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You mentioned the six colleges that are experiencing significant financial difficulties. I appreciate that you do not want to name them because the situation might change as further audits come forward or analysis is done on their finances, but it sounds as though they are in a perilous financial position. What happens when a college simply runs out of cash as a public body?

So, one solution would be simply for the Government to give more cash to the sector.

You can only cut so far. There must come a point when you suddenly cannot pay your bills—when you cannot operate the buildings, pay your staff, buy anything or replace anything that is broken. If that was a business, it would go bankrupt and close. I am trying to understand what happens in a public sector environment. Would the Funding Council simply loan a college cash if it had no reserves? Could a college borrow money, or would it simply have to close altogether?

That message is loud and clear, and it has been widely reported as such off the back of your briefing. However, there is a false economy to trying to make ends meet on an annual basis simply to make your accounts fit for purpose. Redundancies come at a cost. We have talked about the educational, social and even moral impact of making redundancies, but there is also a financial cost. You are hoping that it will save money down the line, but it costs money up front to pay people off. It seems like a short-term fix to a longer-term problem. Is that a correct assertion?

I just want to summarise that. The situation is that the cash was frozen for three years and then there was a cash cut, which had an obvious effect on the day-to-day balance. Costs have increased, and there were pay awards and other general uplifts to their operating costs, so colleges clearly had to make cuts. It sounds to me as though the lion’s share of those cuts were made through staffing reductions, which leads to reductions in course choice, breadth and availability.

Has any analysis been undertaken of the wider economic effect of the reduction in the number of courses? If people are not being upskilled, reskilled and trained to the levels that they used to be, that will obviously have a negative effect on the wider economy. We surely cannot lose 500 teaching staff from the college sector and see no net effect on the level of education that the colleges provide in Scotland.

It is interesting. The college sector is quite different. Colleges obviously provide further education, but they also provide a large chunk of higher education—26 per cent of college education is higher education and 74 per cent is further education. However, the mode of attendance is different from the university sector. A large proportion of people who attend colleges are part-time students. That is reflected in, for example, the flexible workforce development fund, which is a Government intervention that sought to encourage small and medium-sized businesses to reskill and upscale their workforces. I understand that around 24,000 students participate in that programme, but that fund has been removed as well.

That all points towards a worrying picture. I certainly do not want to put words in the mouth of Audit Scotland, but I sense a frustration that the issue has been raised repeatedly over many years. We cannot just keep coming back to the committee year after year and have Audit Scotland tell us that there are real concerns about the liquidity of colleges, the level of education that they provide and the lack of strategic role that colleges play in Scotland. However, we check the Official Report and see that, year after year, that is exactly what the Auditor General tells us. Where do we go from here? What are Audit Scotland’s recommendations?

I will try to mop up a few different areas, so bear with me. I want to look ahead, off the back of the work that you have done to date.

I have one specific question, which I am not sure that you will have the answer to. You might be aware of a letter that was written yesterday to the Chancellor of the Exchequer by the Association of Colleges, which is an organisation south of the border that might or might not include Scottish colleges. The letter called on the chancellor to introduce an exemption from VAT for the college sector. Obviously, that is a reserved matter, but it is not alluded to in the work that you have done. My understanding is that around 3 per cent of college cash expenditure is paid in VAT. Obviously, that is a high-profile subject, given the changes to VAT in the independent school sector.

Is that something that you might look at? Would such an exemption be positive for colleges’ cash flow?

I understand—anyway, it is now a matter of record.

That leads on to the wider discussion about what colleges do next. Their situation is clearly not sustainable. You talked about the colleges as going concerns. They will not be going anywhere, but they will be very concerned when they suddenly find that they are running out of cash. As has been said, cuts can be taken only so far, so wider reform has to be part and parcel of the conversation.

The college sector is not immune to reform—it has been reformed previously. You talked about the move to being public bodies and changes to structure, and we have talked a little today about changes to the financial models. There has been amalgamation over the years, and there has been a reduction as well as an increase in the number of colleges, so that sort of stuff happens.

I appreciate that some of it is about policy, but it strikes me that there has been a conversation about reform for some considerable time. For example, the 2023 Withers review of the skills development landscape made a large number of specific recommendations that do not seem to be going anywhere. You expressed those concerns in your report. Will you elaborate on why you think that the Government is not moving at pace with some of the reform?

I have been listening carefully to your responses to the many questions that you have been asked today, and I have written down some of the phrases that you have used. The words that keep coming up are “slow” to progress, “limited progress” and “lack of progress”. Progress is a good thing, but a lack of, limited and slow progress are not. Is there a reason why you use those phrases so often in your analysis of the Scottish college sector?

Absolutely. In your briefing, you allude to the wider role of colleges in relation to strategic planning. There is a bit of talk about a new national skills approach, which we will see in March next year, which might be a bit too late for some of the colleges that have been mentioned by others. There is also reference to simplification of the funding landscape, regional skills planning and all the typical buzzwords that you would expect from working groups and reports of this nature.

The root of the issue is the wider role of colleges in education and in economic development. I was struck by some of the briefings that we got ahead of today. We are told that 33 per cent of all college learning is in the care-related sector, which includes childcare, social care and healthcare, and that 24 per cent is in science, technology, engineering and mathematics subjects. Both those areas are endlessly crying out for more people. We hear daily that there are shortages of people in STEM subjects and in the care sector, and colleges are perfectly placed to deliver some of those skills and resources, but those institutions are facing cuts. It strikes me that there is a slight imbalance to having an economic strategy that aims to fill those gaps in the economy, while pulling the plug on the funding for the very institutions that can deliver that.