Unexpected spikes in inflation are set to wipe out up to £850 million of the government’s skills funding increases over the next three years, FE Week can reveal.
Sector leaders have warned that student numbers could be massively reduced as a result, as colleges and training providers face increased staff shortages and cuts to course provision.
Ministers have been urged to immediately add an extra £350 million a year in skills funding on top of planned rises to mitigate the impact or risk damaging their levelling-up agenda.
Chancellor Rishi Sunak pledged in his 2021 spending review to increase skills funding by 29 per cent in real terms over the next three years compared to 2019/20, predominantly driven by the rollout of the national skills fund and further growth in apprenticeship funding.
The chancellor said the investment would form the most “wide-ranging skills agenda this country has seen in decades”.
However, since then, there have been significant rises in inflation, which have in part resulted from Russia’s invasion of Ukraine.
Following these increases, the Office for Budget Responsibility updated its forecasts in March 2022 and the Bank of England did likewise in May 2022.
New analysis by the Learning and Work Institute, shared exclusively with FE Week, said the upshot is that prices may be 4.3 to 8.6 per cent higher in 2024/25 than expected at the spending review.
The research body predicted that the loss due to inflation over the next three years combined would be £850 million. Some £350 million is predicted to be lost in 2024/25 alone.
Stephen Evans, chief executive of Learning and Work Institute, said that while it is good to see skills funding increasing after a decade of cuts, the bigger than expected spike in inflation is set to eat up a substantial amount of that increase.
“We need greater investment to avoid that. Investment that will pay off given high-quality learning contributes to economic growth,” he said.
L&W predicts that the adult education budget and national skills fund would be harder hit, with apprenticeship funding somewhat cushioned by higher-than-expected employment and growth in nominal earnings.
The institute warned that the quality of learning, or up to 250,000 adult learning places, could be at risk over the next three years under Bank of England inflation forecasts.
One of the government’s 12 levelling-up “missions”, as outlined in their flagship levelling-up white paper, is to increase the number of adults in training by 200,000 more people every year between now and 2030.
L&W said that if funding rates per learner are not increased, providers will find it increasingly difficult to provide high-quality learning and that difficulties paying higher salaries and increases in “precarious work” could lead to staff shortages.
“Larger class sizes might not work for some provision or some learners. Curriculum content could be limited. Some provision or learner support may be cut altogether. This could feed to lower-than-expected learner numbers and underspends in skills budgets,” L&W said.
David Hughes, chief executive of the AoC, said the analysis “lays bare the glaring gap” between investment and what is needed for people and employers.
“With the tightest labour market on record and skills shortages across the economy, investment in adult skills at all levels should be rising significantly. The government talks a good game on this, but the investment is sadly lacking,” he said.
And the Association of Employment and Learning Providers said L&W’s research reflects the concerns that its members are raising on a daily basis.
“Rising costs will put enormous pressure on our sector’s ability to deliver the high-quality training provision that our learners and employers sorely need,” Jane Hickie, chief executive of AELP told FE Week.
High inflation puts ‘massive’ pressure on providers
An investigation by FE Week revealed that independent providers and colleges are already coming under huge financial pressure because of inflation ̶ with some resorting to cutting courses.
One provider who did not want to be named told FE Week that in the past two weeks they have made the decision to stop offering three courses (in HR support, healthcare assistant practitioner and associate project manager) mainly due to the cost of travel and matching staff salary expectations.
There were around 200 students on these courses.
The provider said that in addition to this they have reduced the amount of employers they are working with for adult care worker and lead adult worker training from 217 to just 20, which they said demonstrates a significant reduction in provision in a sector that has extremely high staff shortages because of financial viability.
A spokesperson for the provider called the financial pressure caused by inflation “absolutely massive”.
“We’ve gone from a reasonable margin to now, we have no margin. It is literally cancelled out. Half of our provision is around adult care. We had a conversation where we seriously considered just not doing any more care qualifications.
“If you are in those lower funding bands, there is very little wriggle room… We’re going to see a lot of providers fold… and how many displaced students are we going to have to deal with?” they said.
Mark Currie, chair of Greater Manchester Learning Provider Network and chief executive of the National Logistics Academy (a provider that teaches HGV drivers and wider logistics skills), explained that increases in the price of fuel have caused problems for his business.
“Clearly, we’ve seen the price of fuel go from £1.30 a litre to £1.90 a litre, for diesel. Not far off going up by 50 per cent in less than six months…. Fuel in driver training is a very substantial 25 per cent part of the cost. It’s about half the labour cost. So, if 25 per cent of your cost goes up by 50 per cent, that is kind of critical,” he told FE Week.
Colleges are also being impacted. Martin Harrison, executive director of finance at The Sheffield College, said they have been bit by rising costs for curriculum materials, particularly for construction.
“We’ve seen costs of things like wood triple… because that is coupled with the scarcity of supply, so all of these things are hitting us at once,” he said.
The Sheffield College is planning for their utilities to increase significantly next year, probably around 50 per cent, according to Harrison.
He said another key area where inflation is having an impact is with the food, both in terms of curriculum (for culinary qualifications) and in-house catering services.
“In the past we have worked on the basis that whatever we sell might cost us 50 per cent, give or take a little bit,” he said.
“That’s now costing us nearer to 60 per cent to 70 per cent… All of our prices that we are getting seem to be shooting up one month to the next. It makes it challenging in the sector, when you are trying to deliver college meals to students, who need that support.”
Another concern is that the college has put in bids for capital works, which were made three months ago. Harrison said that the costs associated with those bids will have increased due to inflation, if the bids are successful.
And Andrea Webb, managing director of Profile Development and Training Limited in Kent, which specialises in education and training and early years sectors, said that between 2018/19 to 2021/22 her business running costs had gone up by 83 per cent.
Funding rates haven’t changed in years
AELP’s Jane Hickie said that funding rates for skills programmes need to be reviewed at least annually to reflect the true cost of delivery.
She also called on the government to directly fund any necessary increases resulting from these reviews.
“Fundamentally, if the government is serious about delivering a world-class skills system, they should reflect the true cost of delivery in funding made available for delivering skills programmes,” she added.
A Department for Education spokesperson said: “We are targeting support where it is needed most, investing in high-quality training that is delivering the skilled workforce employers need to grow, while plugging skills gaps in our economy and helping more people into jobs.”