The public auditing body’s report shows cash balances held by colleges are also forecast to fall. Under these conditions, colleges now need greater clarity from ministers on what parts of their role to prioritise.

Colleges have used voluntary severance schemes to reduce their costs, with nearly 500 staff leaving colleges in 2022/23. Staffing makes up around 70% of colleges’ costs and the sector expects further cuts in coming years.

The financial challenges and staffing reduction means colleges may not be able to offer the same learning experience to students as in the past. Meanwhile, the lack of reform of the post-school sector is causing continuing uncertainty for colleges.

Stephen Boyle, auditor general for Scotland, said: “The college sector is facing huge challenges. But to plan effectively for the future, colleges need a much stronger steer from the Scottish Government on what parts of their role to prioritise.

“The Scottish Government also needs to respond quickly to the results of its consultations on post-school reforms to provide the college sector with more certainty.”

Reacting to Audit Scotland’s report, Shona Struthers, CEO of Colleges Scotland, said: “A 17% reduction in real terms funding for colleges is dire, impacting colleges as organisations, students, and the wider economy. The reduction translates to colleges losing almost £1 in every £5 they should have received from the Scottish Government.

Shona Struthers – Colleges Scotland CEO

“An increasing number of colleges are reporting financial deficits - college leaders are under enormous pressure to keep colleges solvent as well as performing successfully. Colleges are public bodies and could play a bigger part in helping the Scottish Government deliver its top priority of eradicating child poverty but there hasn’t been sustainable funding available to do this fully, a missed opportunity. College education gives people opportunities to gain qualifications, progress to university, and supports industry with upskilling and retraining, so clearly reducing funding at this scale can only harm that prospect.

“We agree with Audit Scotland that the reform of parts of the tertiary system should be moving at a faster pace, and that priorities for colleges should be clearly articulated by Ministers.

“The report also highlights a range of infrastructure issues, including RAAC, and the slow delivery of an estates and digital plan from the Scottish Funding Council. An urgent funding solution has to come forward for RAAC repairs and more broadly to address the poor conditions of estates to benefit students and staff.”