of employment in the local economy? How do we ever get a sense or even to see that or assess that? Does anybody capture that kind of data? We do capture destinations, as we have talked about earlier. However, that is six months after graduation. I think that there is a piece of work to be done that is not, I think, yet done, but it is developing where, as with the higher education statistics, where we used to have six months' destination data but did not really know where people were four or five years out, that has been replaced by a programme of statistical work where you are tracking people through their tax status and so on. You know where they work, how much they are earning and so on, so you can relate that back to a particular degree. I had a very interesting meeting just a couple of weeks ago with SDS about how we track apprentices in the future to know what the return is there. If they go into a job, how long do they stay and what their wages are over several years? I think that the way forward—this is completely in the area of the enterprise and skills review—is that tracking through other data sets, through tax and so on, so that you know in five years' time where somebody, in a consistent way so that you are tracking somebody who has done apprenticeship, somebody who has done a college course, somebody who has done a university course in the same way, so that you know how much they are earning, what kind of journey they have had through employment. That would help us to make better decisions about where to put their investment, but it would, more to the point, help young people or parents deciding what to do, know that five years out after doing that course, you are likely to be in a particular destination. That is a piece of work that is very complex, requires all parts of government to work together, involves all sorts of permissions and so on. We cannot click the fingers and do it overnight, but that is the direction that we should be aiming. That would be very welcome to see that kind of work, because it is all about what we do, making a difference and can we evidence that? That would be very useful to see that. Just a very quick—actually, this month, at the end of September, College of Scotland are launching a piece of work that we have been working on with the Fraser of Allen Institute and we have actually been looking at the value that college graduates bring to society. We are launching that at the end of this month, and that will demonstrate the value of a college education. Super, super, super. To show that I am not just bleating on a bit, come on, convener. In our journey at the committee in previous meetings, we heard from Luz Castle and Storm away, and I think that the members of the committee were particularly sympathetic about the difficulty that they find in meeting targets year on year. We compared the model that applied to Luz—it was the same model that applied to Edinburgh, perhaps, one of the biggest colleges in Scotland. I wanted to ask if there is anything in the Scottish Government level to adapt the model to allow Luz Castle to better achieve targets or to modify the targets so that they did not feel as though they were being told they were failures every year. I think that that is a matter for the Scottish Funding Council to take forward, obviously, with support from the Scottish Government, so I will hand over to you again. I think that the minister had written to the committee explaining some of the ways in which Luz Castle was funded. Luz Castle was assigned to UHI, so the decisions about precise levels of funding are now matters for UHI. However, we are very keen that, in the way that we fund colleges, we do recognise that you cannot fund Edinburgh College the same way you would fund Luz Castle, West Highland College or Orkney College. They are of different scales, and they are serving completely different demographies. We have a system of funding that has an additional payment for rural areas. We are currently reviewing that, and we will be consulting quite soon on where we take it. The old system was a fairly formulaic system based on the rurality of the area and where the students came from and the size of campuses. It was invented pre-outcome agreements. Now that we have outcome agreements, we are in a position where we can sit down with a, in the case of Luz Castle, it would be UHI that sit down with them and say, we have an outcome agreement that you serve this area. Instead of it being based on formulas and student number targets that might or might not be met, you can have a more honest discussion about the number of students that you need, but the amount of rurality funding on top will be x. We want to move in that direction where we are being more clear about what we fund in an area, so that instead of just funding per student, you are also funding per student, but also agreeing how that college will serve a rural area. There are some colleges in rural areas that actually do not have huge additional costs. They might serve people from rural areas, but if they serve them entirely from a big building in a city where the student comes in, there is not a huge amount of additional cost. There are others like Luz Castle, which necessarily are very small and do have additional costs. There are others yet again like West Highland College, which has about 10 campuses spread about the West Highlands, which are all tiny. They all need to be supported in different ways. That is what our consultation, which we should be out in the next few weeks, will be doing. We do very much recognise the points that were made by Luz Castle when they were in front of you. It is challenging for a small college in an area where you are not going to get economies of scale. That is encouraging. We do not want to hear that the castles are being continually told that they are failing. In fact, they are doing some pretty fantastic and amazing work there that is valued across communities. I am encouraged by that. Just on the back of that, I am conscious that the committee receives quite a number of section 22 reports about colleges from the Auditor General. Probably more than we receive about anything else, although I could stand to be corrected on that. What does this tell us about governance and issues of financial sustainability? Can we learn from this so that we do not need to see quite so many section 22 reports in future? If I could go first, some of the section 22s that you received last year—not the ones that you are considering this term—were very much about governance, and lessons have been learned from that. In direct response to the events at Clyde, which was one of the section 22s, there was a good governance task group set up, and that has done its work. There are areas out for consultation at the moment that will further implement that. Lessons have been learned on that governance issue. Some of the ones this year are slightly different. Some of them relate to governance, but a lot of them are about financial sustainability. We are learning the lessons from that as well in how the SFC engages with colleges through an internal early warning system to understand where colleges are not meeting targets, where there might be financial issues coming out of financial returns, where there might be governance issues, so that we are getting on to those earlier and, I hope, beginning to tackle some of them before they become section 22. They are very much part of a learning process, and I hope that on the governance ones of a couple of years ago, we have learned quite a bit. We look forward to receiving fewer in future. Can I move us on to student numbers in the time left? Scottish funding council up until 2015 said that there were something like 140,000 fewer places in colleges since 2007. I think that the figure might be, but, again, please correct me if I'm wrong. For 2016, the number rose to 152,314. Again, please tell me if those figures aren't accurate. I'm interested in pursuing, because there was some debate in the press about the figures used. My understanding is that, in discussions with the Auditor General, it's about the start date for when you measure things, rather than the accuracy of the figures. Would that be correct? To be clear, I think that the Auditor General explains that in part in the report. We count figures for all of the colleges that we fund and for the funded activity, which means that we are using a slightly wider set of colleges than the Auditor General reports on. She reports on the incorporated colleges, which exclude some in the Highlands. That's why we have slightly different figures. They are broadly consistent. Our point to a very slight increase in the number of students, her point to a very slight decrease, is that they are broadly flat. The issue is simply that we're counting a slightly different set of students because we count a slightly wider set of colleges. Let me step to the set of students that the Auditor General counts, because that's obviously what the committee considers. It did note a decrease, albeit that we could argue whether it's slight or not, but full and part time places fell, 16 to 24 age group in particular, numbers fell. I'm wondering whether you've explored the reasons behind those reductions, particularly among that young age group, and whether there's any corrective action that you need to take to address that. The part of the reason for that relates to things that the Auditor General has mentioned. There is a demographic change happening in that the number of young people has been dropping for some years in that group. It will begin to increase again because you can see it in school populations, but at the moment it's still on a downward trend, and that will have affected the number of people in that age group in colleges. In addition, some of the imperatives that led to focusing on that age group in the period after the recession are beginning to go. Youth employment for young people is growing. In addition, they are staying on at school longer and more are going to university. We look constantly at demography and what's happening with colleges. The numbers of people leaving school and entering college at 16 are pretty much half over the last decade, and the number of people leaving after S6 has rocketed. People are leaving school later and entering tertiary education later, and that's affecting it, too. There are a whole number of things there that mean that, because there are other destinations for young people, the age band has moved up slightly. That gives us opportunities to do more part-time for older people and focus on a different group. In a way that we had to prioritise elsewhere in the previous years, we now have an opportunity to do something different. You anticipate being able to take up the slack by offering courses once again to perhaps a slightly older population? Yes. Excellent. That's good news indeed. Can I ask because, obviously, demand for college places will vary from place to place. You don't appear to record that overall level of demand at a national level or do you? If I can come in on that, that's absolutely a piece of work that is being taken forward at the moment between Government and the funding council and colleges Scotland as we respond to some of the recommendations from the auditor general and take forward our work on the learner journey. That is to look at the merits of a common application process that would give us that overall national picture of demand, which we would all accept that we don't have at this point. We are presently in a series of consultations with those at college, those who have got particular interest in this, to look at the merits and the potential issues associated with moving to a common application process. That's helpful to know. Are there any other questions from members? Can I just ask Alex Neil? You said that, at record level, 41 per cent of all activity in colleges is higher education and, obviously, the colleges are extremely successful in improving access for people who are underrepresented in higher education. Just a factual question. 41 per cent of college activity is higher education. What is that as a percentage of total higher education activity in Scotland? Is that about 20 per cent? Is that a record level as well? Yes, I believe that it is. A lot of those people are from the very people who are targeting with access programmes. Do we know how many of them were transitioned from college to university? Every year, we are keen to encourage people to transition to university with advanced standing so that they get credit for the HNs that they have done in colleges. There is about 4,000 each year to do that. There is another several thousand on top of that who will go into university but will go back to year one. Sometimes, because they have changed directions and are doing different courses, but often we think that there is room to push that 4,000 or so further and get more of the people who are going to university to go on with advanced standing. As you say, it is a very good way of widening access. The demographic make-up of HE in colleges is very different from most universities and it offers a route in which it would not otherwise be there. It is a very valuable route. Any further questions? On that basis, I thank the witnesses for coming along this morning to give evidence to the committee and we will now move the committee into private session.