Jonathan Simons, head of education at Policy Exchange, explains why a new report published by his think tank is calling for a radical rebalancing of funding between higher education and FE.

What do 3m apprenticeships, the Northern Powerhouse, improved social mobility, increased economic growth, a One Nation approach to governing and turbocharged productivity all have in common?

They all rely, to some extent, on a flourishing system of lifelong learning, and on a cadre of viable institutions to deliver higher level training and education.

Undoubtedly, we have that in spades in our higher education institutions.

But there can be no doubt that FE colleges are struggling, buffeted between the winds of declining budgets, a confused and ever changing mandate, and without the prestige and political attraction of schools, childcare, or universities.

In particular, our report out today, called Higher, Further, Faster, More — Improving higher level professional and technical education, looks at the issue of what the Organisation for Economic Co-operation and Development (OECD) call “post secondary, sub tertiary qualifications”.

These are the type of technician and associate professional roles where the UK labour market already has a huge shortage; where many jobs of the future are predicted to come from; and traditionally FE colleges have taken the lead in providing the type of employment focussed training that is needed for them.

The drive towards degree level apprenticeships, the creation of Institutes of Technology, and the continued engagement of employers through Industrial Partnerships are all strong indicators that government wants to address this.

Yet as our report argues, we need to address the fundamental imbalance between the two halves of our tertiary education system, and look at FE and higher education in the round.

In some ways the two systems have rightly integrated themselves over the years.

Around 10 per cent of full time and 28 per cent of part time students at university are enrolled on higher level technical qualifications such as Foundation Degrees and HNDs.

On the FE side, many colleges now offer higher education within their setting, indeed 8 per cent of all higher education students study principally within an FE college, and the National Student Survey figures show very high levels of satisfaction.

Yet at the same time there remain two funding agencies; two regulatory systems; two sets of audit and data requirements; and two different rules over loan and maintenance eligibility.

It makes increasingly little sense, either from a provider perspective or from the user side.

A typical 18 year-old choosing where to study after school has two options.

They can go to university, where there is a clearly defined progression route; a relatively generous loan system to defray upfront costs; a well-known series of institutions; and a qualification with labour market value.

Or they could go to an FE college, where (with limited and honourable exceptions) there is little or none of this.

It is perhaps no wonder that in recent years, university entry has significantly increased for 18-year-olds.

And universities are benefitting financially from this surge; revenue has risen by 26 per cent since 2009/10, as have surpluses.

Unrestricted reserves in the university sector now total £12.3bn — equivalent to 48 per cent of the entire annual budget for the sector.

There is, of course, a case for prudence and setting money aside. But there is also a case, in times of austerity, for considering whether money sitting in the bank is really the best use for it.

Hence our recommendation that in the Spending Review, government reallocate up to half a billion pounds, to support a financially challenged FE sector, from the HEFCE grant that supports entirely worthwhile goals such as widening participation, and asks the higher education sector to continue that task with their own money.

We also call for the student loan system for tuition and maintenance to be extended to students wanting to attend FE, so young people (and ideally, in time, older workers looking to retrain), can make decisions based on which route best suits them, rather than where the funding incentivises.

If these funding changes can be made, we may finally see a real resurgence of higher level technical skills this country so desperately needs.