Image copyright Thinkstock Image caption The spending watchdog warns there are more further education colleges in financial difficulty

There has been a "rapid decline" in the finances of the further education sector in England, warns the public spending watchdog.

A report from the National Audit Office shows that almost half of colleges were in deficit in 2013-14.

Meg Hillier, who chairs the Public Accounts Committee, described it as a "deeply alarming report".

A government spokesman said its "reforms were focused on achieving the best return on investment".

"And we will provide up to an additional £25m this financial year to help support the creation of three million apprenticeships by 2020," said the spokesman for the Business, Innovation and Skills department.

'Rapid decline'

But Ms Hillier said: "I do not believe it is any exaggeration to say the future sustainability of the further education sector is at risk of financial meltdown."

Image copyright PA Image caption The government has announced an extra £25m for apprenticeships

Amyas Morse, head of the National Audit Office (NAO), said the further education sector, which receives £7bn per year to teach four million students, was "experiencing rapidly declining financial health".

The watchdog says that between autumn 2013 and summer 2015 the further education commissioner had to intervene in 22 colleges because of financial problems.

The report warns that the number of FE colleges in deficit more than doubled in two years, from 52 in 2010-11 to 110 in 2013-14.

There are particular problems in 29 colleges which have "poor financial health" and whose financial status is rated as "inadequate", despite some of them receiving additional advances and grants.

The spending watchdog says that £40m in advances to three colleges had been converted into grants, so the money would not have to be repaid.

And the watchdog warns that figures from the Skills Funding Agency suggest the number of such colleges with "inadequate" finances could rise to about 70 next year.

'Tough decisions'

The report identifies a range of causes and "local circumstances" for individual colleges falling into deficit.

Recruiting students has been more difficult with a dip in the number of 16-to-18-year-olds and "more competition from schools and universities".

"Reductions and changing priorities in public funding" have also meant that colleges received less than they had anticipated.

There are colleges struggling with previous debts or trying to finance building projects.

Some colleges are accused of having been "over-optimistic" in their financial forecasts - leaving them in difficulty when they had to operate on a smaller budget than expected.

This means that some colleges are now having to make "tough decisions" on their spending.

The report recommends that with so many colleges in difficulty there needs to be a more "joined-up" response across the sector, rather than relying on individual interventions.

The watchdog says there should also be a better co-ordination between BIS and the Department for Education if a decision has to be taken to close or merge colleges.

Martin Doel, chief executive of the Association of Colleges, said: "Colleges have been battered by a swathe of funding cuts over recent years and it is no surprise that their financial health has suffered as a result.

"Whilst the further education sector is resilient, it cannot endure any more cuts without impact on the local communities it serves."

The government has announced a review of post-16 education and training, which will carry out "area-based reviews" of the provision available to students in local areas from FE colleges and sixth-form colleges.

"We are committed to developing a further education system which creates a productive, innovative and competitive workforce for the 21st Century," said a BIS spokesman.

"We are already implementing many of the report's recommendations and will be going even further to strengthen the system by giving local areas a greater say over how and what young people are taught."

Labour's shadow business secretary Chuka Umunna said: "This report highlights the precarious future which further education colleges face as a result of funding decisions made by this government.

"In particular, adult education is a vital component of social mobility and boosting productivity but has already been cut to the bone and is now at risk of disappearing. Sajid Javid has refused to rule out colleges being forced to close.

"Ministers must not be allowed to duck legitimate questions by ignoring the broad range of provision which FE colleges provide alongside apprenticeships."