Introduction
On the 5th July a new Labour government came into power in the UK. This is expected to bring significant changes to many parts of the economy as the new government has significant issues to address across health, education, and welfare, with limited funds available given the commitment to only limited tax changes and the high cost of servicing debt that has significantly risen in recent years.
This implies that the heavily subsidised further education industry in the UK is likely to be under reform. There is a lot of anticipation about what changes are afoot. However nothing major is yet announced.
In this article, we outline our predictions on what will change, and provide an opinion on the impact they might have.
Summary of further education plans, – Labour manifesto
Equalise education
The core aim is to equalise education and training opportunities, as stated inthe manifesto title itself “breaking down the barriers to opportunity…”. This is further confirmed in the clear statement of intent “Labour…must focus on closing gaps in outcomes between children eligible for free school meals and their more advantaged peers” and a graphic of the “attainment gap” between the most and least deprived. We can clearly see that the main attention within the education manifesto is on primary and secondary school age (i.e under 18 years old).
However, the education itself is clearly not a priority spending area and main focus will be on the healthcare system.
Devolve further education budget decisions
There is a clear desire to devolve responsibility to regional authorities, “(Labour will) devolve education budgets to current and future Mayors and combined authorities to …deliver on local skills needs and priorities”.
Crowd-in the private sector
There is brief mention of a desire to crowd-in the private sector in relation to green skills, “unlock new jobs…supported by private investment in the industries of the future”.
Outcome-based assessment
There is a clear commitment to shift assessment of government funded training providers to an outcome-based approach. “Labour will set high expectations and…develop outcome agreements to ensure clear accountability for skills spending, which aligns to economic priorities”.
Analysis
Equalising opportunity
Unsurprisingly, we are absolutely in favour of the Labour mission within education. It is not only “fairer” to equalise opportunity but a massive waste of talent to not use the productive capability of the less wealthy majority.
The UK has a productivity issue, with a UK worker producing only £60 worth of goods and services per hour compared to £71 in the US and Germany. A solution to this problem is to make the labour market more competitive, ensuring those with the best capabilities to perform a role are able to, rather than restricting this to just those whose family wealth has given them the opportunity to do so.
Budget primarily to schools rather than further education
In an ideal world there would be budget for everything at once, however this is not the reality.
The school system should provide every citizen with a minimum level of education, while further education should prepare working age people with the ability to earn an income. This means that those pursuing further education are far better equipped to pay for the education than school age children (or their parents). Further education providers are much better able to operate as private enterprises, charging a fee commensurate to the value they deliver, which is invariably aligned with career outcomes.
For this reason, the allocation of budget here seems sensible. However, we would like to see additional training and education budget dedicated to training for professions with a labour shortage that are of critical national importance and that have salaries that don’t reflect the market anchors, like nurses and teachers.
Devolution of further education
This is a double-edged sword.
In theory, having location specific training budgets to resolve local training shortages should make sense. However, in practice, skilled labour across the UK is highly dynamic as people who grew up in all parts of the UK, are later working in other parts of the country.
Australia has devolved many education budget decisions to their state governments and suffers from the consequences of different training certifications, age of school leavers and even different A-level scoring systems, as well as the increased administrative burden. This is a country 32 times larger than the UK with far less transport links.
We believe that while some training budgets should be devolved, this is not the best outcome for the nation. Even though it may be politically tempting to “pass the buck” when there is so little in the budget to pass on.
Crowd-in the private sector
Regardless of your political persuasion, it has become clear to almost everyone that the Treasury is not wealthy enough to solve the many pressing problems the UK faces nowadays. Instead, the country needs innovative solutions and UK businesses to come to the fore.
While this is not Labour’s stated aim in other sectors, this appears to be firmly on the agenda for the further education sector. Representing a historic role reversal, with the Tories favouring fully funding education with ill-thought through schemes like the Skills Bootcamp Fund and Life-long Learning entitlement that lined the pockets of private equity funded training providers at the detriment to student’s outcomes. You can read about the funding options and our analysis of them here.
While Labour has only declared an objective for this at present rather than a clear strategy, it is something we believe is essential. There has already been one wave of private-sector-led disruption to the education sector. In the wake of COVID, universities turned to online-platform managers (OPMs) to digitise their courses. The result is that almost all UK universities today use OPMs to deliver high quality courses from bootcamps to master’s degrees including the UK’s most prestigious universities. This approach makes courses cheaper (as it reduces the maintenance cost of living in places like London or Cambridge) and enables people to upskill from their own home, often while continuing their employment.
For comparison, the EU has setup a scheme to encourage providers to let students to pay a royalty like payment (Future Earnings Agreement, FEAs) for their education. The European Investment Fund has provided a guarantee for an initial €100m in financing that will be provided by the private sector for the reskilling and training of 40,000 students. This is expected to cost the EIF a negligible amount compared to the benefit (less than €10m) and leverages private finance and training providers, while ensuring there is a strong incentive by private market participants to deliver good graduate outcomes. This is in stark contrast to the prior governments scheme to fund £100m of bootcamps for students directly out of taxpayer funding, many of whom never got jobs.
Commercial FEAs were actually pioneered here in the UK, home to the only two regulated providers (of which StepEx was the first in 2019). The UK has the best eco-system for this arrangement with an innovative regulator and far more advanced digitisation of any major economy (with Open Banking access across 99% of account holders and initiatives like Making Tax Digital). A similar option was raised to both the Treasury and Department of Education both in 2013 and 2022 (proposal here), but both times it fell on deaf ears.
Outcome-based assessment
We wholeheartedly support outcome-based assessment of government spending. The key nuance is “how” to measure the outcomes. The prior government tried and failed in further education, linking incentives to interviews, which were then gamed by training providers as the great tech lay-offs began and demand for junior developers dwindled. To maintain funding levels, many turned to tactics that didn’t align with the government outcomes of placing more people in tech roles, such arranging “speed-interviews” so that hundreds of their graduates could have micro-interviews for each role.
Ultimately, the government’s aim is to make its citizens better off. This outcome is hard to define, and even the lower-level priorities of making the economy more productive and internationally competitive, are difficult to directly link to further education spend as there are multiple drivers, and the effects are lagged.
One metric that can be directly linked to further education are graduate outcomes. Broadly, employment and earnings depend on four key areas:
- Selection of students;;
- The quality of the training provided
- The quality of job placement services and perceived employer value of the training provided (brand of the educator);
- industry level employment levels.
The first three are directly under the control of the education provider, while the fourth is indirectly under their control. Just as blockbuster and Kodak saw their markets rapidly decline and failed to adapt, so to should training providers need to adapt to changing industry trends to ensure they are providing training that is relevant for the jobs of the future.
While optimising for graduate outcomes works well for the Treasury, satisfying some of their core aims of increasing tax revenue and reducing welfare spending, the Department of Education (DoE) has some ancillary objectives that this doesn’t resolve. Such asensuring sufficient workers for critical industries. However, many of these industries have state-controlled wages such as nurses and teachers. The basis of this outcome-based training subsidy can be linked by other means, for example with repayments recorded but waived while working in the UK public sector.
Another nuance for the DoE is that the economy of many British towns are dependent upon the local university. With student spending supporting supermarkets, pubs and other local businesses. Some universities are unlikely to survive based on the graduate outcomes they achieve, but without them the township surrounding them would struggle to survive. There is no easy solution to this.
However, for training providers to truly deliver the skills our country needs for the future within the budget we have today. We need taxpayer funding to be linked to graduate outcomes, with competition amongst training providers that results in better providers taking on more students and worse providers taking on less or none.
Likely policies
Discontinue the Skills Bootcamp scheme
The initial £100m pilot has not delivered good outcomes and this is an easy win to scrap.
Repeal the Life-long learning entitlement
Extending government student loans to non-university courses is good in theory. However in practice, this opens the door to exploitation of many young people who will be saddled with debt for courses that do nothing to enhance their career prospects.
Open up and provide oversight of Apprenticeship providers
The apprenticeship levy funds remains only partially used. This is largely due to the inability for new training providers to gain access to the funding as the list is “locked”. Establishing a new body to oversee existing and new providers is essential to optimising this scheme.
This new body should have a mandate to consistently review the existing and prospective apprenticeship levy list members. Developing an objective metric to assess their performance and populating the list with the top performers periodically. Removing funding for those who fall short and providing it to those who excel.
Regional training budgets
Provide very limited funding to regional mayors and combined authorities that will replace a lot of the support provided by the DWP.
Public-private co-funding of Green Skills
This is a challenging objective as “green skills” are not clearly defined and in fact many of the skills required by green technology providers are the same as required by other industries from engineers to accountants.
Improving on the European scheme of guaranteeing funding would be an excellent way of achieving this. By offering to cover the first portion of defaults on a student loan portfolio, with an additional “bonus” payment made to the lender from the income tax paid by the individual when employed in a role deemed as “nationally critical”. This would crowd-in the private sector who would seek to fund high calibre students training in skills that lead to “nationally critical” roles. In turn boosting student demand for this training.
Another option is to setup a social fund that enables students to receive training for a royalty-based repayment. The training provider only receives a portion of their fee upfront. The first portion of the amount the student repays is back to the social fund to finance the next cohort of students and the remainder being paid to the training provider. Giving training providers a strong incentive to achieve good graduate outcomes (full report on this here). The “bonus” payment for students employed in “nationally critical” roles could also apply here.
Conclusion
Budget constraints will force the new government to think innovatively about how to deliver the productivity and equalising of opportunity that a strong further education sector can provide.
The first order of business should, and probably will, be dismantling the wasteful schemes introduced by their predecessor. This will give them some budget headroom but it will likely be minimal.
Devolving budgets to the regions on the one hand provides local specific solutions but on the other provides another layer of administration costs and fragments the approach to upskilling in a dynamic labour market. However, from a political perspective it is likely a smart move, as it provides a scapegoat for the government if further education objectives are not met.
British businesses must be empowered to step up to help solve the training and upskilling issues plaguing productivity. Good proposals exist, and the courage to adopt them hopefully does as well.
