Training providers shouldn’t have to apologise for profit

We need to talk about the ‘p’ word.

Profit.

Whenever the government uses private-sector organisations to deliver public goods and services, there is suspicion: that they have the “wrong” motives; that they will cut corners; or pursue growth regardless of quality.

At the root is a suspicion about profit. And yet, as FE Week explored a few weeks ago, ITPs continue to be the overwhelming choice for apprenticeship delivery for employers.  Something appears to be working.

So what is the role of profit in the skills sector?

Every provider – whether college, charity, university or privately owned company – should aim to deliver for a cost below their income.

This operating surplus means an organisation can withstand shocks, invest in improvement and plan with confidence. A provider living from one payment to the next is not in a strong position to focus on learners, employers or compliance.

The test for any provider should be: does it improve learners’ prospects? Does it meet genuine employer needs? Is it sustainable?

Properly managed, profit serves these goals very well.

First, profit creates breathing space. A provider with breathing space can invest in its people, systems and curriculum rather than merely scrabbling to make payroll or fudge a reform. It can build reserves, improve learner support and maintain standards even when external conditions are deteriorating.

Second, profit – or the potential for profit – is a vital component of what attracts founders and investors to put in money upfront to create new organisations and new programmes.  This usually comes along with deep motivation from individuals to help learners and employers by doing something differently or better.

But money is needed in order to get going.  They use savings, borrow personally, borrow from investors and endure long periods of uncertainty while building their vision.

Tens of millions of pounds have over the years been put into the skills system in this way, at no cost to the taxpayer and with no guarantee of a return for the entrepreneur or their upfront investors.  And many of these programmes have gone on to be vital and valued parts of the system.

Institutional investors know that the only way to genuinely increase the value of their investment is to provide a high-quality service that delivers for a growing number of employers and learners.  Investors buying such businesses are laser-focused on judging whether this is the case or not.

Third, once the business is up and running, profit also creates the capacity and desire to innovate and go the extra mile. This is what has enabled providers to continually improve what they do, at no cost to the taxpayer – indeed, many have done so while funding has been falling in real terms: new learning platforms, better employer-facing services, high-quality curriculum content and more flexible support for learners.

All need upfront investment, yet beyond a handful of mayoral grants, ITPs receive no government money to renew their buildings, technology or learning infrastructure.

Investments can be risky: the upsides from the ones that work have to balance the downsides of the ones that don’t, even if the former are the only ones the rest of us see.

It would be strange for the system to welcome such initiative, risk-taking and ‘free’ upfront capital, but then regard any financial flow in the other direction as intrinsically suspect.

Of course, the profit motive needs guardrails.  The two best ways to do this are competition and regulation.  Competition – which government should nurture and steward – ensures quality goes up faster than prices.  Regulation prevents cutting corners (and applies equally to non-profit organisations: all need clear success measures and strong regulation).

This is one of the great strengths of the English apprenticeship system: vigorous and healthy competition, within a (now) mature regulatory regime.  Of course, government should not be complacent about either: competition and regulation can always be sharpened and improved to ensure they are pushing up quality, aligning with the profit motive.  In particular, government needs to do more to ‘market manage’ to address cold spots of delivery.

We have some big changes coming up.  The pivot to youth.  Devolution.  The inexorable march of AI and all its implications.  Alongside the whole sector’s passion and determination, profit can play a vital role in keeping the skills system moving forward, for the benefit of employers, learners and the economy.