SCOTLAND’S colleges are facing an uncertain financial future with growing deficits and a decline in student numbers, public spending watchdogs have warned.

A report by Audit Scotland found the financial health of the sector was “relatively stable”, but had deteriorated since 2014/15 with deficits of £19 million in 2015/16.

Four colleges, including Edinburgh, face particular challenges to their financial sustainability, the report found.

The concerns were raised at a time when colleges are facing an estimated £80m bill as a result of implementing the Scottish Government’s policy to harmonise pay across the sector.

Audit Scotland also said student numbers had decreased in 2015/16 with the student population at its lowest level since 2006/07 - when the SNP came to power.

The report suggested reasons for the fall included a reduction in the number of young people in Scotland and the fact school-leavers are increasingly entering employment or university.

Caroline Gardner, the Auditor General for Scotland, said: “There is a growing risk to colleges’ ability to keep delivering what the Scottish Government requires from the sector as a result of major financial challenges and a declining student population.

“Demand for college courses and the effects of demographic shifts also need to be assessed so educational provision can be designed around these.”

Shona Struthers, chief executive of Colleges Scotland said most institutions were operating at a “near break-even position”.

She said: “We appreciate additional funding made available for 2017/18, which recognises the circumstances the sector faces, but the overall number of colleges forecasting deficits is increasing and this is not a sustainable situation.

“We agree that national bargaining is a significant financial challenge for college and without additional resources the ongoing costs are not affordable without impacting severely on the student experience.”

The report's publication provoked an immediate backlash from political opponents who accused the SNP of damaging colleges.

Liz Smith, education spokeswoman for the Scottish Conservatives, said the SNP had "utterly neglected" the sector.

She said: "These figures show fewer people are entering college than at any time since the Nationalists came to power.

"Businesses are crying out for young people with skills that colleges are best placed to teach, but people of all ages are being let down.

Monica Lennon, Scottish Labour’s inequalities spokeswoman, said the "damning" report highlighted the impact of a decade of SNP cuts.

She said: "Thousands of young people have had their opportunities cut off by an SNP government which has bled college budgets dry."

Tavish Scott, education spokesman for the Scottish Liberal Democrats, also blamed government cuts for the reduction in student numbers.

He said: “The government’s narrow, short-term focus has slashed opportunities for learning, depriving many of the chance to gain the new skills they and our businesses need. This report rightly calls into question the sustainability of this approach.”

Larry Flanagan, general secretary of the Educational Institute of Scotland (EIS), added: "We are concerned with the continuing drop in student numbers which follows on from last year’s similar decline, particularly in the number of part-time students.

"We are also concerned that funding across the sector for the year 201/18 will only increase by one per cent after some exceptional capital funding at one college is excluded."

However, the Scottish Government questioned some of the comparisons made in the report arguing student numbers and funding had risen when other factors such as capital investment and statistical changes over time were factored in.

A spokeswoman said: “This report highlights that the college sector is financially stable and that colleges continue to exceed targets for student learning.”

“It also identifies areas where improvements can be made and we will work closely with the Scottish Funding Council and colleges as we continue to deliver learning that enables everyone to get the qualifications they need to get on in life.”

The report said total Scottish Government funding to the sector would increase by five per cent between 2015/16 and 2017/18, although the bulk of this relates to a capital project at one college.

And it found full-time students have decreased by three per cent since 2011/12 while part-time students have decreased by 18 per cent. There are currently 77,000 full-time and 151,000 part-time students.