This blog looks at the 2025-26 Budget allocations for colleges and universities, the response from the sectors and the potential impact on further and higher education in the year ahead.
Please note, this blog was updated on 5 February 2025 following the Scottish Government’s announcement of budget amendments on 28 January.
The big picture
The 2025-26 Budget was announced on 18 December 2024, setting out a small cash increase in budget settlement for colleges and universities. This follows a tightening of both budgets in recent years: in 2023-24, increases of £20 million and £26 million for university and college resource budgets respectively were later reversed; and the 2024-25 Budget set out a cut to college and university resource budgets.
In the Education and Skills Chapter of the 2025-26 Budget document, the Scottish Government sets out priorities for further and higher education spending stating:
“…this portfolio is driving economic growth through its support for colleges, universities and the wider skills system. We are protecting the right to free tuition and driving forward our commitment to Widening Access. The budget prioritises financial assistance to students, supporting them to complete their studies in the face of significant cost-of-living pressures. The budget also supports adult learners – including parents and carers – to enter, sustain and progress in work, critical to our mission of eradicating child poverty”. – Scottish Budget 2025-26
However, the Budget falls short of what was asked for by both sectors and the settlements represent real terms cuts across further and higher education capital and resource budgets. In addition, the Scottish Government estimates the UK Government’s planned increase to employer National Insurance contributions will cost colleges an estimated additional £20 million and universities £45 million.
The Scottish Government allocates funding for the further and higher education sectors to the Scottish Funding Council (SFC) via the Budget. A Letter of Guidance is sent from the Scottish Government to SFC each year setting out the priorities SFC should focus on delivering. SFC then allocates and distributes funding to individual institutions.
The Letter of Guidance for 2025-26 places an emphasis on SFC supporting reform and “championing” Ministerial priorities in the context of uncertainty and challenging finances.
This year’s overall resource and capital allocations are set out in more detail below, comparing the 2025-26 budget allocations with those set out in the 2024-25 budget.
Colleges
This year’s college resource budget is a 2% cash increase on the 2024-25 Budget allocation in cash terms. In real terms calculated using the SPICe Real terms calculator at 2025-26 prices, it is a decrease of 0.33%. [Note: calculations made using HMT GDP deflator at the date of the Scottish budget.]
The college capital budget has decreased by 23.6% in cash terms on the 2024-25 Budget. This is largely due to the completion of the Dunfermline learning campus, for which funding was previously allocated from this budget.
In a letter to the Finance and Public Administration Committee on 28 January 2025, the Cabinet Secretary for Finance and Local Government announced an additional £3.5 million for the creation of an offshore wind skills programme and a college care skills programme. Details of how the fund will be distributed are not yet available. £700,000 to support the continuation of Corseford College for people with complex and additional needs was also announced.
Several years of tight financial settlements and the impact of the COVID-19 pandemic has seen the college sector facing financial difficulties. Audit Scotland’s Scotland’s Colleges 2024 found 11 colleges reporting deficits in 2022-23, with funding reducing by 17% in real terms since 2021-22. During the Education, Children and Young People (ECYP) Committee’s pre-Budget scrutiny work, now-former SFC Chief Executive Karen Watt said her organisation was working with four colleges experiencing cash-flow issues, adding:
“…a very high proportion of colleges are actively looking to reduce operating deficits.” – Official Report, 12 June 2024
Ahead of the 2025-26 Budget, Colleges Scotland requested £853.3 million resource funding to restore financial stability and meet the costs of staff pay deals. The sector body also called for the £26 million transformation fund – initially proposed in the 2023-24 Budget but never delivered – to be reinstated.
For capital, Colleges Scotland set out a total request of £775 million, with £250 million of this for bringing the college estate up to baseline condition and £525 million for replacement of expired buildings.
Following the publication of the Budget, Colleges Scotland expressed disappointment in the settlement, stating it represented a real terms cut posing “significant challenges” for college leaders. Colleges Scotland described the cut to the capital budget as “alarming”, adding:
“We must advise the Committee that the failure to increase investment in college estates and address critical digital infrastructure needs is unacceptable. Many college buildings are in a state of disrepair, with some containing Reinforced Autoclaved Aerated Concrete (RAAC) that remains unaddressed. Students and staff are expected to work and learn in substandard and deteriorating conditions. This situation demands immediate attention.” – Colleges Scotland submission to ECYP Committee
The organisation also stated that £4.5 million of the resource uplift for 2025-26 is funding provided by the Scottish Government to meet the costs of a pay deal for lecturing staff and this “erodes any uplift in spending power”. Clarification was also sought over whether additional funding for the support staff pay deal will be provided.
During the ECYP Committee’s evidence session with the Cabinet Secretary for Education and Skills, Jenny Gilruth MSP, and Minister for Higher and Further Education; and Minister for Veterans, Graeme Dey MSP, on 8 January 2025, the Minister said that the Colleges Scotland’s budget ask was:
“…considered unrealistic by any judgment. The capital ask represented 178% of the overall capital budget at our disposal, and there was also a very significant increase in the revenue ask. Because that was their starting position, colleges will regard the settlement as falling somewhat short of that, but we should look at the trend in college funding.” – Official Report, 8 Jan 2025
On college support staff pay, the Minister said the Scottish Government is not directly involved in discussions, adding:
“It will be up to the unions and the college employers to get together in due course this year to look at a pay settlement for the support staff in the context of 2025. That has not been raised directly with us in terms of Government participation.” – Official Report, 8 Jan 2025
During pre-Budget scrutiny, the ECYP Committee raised questions about why colleges were not covered by the Public Sector Pay Policy (PSPP), as this excluded them from the no compulsory redundancies policy despite being recognised as public bodies by the Office for National Statistics (ONS). The 2025-26 PSPP states further education workers are now covered by the policy. This follows a year in which a number of colleges stated intentions to make compulsory redundancies.
Universities
This year’s Higher Education (HE) resource budget is a 1.7% cash terms increase on the 2024-25 Budget allocation. In real terms, calculated using the SPICe Real terms calculator at 2025-26 prices, it is a decrease of 0.68%. [Note: calculations made using HMT GDP deflator at the date of the Scottish budget.]
The HE capital budget is a 3.2% cash terms increase on the 2024-25 Budget allocation. In real terms, using 2025-26 prices, it is a decrease of 0.79%.
During the Budget statement, Cabinet Secretary for Finance and Local Government, Shona Robison MSP, said of the Scottish Government’s budget settlement for HE:
“…not only will we keep tuition free but we will increase total investment in Higher Education by 3.5%.” – Official Report, 4 December 2024
The figures as published in the Budget do not show a 3.5% increase in investment. In correspondence with SPICe, the Scottish Government said that the 3.5% increase is the “combined effect” of the £12.9 million increase contained in the Budget and funds of around £14 million the Scottish Government is expecting SFC to “release for reinvestment in the sector”.
In its submission to the ECYP Committee following the Budget announcement, Universities Scotland (US) stated that the Scottish Government had confirmed in post-Budget talks the intention to allow the sector to hold on to £14.5 million of funding attached to 2,500 university places introduced during the COVID-19 pandemic following the removal of the places.
These places were introduced during the COVID-19 pandemic following the Scottish Government’s decision to reverse downgraded Scottish Qualification Authority (SQA) results for pupils across Scotland in 2020.
During the ECYP Committee’s 8 January meeting, when asked to confirm that the 3.5% increase claim was tied to the removal of the SQA places, the Minister said that this was “part of how we arrive at 3.5%”, adding:
“To put it simply, the funds that are generated by that amount remaining in the centre, coupled with another uplift that the Government has delivered, delivers 3.5% in total.” – Official Report, 4 December 2024
The Minister and his officials stressed that these were cuts to the number of additional places, and institutions would have been subject to ‘clawback’ of funds had they remained in the system unfilled.
US has also stated it believes there will be no impact on the availability of funded places for Scottish-domiciled students when the places are removed. The latest UCAS data does seem to back this up: while 1,200 funded places were removed by the Scottish Government in the 2024-25 Budget, the proportion of Scottish domiciled applicants accepted into Scottish universities in 2024 was at a high of 78.8%, up from 75.7% the previous year.
Looking beyond the 2025-26 budget year, questions around the funding model for higher education have been raised by US and others. Research from the Institute of Fiscal Studies (IFS) published in November 2024 found expected falls in international student fee income, the “continuing decline” in funding for Scottish-domiciled students, and increasing employer National Insurance contributions:
“…present major risks this academic year…” – IFS, November 2024
During the ECYP Committee 8 January evidence session, the Minister said of the cost of funding higher education:
“Do I think that all Governments would accept that the cost of delivering university education is higher than the funding that we are providing? I will sit here today and say yes—I do believe that. As I said earlier, we are having on-going discussions with the universities about what we will do about that, and those discussions will ramp up.” – Official Report, 8 January 2025
The Minister emphasised that these issues could not be fixed “overnight”.
What will 2025 bring?
The Scottish Government has committed to reform of the post-school education sector, and the first step toward this is likely to be taken later this year with the introduction of a Bill changing the roles of funding bodies Skills Development Scotland (SDS), Student Awards Agency Scotland (SAAS) and SFC.
Realisation of the post-school reform agenda remains a longer-term goal. In the meantime, the college and university sectors have called for the Scottish Government to provide clear priorities to help direct focus.
For colleges and universities, the Budget settlement only tells one part of their story for 2025 and beyond. The big question is, by the end of this year, will there be greater clarity around the reforms planned for post-school education?
The Budget (Scotland) (No. 4) Bill is currently at Stage 1. A debate to consider and decide on the general principes of the Bill will take place in Parliament in the coming weeks.
By Lynne Currie, Senior Researcher, SPICe
20 January 2025