April 1995 is the second anniversary of further education colleges' freedom from local authority control. Below William Stubbs looks at their progress. Two years on from the creation of the further education sector, it is timely to take stock of what has been achieved so far and to consider what lies ahead.

For colleges, the first year of the sector and the run-up to it were dominated by incorporation. Colleges had to spend time, energy and money on preparing for the responsibilities they took over from local authorities in April 1993 - financial management, control and accounting systems; payroll and personnel functions; and estates management.

Other big developments of the first two years have been Further Education Funding Council-led. These were the creation and the first run of the new recurrent funding methodology, a sector-wide strategic planning framework for colleges, a system for assessing and reporting on the quality of further education in England, and an entire new set of national data about further education. Colleges have advised the council on these developments throughout and they have implemented them locally.

All this has consumed a considerable amount of management attention within colleges and it has required investment in new systems and new kinds of skills in the sector. But it has been worth it. For the first time ever there is a coherent national funding framework for further education.

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The sector has a clear set of performance indicators. It has a common strategic planning framework. It has a robust quality assessment system. An information strategy is in place that will meet both college needs and the national needs of the sector. We have structures that allow colleges and the council to understand and respond as necessary to local and national education and training needs.

With the sector firmly established and coherent national infrastructure in place for both funding and information, colleges are now well-placed to focus their energies on some of the broader issues. From the council's perspective, the most important of these are quality and the expansion of further education opportunities.

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These two issues go together. It will not be enough just to recruit more students, raise participation rates and open our doors wider, if at the same time quality and output do not continue to improve.

This is part of the thinking behind the National Targets for Education and Training and the drive to increase, not just the numbers taking part in post-school education and training, but the level of skills and qualifications among the working population. This growing emphasis on quality and student achievements also lies behind the Government's decision to publish information about exam results and student destinations in the post-16 sector.

The responsibility for improving quality will fall largely on colleges. The results from college inspections so far are encouraging. The chief inspector's first annual report on quality and standards for further education reported that colleges are dynamic, responsive and entrepreneurial. They have responded well to the challenges of incorporation and they have coped well with curriculum change during the development of the National Vocational Qualification framework.

However, it is clear that there are a number of areas where the sector needs to improve matters. These include high drop-out rates from some courses, some poor examination rates on GCSE and GCE programmes; underdeveloped quality assurance systems, and weak management information systems.

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As a result of increasing inspection activity, the National Targets for Education and Training, the council's funding arrangements and some vocal criticisms of aspects of the National Vocational Qualification system, we are beginning to see a healthy focus on quality. In individual colleges quality systems of one kind or another are taking root.

The second big issue for the sector is expansion. The prime movers here are the Secretary of State's overall growth target for further education between now and 1996/97 and the National Targets for Education and Training. For the immediate future, increasing participation and meeting the growth target will remain the council's first priority. Our funding methodology will therefore continue to reward most of those colleges that meet their own individual growth targets.

Colleges have responded energetically to the challenge of growth. Most are meeting their targets and are doing well under the new funding arrangements. Despite what some commentators have said, the council has serious concerns for only a small handful of colleges.

This does not mean that the council underestimates the challenges presented by growth and, for some colleges, the extent of the efficiency savings which need to be made as the council gradually converges inherited levels of funding. The next two to three years will inevitably continue to be difficult for many colleges, but the indicators so far are that most will remain healthy financially. All are looking to combine growth with improvements in quality.

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Sir William Stubbs is chief executive of the Further Education Funding Council for England.