The proposed merger between the University of Edinburgh and Edinburgh College of Art (ECA) has been approved by the Scottish Government and will be backed by £13.8 million of new investment from the Scottish Funding Council.
The decision follows a 12-week public consultation on proposals, which have the overwhelming backing of the two institutions.
Education Secretary Michael Russell, who announced the decision yesterday in a letter to the principals of both institutions, noted that the academic case for merger was compelling but criticised the financial management of the ECA.
Mr Russell criticised the ECA's internal controls and governance structure and said that the College could not deliver a long-term, sustainable funding situation as an independent institution. Approving of the merger "with regret as well as anticipation", he said:
"Even with £13.8 million of additional public money now being made available, the scale of the difficulties at ECA mean that even this significant injection of funds would not have made ECA financially sustainable. I very much regret that these matters have overshadowed, and had a bearing on, my decision."
The ECA Board welcomed the decision but responded to the minister's statements saying that the College's financial situation was brought on by "short-term difficulties" caused by lack of government funding for Small Specialist Institutions in Scotland.
The College also accepted that its "ambitious" Estates Strategy was to blame for its weakened financial situation. The ECA has seen poor returns on the commercial component of the new-build Evolution House which the ECA acquired in 2006.
"Although fluctuations in market valuations mean that the investment currently appears to have been over-optimistic, this may change as the market changes. The Board continues to feel that the investment was worthwhile because of the improved student experience delivered through higher-quality and more convenient studio provision."
The ECA said that it had addressed its weak internal controls and governance structures in early 2010.
The board said that £1m annual savings had be made to date, putting the College "on a much more sustainable footing than previously possible."
Collaboration between the ECA and Edinburgh University dates back to the 19th century. A jointly-taught MA (Honours) in Fine Art has been continuously offered since 1946 and in 2004 the University became the awarding body for degree programmes offered by the College.
In 2009, the institutions jointly established the Edinburgh School of Architecture and Landscape Architecture (ESALA).
Under the merger plans, the ECA should retain its identity, ethos, pedagogy, and studio-based culture.
The merger will now go before the Scottish Parliament and if final approval is granted, the intention of the institutions is for the merger to be implemented on August 1, 2011.