Skills funding: return to austerity?

With new IfS figures revealing growing pressures on skills funding, Luke Sibieta finds out where further savings could come from

With new IfS figures revealing growing pressures on skills funding, Luke Sibieta finds out where further savings could come from

26 Oct 2022, 10:00

The government has made technical education and adult skills a priority in order to improve economic growth and ‘level up’ poorer areas of the country. There is clear room for improvement here given low levels of adult skills and low take-up of technical qualifications.

However, rising levels of inflation and student numbers are putting growing pressures on budgets. The government is also more likely to be looking for savings in the upcoming fiscal statement.

Growing pressures

In the decade up to 2019, colleges and sixth forms saw some of the largest funding cuts across all areas of education. Spending per student in further education and sixth form colleges fell by 14 per cent after inflation and by an eye-watering 28 per cent in school sixth forms. The government has sought to change direction by providing an additional £2.3 billion in funding by 2024 compared with 2019. While this represents a significant injection of additional funding over the next few years, the effect on per-student spending will be dampened by rising student numbers and rising levels of inflation.

With the population boom in schools gradually working its way through the system, we already expect student numbers to rise by over 160,000 or 17 per cent between 2019 and 2024. Numbers will continue to rise by 2 per cent between 2024 and 2026.

Rising inflation will also eat into budgets. School sixth forms already face higher costs from rises in teacher pay (more than 5 per cent on average September 2022), an 8-9 per cent increase in support staff pay, as well as pressures from energy and food prices. The proposed pay award for college staff is currently lower at 2.5 per cent (with extra cost of living payments for low-paid staff). This might ease financial pressures on colleges, but might not be sustainable due to competition for staff with schools and ongoing industrial action across colleges.

Given rising inflation and student numbers, we now project that spending per student in colleges in 2024–25 will remain about 11 per cent lower in real terms than it was in 2010–11, and about 27 per cent lower in school sixth forms. These past cuts and further rises in student numbers will make it difficult to cut total funding for colleges and sixth forms.

Will skills spending be maintained?

Total spending on adult education and apprenticeships fell by 38 per cent after inflation between 2010 and 2020, with most of this driven by a 50 per cent fall in total spending on classroom-based adult education.

This will be partially reversed by an additional £900 million in extra spending in 2024. This includes an additional £550 million to restore full public funding for first full Level 3 qualifications and ‘Skills Bootcamps’, an additional £170 million for apprenticeships and about £190 million per year on the new ‘Multiply’ programme to improve adult numeracy. Even with this extra funding, spending on adult education and apprenticeships will still be more than 25 per cent lower in 2024 than in 2010.

This may be an area where the government looks to make savings. Scaling back new initiatives before they have been fully rolled out, such as ‘Skills Bootcamps’ and the ‘Multiply’ programme, might be easier than cutting existing programmes.

There is also a strong case for reform of the apprenticeship levy and funding system. Since the launch of the apprenticeship levy in 2017, firms have failed to spend about 25 per cent of the money in their digital accounts or about £500 million per year. Failing to spend essentially free money is not usually a good sign of value-for-money.

There are strong incentives to repackage existing training as apprenticeships in order to qualify for subsidy. Labour have already signalled a desire to reform the system to widen what qualifies for subsidy, partly to reduce this incentive.

Furthermore, there are potential sources of inconsistency. Degree-level apprenticeships effectively receive full public funding for course fees up to £27,000. This contrasts with university courses, where students are expected to repay loans to cover their course fees. While there is likely to be little appetite for another big bang reform, there is a strong case for reforming and targeting the system to achieve better value-for-money.

It would therefore not be surprising if the government sought to reform and make savings in the apprenticeships budget.

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