News, Opinion

Hancock, Whitehead and the £40bn employer spend claim

Is the claim, most recently made in the Whitehead Review, that employers in England spend £40bn on training true, asks Mick Fletcher.

Ministers and government officials increasingly quote a figure of ‘more than £40bn’ as the amount spent by ‘employers’ on training. The implicit and sometimes explicit comparator is the £2.7bn spent by the Skills Funding Agency (SFA) — a much smaller total.

The figures are often used, as in the Whitehead Review, to lend weight to the argument that employers should have greater power to direct public spending.

This article is not concerned with the policy implications of the data; that is for others to debate.

It simply seeks to answer three linked questions: are these figures accurate, do they tell the whole story and is the comparison fair?

The figure quoted comes from the UK Commission for Employment and Skills National Employers Skills Survey (NESS) which reports findings from over 87,000 employer interviews scaled up to reflect the total number of enterprises across the UK (see table below).

The total, £49bn, is a UK-wide figure; the total for England on this basis would indeed be nearer £40bn.

Only £4bn, less than a tenth of the total, is spent by employers on external training providers.”

It is important however to look to how the total is made up.

Just under half (£24.3bn) consists of the wages paid to those undergoing training, whether on or off the job, routine induction or advanced skills. Any comparison with spending by the SFA or other bodies needs to be on the same basis.

Only £4bn, less than a tenth of the total, is spent by employers on external training providers.

This would be a fairer figure to use for any comparison with SFA spending.

The implication in many ministerial statements is that this is all expenditure by private employers.

Skills Minister Matthew Hancock for example, recently stated in an Edge lecture: “Of the £40bn market for adult training in England, less than 10 per cent is funded by the taxpayer.”

This is simply not true.

Many of the employers that spend the largest amounts on training are public bodies funded by the taxpayer.

The armed forces, for example, spend about £5bn per year; the National Health Service the same.

Local government and the civil service have considerable training budgets.

A full picture of who pays for training would need to include expenditure by individuals as well as employers and the state.

A true comparison would have to include (or exclude) the cost of trainee, or students’ time, and a fair comparison would need to compare all the education and training of adults funded by the taxpayer with that funded by private employers and by individuals.

The £40bn headline figure glosses over this complexity.

Fortunately the Inquiry into the Future of Lifelong Learning, hosted by the National Institute of Adult Continuing Education commissioned work on this very topic. It sought to separate out spending by public employers from private expenditure, and added to the NESS estimates of private spending the considerable sum invested by self-employed people in themselves.

It estimated the amount spent by individuals through fees and loan repayments and it looked at taxpayer support for private training through tax relief. It also added to the estimate of public funding the amount spent on higher education teaching (but not research) and the contribution of other government departments.

It did not however include the huge investment by the Department for Education in the education of those under the age of 19.

The research also estimated the opportunity cost of the time spent by individuals on education and training on the same basis as the NESS estimates of trainee wage costs.

The analysis can be summarised as follows:

  • On a UK wide basis, total expenditure on adult learning provision amounts to approximately £55bn, or 3.9 per cent of gross domestic product.
  • Roughly £26bn of the total is spent from the public purse, £20bn on training by private and non-profit organisations and £9bn by individuals (including the self-employed).
  • The scale of public subsidy on vocational training is large; our estimate is that the various forms of tax relief amount to £3.7bn.

In conclusion the figure of £40bn comes from a reputable source. It is, however, wrong to represent it as expenditure by private employers and very misleading to compare it with the £2.7bn spent by the SFA.

Mick Fletcher, education consultant and visiting research fellow at Institute of Education

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