MORE than three quarters of Scottish colleges are forecasting a deficit for the current financial year.

The Herald understands the latest financial forecast returns sent to the Scottish Funding Council (SFC) by finance directors show 16 out of 20 colleges are predicting they will end the 2016/17 financial year in the red.

The bleak financial outlook comes after years of cuts in the further education sector which has led to job losses and the axing of part time courses.

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The situation is significantly worse than in August when public spending watchdog Audit Scotland warned that 11 colleges were predicting a deficit.

Colleges are also facing an estimated £80 million bill as a result of implementing the Scottish Government's policy to harmonise pay across the sector which will see all lecturers earn up to £40,000 in three years time.

Shona Struthers, chief executive of Colleges Scotland, said it was crucial that funding of the college sector was protected in the forthcoming spending review to ensure that institutions could continue to deliver high quality courses.

She said: "Colleges have already taken a 27 per cent cut in funding since 2010/11 and the recently published Audit Scotland report is clear that the college sector is showing signs that it is facing significant financial pressures with colleges forecasting deficits for 2016/17.

"College budgets have very little room for flexibility now as they are heavily made up of staff costs and colleges are also committed to the Scottish Government policy of no compulsory redundancies and, as public bodies, they can no longer hold reserves.This means that sustainability is becoming increasingly difficult for the sector."

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Larry Flanagan, general secretary of the Educational Institute of Scotland (EIS), which represents lecturers, also called for investment.

However, he also highlighted the fact that more than £100 million in former college reserves is currently lodged in so-called arms length foundations (ALFs) set up when colleges were brought back into the public sector.

In many cases the money has been ringfenced for improvements to the fabric of college buildings or major capital projects, but the EIS believes the money could be used to fund pay harmonisation.

He said: "It is true that the further education sector has faced financial challenges over a number of years and that the sector needs significant investment if it is to continue to serve effectively the needs of students and communities across Scotland.

"However, it also cannot be forgotten that many colleges have established ALFs in recent years and that approximately a hundred million pounds is sitting, unused and allegedly untouchable, in the accounts of these bodies.

"What is clear is that colleges, the Scottish Government and the Scottish Funding Council must work together to ensure that the sector can meet its obligations to both students and staff including the full delivery of the recent landmark national agreement on fair pay across the sector."

In its August report on further education Audit Scotland reported an overall deficit of £28m for the sector in 2014/15 in audited accounts. This is a deterioration from an underlying surplus of £15m in 2013/14.

In its manifesto for the 2011 Scottish Parliament elections the SNP promised to introduce national pay bargaining for colleges as part of wider reforms of the sector including a host of mergers.

Under the previous system of local bargaining, significant differences have opened up in lecturers’ terms and conditions, with some staff earning as much as £12,000 more for a similar job. However, a breakthrough was reached in March with an outline agreement to increase salaries to £40,000 for a lecturer.

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Since then talks appear to have reached stalemate and Colleges Scotland have argued the cost of the proposed increase in pay – in addition to the annual £440m already spent on staff salaries – will be £53m while a job evaluation scheme to help implement it will cost £26.5m.

Colleges also want to see changes in working practices which would mean more time spent teaching for some lecturers in exchange for the money.