Rachel Reeves’ first budget as chancellor of the exchequer sets a cautiously optimistic tone for the FE sector, but the details reveal familiar constraints.
Labour clearly sees investment in skills as integral to economic growth, and the chancellor’s understanding that skills are a critical lever for future prosperity is encouraging. Despite flickers of ambition, this budget lacked the scale of funding needed to fully unleash the potential of colleges and training providers to renew Britain.
It should not go unnoticed that early on at the despatch box Reeves highlighted that setting up Skills England was one of the government’s key pillars of its growth strategy.
Both the budget and the recent industrial strategy green paper show that skills training and economic growth are two sides of the same coin. Whether it is building new homes, expediting planning, delivering new infrastructure, leveraging the opportunities of artificial intelligence or achieving net zero, ensuring there are skilled workers to do the work required is essential. Without them, Labour cannot achieve its desired growth.
The additional £300 million in revenue funding is extremely welcome, as is the share of a £950 million skills capital fund to improve college estates. In a budget where the purse strings were tight, to have received this settlement at all is a boon.
However, it is not the transformative package the sector badly needs. FE remains the poor relation of other educational phases. New funding, though helpful, is largely symbolic against the backdrop of dwindling budgets, sustained cost pressures and staff shortages.
Mixed FEelings
With college staff left out of the public sector pay rises offered by Labour this summer, education unions have rightly called for this new funding to be used to increase salaries.
This could stop the earnings gap between what college staff earn compared to their peers in schools, currently around £9,000, from growing further. But it will not level the playing field.
There are other reasons to be optimistic.
Flexible apprenticeships could help young people at risk of being NEET enter the labour market, though it’s unclear how many will benefit from the £40 million of funding announced. With 872,000 young people currently NEET, Liz Kendall’s “Get Britain Working” white paper will be pivotal. The local piloting of the Young People’s Guarantee offers FE providers a chance to showcase their strengths in skills support for diverse age groups.
But there are also reasons to be nervous.
With major long-term spending commitments for the NHS and defence, maintaining, let alone extending, FE funding will be challenging as Labour seeks to balance governmental priorities. Looking beyond 2025, the budget forecast from the Office for Budget Responsibility (OBR) suggests that “unprotected” budgets, like further education, could see a small real-terms cut.
Though this is less severe than the cuts predicted by the previous government, it highlights that tough choices are still on the horizon. Sector organisations must, therefore, make strong representations to Treasury ahead of the next spending review window which is expected to open in the new year.
And now, the spending review
Another unknown is how employers will react to being squeezed by this budget, with increased wage bills through increased national insurance contributions and a raising of the minimum wage.
The 2022 Employer Skills Survey showed that investment in workplace skills declined 19 per cent in real terms between 2011 and 2022, so there is a risk that these changes will further curtail employer investment on training their workforces.
Labour understands that getting the skills system to work is critical for the UK’s growth. The party’s first budget in 14 years was a step in the right direction, particularly when viewed against previous austerity-driven budgets. Any additional funding, however modest, is a promising sign that Labour recognises the sector’s importance to its key mission to grow the economy.
Next year’s multi-year spending review will be crucial in solidifying the sector’s long-term stability. The ambition is there, but without sustained increases in investment, colleges and training providers will struggle to meet rising expectations and play the vital role Labour envisages.
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