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Quango under fire for denying College of Art a financial lifeline

Questions are being asked over the actions of the Scottish Funding Council (SFC), the quango in charge of funding Scotland’s universities, as new documents reveal it denied a previously approved financial lifeline to the troubled Edinburgh College of Art (ECA) earlier this year.

Senior figures in higher education described the SFC decision as “a shameful piece of administration” and “murky”.

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One said that in light of the proposed merger between ECA and the University of Edinburgh it showed the SFC’s over-arching desire to merge institutions using all the powers within its means. Members of the Scottish Parliament’s education committee described the situation as “concerning”.

The row stems from the SFC’s decision in June to refuse ECA’s request to sell Keir Street car park, a valuable piece of land worth several million pounds, to help service a crippling loan. In 2005, however, the SFC had approved the sale of the same site as a contingency plan should ECA get into financial difficulty.

It is this volte face of policy that is causing concern within higher education. The consultation on the merger closes on Friday.

Documents obtained under Freedom of Information reveal that in November 2005, ECA principal Ian Howard wrote to then SFC chief executive Roger McClure seeking formal approval to borrow £18.5 million to buy Evolution House.

In a letter dated November 24, 2005, Howard laid out the ECA board’s contingency plans around the acquisition of the building. He wrote: “...it would dispose of its valuable Keir Street site were external conditions to impact adversely on income projections... it is an option that would be invoked to reduce the debt burden on the college”.

On December 23, 2005, McClure replied, giving consent to the £18.5 million loan. Directly referring to the contingency plans he added: “That assurance was a key factor in the council’s decision to grant borrowing consent.”

Five years later the college is in serious financial trouble. Much of it stems from the Evolution House loan. It has breached several of the loan covenants and its annual budget was projected to be in recurrent deficit between £818,000 and £1.3m.

At the behest of the SFC, earlier this year ECA market-tested the Keir Street site and received offers ranging from £1.8m to £6.4m, including an unconditional offer of £3m. Architectural plans for student flats to house 170 were drawn up in conjunction with the council. The SFC was made aware of all these developments.

On May 19, Timothy O’Shea, emailed Howard . “Disposal of Keir St site at this stage could compromise delivery of the merger,” he wrote.

Despite this, on May 21, Howard wrote to the SFC seeking permission to sell the site “to part pay the debt on Evolution House”. He added: “The Board is concerned that in light of its current financial position it may be in breach of its duties if it did not proceed with the disposal.”

Two weeks later, on June 3, the SFC denied the sale. The reason given was that using the sale to service a loan failed to meet the council’s criteria that such proceeds should be “reinvested in further development of the college’s estate”. The SFC confirmed this was the first time it had ever vetoed such a sale.

Several ECA governors wrote to the SFC condemning its decision, saying it placed them “in an impossible position”.

Since then a formal merger proposal has been put forward by ECA and the University of Edinburgh, requesting £13.8m from the SFC to facilitate the marriage. Rescuing ECA’s finances is one of the main factors, along with academic reasons. But the SFC’s apparent change of policy has worried many.

Claire Baker, Scottish Labour’s spokeswoman on higher education and member of Holyrood’s education committee, said: “It is concerning that the Scottish Funding Council appears to have changed its advice on this issue. Edinburgh College of Art have clearly taken decisions based on the availability of this money. ”

Former principal of Glasgow School of Art Dugald Cameron has written to the Government asking for an independent investigation. He said: “If that is the case, as alleged, then it is a disgrace and a scandal. ECA went into this property deal with a contingency plan that the SFC agreed to. So, when the whole thing goes bad, to turn their back on them seems a shameful piece of administration.

“To withdraw the one source of financial help that the college needed, and one they predicted, it is like pulling the rug from under them. You need to ask why? It is almost like telling them, ‘you must merge’.”

A senior source within higher education said the episode revealed the SFC’s desire for more mergers.

“I have no doubt they would use whatever pressure they felt they could bear on the ECA to persuade them they really ought to go into this relationship with the University of Edinburgh,” he said. “Their interest in securing mergers is a matter of tidy-mindedness. They feel they have too many institutions.”

In response, a spokesman for the SFC said there had been no change of policy. He said: “In 2005 the College of Art was letting the Funding Council know how it would mitigate the risk of raising a loan to invest in Evolution House. There were a number of contingencies available to the college, including sub-letting parts of its estate and the future sale of the car park, in the context of affording future loan repayments relating to that building. We were not being asked for permission to dispose of assets.

“In 2010 we were asked about the possibility of disposing of the car park to support its operating position, in other words day-to-day running costs such as salaries and services.

“The conditions for disposing of assets that have been publicly funded are very clear and say that the proceeds must be used to re-invest in buildings or equipment. The college was advised accordingly.”

A spokeswoman for ECA said it accepted the SFC’s decision in light of the proposed merger, but added: “Should the merger not proceed, then the college would reserve the right to revisit earlier discussions with the SFC about the site, at which time the property market might offer higher valuations.”

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