Further education is increasingly being used as a laboratory between competing models of education, and the market model is winning. Ewart Keep explains why marketising education might not be such a safe bet

Although many in FE still instinctively talk about the “system”, in reality there are now only markets for different segments of provision – 14-to-16, 16-to-18/19, AEB, loans-funded post-19, and apprenticeships. This change from a system-based model to a market model happened quite gradually, from limited contestability under New Labour to full-blown marketisation under the current government.

It also occurred with little public debate on the relative merits of this fundamental choice about how best to configure funding and provision. In part, this lack of debate helps explain why people still refer to a system. In FE there has been no decisive, overt break. The new marketised reality has simply crept up on the sector, and providers have adjusted accordingly.

Why have markets and contestability in education become so popular in England?

Why have markets and contestability in education become so popular in England? Scotland and Wales have retained a systems approach. The answer is a set of interrelated economic theories.

Their starting point is the “principal/agent dilemma”. This suggests that where a government (the principal) funds institutions (the agent) to deliver public policy, there is a danger that the latter will instead follow their own self-interest, ignore what the former wants, and deliver what is easiest, perhaps inefficiently.

The solution, according to the textbook, is to route funding through the customer – in FE’s case students and employers – so that competition will force the agent/provider to deliver that which is needed. The market and customer choices are seen as the most effective resource allocation mechanism. At the same time, contests between providers for resources (funding and students) will drive up efficiency, with the weakest going out of business.

There are at least four problems with this analysis. First, the evidence that this model works in the real world is, at best, limited. Few developed countries have gone down this route. Australia is the prime example, and it has resulted in a decline in vocational provision and multiple funding frauds.

Second, there has been little discussion about some of the downsides to marketisation here. For example, the need to maintain spare capacity to facilitate student choice. As UTCs and studio schools are demonstrating, the 14-to-18 marketplace is a crowded and demanding one. There are also major issues about financial instability, the costs – not least to learners – of institutional failure, and providers’ inability to plan long-term to support developments like the T-levels.

Third, so far limited thought has been given to the longer-term implications. To pick just one example, where is market regulation and governance heading? At present, the market is regulated by a range of different agencies and bodies – for example, the FE commissioner, the Institute for Apprenticeships, the Education and Skills Funding Agency, Ofsted and Ofqual. The boundaries between their respective remits are often blurry, and the overall regulatory system in FE is far more diffuse than for universities. At the same time, if the customer is king and market forces rule, what need is there for traditional governance mechanisms? Why have boards of governors when customer demand dictates strategy and defines success?

Fourth, FE policy is fundamentally incoherent. Overlaying official enthusiasm for markets there is a strand of thinking that still yearns for traditional elements of skills forecasting and planning.

An example here are the new skills advisory panels. Policy also hankers after greater cooperation and a systems-based approach for some forms of provision (see the DfE’s social mobility plan for example). How the tensions between markets and planning and partnership will be resolved is as yet profoundly unclear.

To try to throw light on the meaning and implications of marketisation, Oxford University, working in partnership with the Association of Colleges, is undertaking a project on the issue for the FE Trust for Leadership. Our main objective is to produce a set of scenarios for how marketisation could develop, and to explore some of the main challenges, tensions and contradictions with a markets-based policy. Keep an eye on the FETL and AoC websites for details.

Professor Ewart Keep is director of SKOPE at Oxford University