Six of Scotland's 43 further education colleges have set themselves up as a "polytechnic" sector offering an alternative to university-based higher education.

A quarter of higher education entrants are in further education colleges, and the Scotland's Polytechnic Colleges group (SPC) argues that it offers a low-cost, high-quality, vocationally-oriented form of higher education in areas where university courses are not readily available. The colleges plan to market themselves as a polytechnic group to applicants for the coming session.

Membership of the group is by invitation only, and includes the principals of Aberdeen, Telford and Inverness Colleges, Falkirk College of Technology and Fife and James Watt Colleges of Further and Higher Education. At least half their work is in higher education, and Fife, Inverness and Falkirk offer university-validated degrees.

While the Higher Education Funding Council for England funds institutions across the tertiary sector, the Scottish Higher Education Funding Council funds only higher education institutions, with further education colleges funded directly by the Scottish Office Education Department.

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The larger colleges, which are in a minority, feel the SOED's funding formula discriminates against them as every institution receives the same basic allocation and increased income from higher education fees results in a smaller grant.

But two college principals who flirted with SPC membership have now withdrawn, believing that it potentially conflicts with moves to create a single voice for Scottish further education.

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Jim Neil, principal of Dumfries and Galloway College, said that there had been excellent progress in bringing together the Association for Colleges in Scotland, the Association of Principals of Colleges and the Employers' Association, and he would not wish the launch of a single organisation to be clouded in any way.

Craig Brown, principal of Dundee College, said: "I feel the role of further education colleges is in non-advanced work. That is what we are good at and what is needed in the country."

Following a meeting between the SPC and SOED officials, a Scottish Office spokeswoman said: "It is for individual colleges to decide what groupings they should form. The Scottish Office are interested in hearing views from different bodies, and are receptive to these, but have to balance differing views in reaching decisions on funding and other matters."