ALL of the savings generated by a Scotland-wide college merger programme will be ‘absorbed’ by higher wages for lecturers, according to public spending watchdogs.

Audit Scotland suggested the costs of pay harmonisation across the sector - which will see lecturers paid a top salary of more than £40,000 - will match the estimated £50 million annual windfall from mergers.

The report goes on to highlight a number of financial risks facing colleges including a £360m repairs backlog, revealed in December, and the impact of Brexit.

Auditors also noted the attainment gap between rich and poor students is growing despite a national campaign to close it.

Overall the report found the sector’s financial position had improved in 2016/17 with an overall surplus of £0.3m compared to an £8m deficit last year.

However, five colleges are still in deficit including New College Lanarkshire, Edinburgh, Ayrshire, Dundee & Angus and North Highland.

The report said: “Staff costs remain the highest area of spending and are forecast to increase, mainly as a result of the costs associated with harmonising pay and other conditions.

“Colleges Scotland has estimated the total cost of harmonisation as £50m a year from 2019/20.

“This would absorb all the £50m of annual financial savings the Scottish Government ... expected the reform programme to deliver.”

In 2015 Audit Scotland said there was no evidence the 2011/12 merger programme - which saw the number of colleges fall from 37 to 20 - had improved education or produced savings.

When the plans were announced, ministers said mergers would deliver £50m annual efficiency savings and bring other benefits such as reduced duplication and better outcomes for students.

Shona Struthers, chief executive of Colleges Scotland, said: “The report notes significant elements of financial uncertainty for colleges, including ongoing costs of national bargaining.

“Colleges are working in partnership to ensure adequate sustainable funding ... to continue to deliver benefits.”

Larry Flanagan, general secretary of the Educational Institute of Scotland, questioned the figures.

He said: “We have not seen any evidence to support these claims ... and would question the basis upon which these comments have been made.

“The 2015 Audit Scotland report itself challenged how much of the estimated £50m could actually be attributable to college reform.”

Iain Gray, education spokesman for Scottish Labour, said the report highlighted the “lack of support” colleges received.

And Liz Smith, education spokeswoman for the Scottish Conservatives, attacked the “out of control” repair bill.

She said: “It’s going to be difficult for colleges to teach and educate if their buildings are not in an adequate condition.”

Shirley-Anne Somerville, the further education minister, said the report showed colleges were in better financial health with student satisfaction higher than last year.

She said: “This progress is supported by significant government investment of more than £7 billion since 2007.”

John Kemp, interim chief executive of the Scottish Funding Council, said: “The report highlights some areas for improvement and we are working with the sector to address these.”