David Hughes is Chief Executive of the Association of Colleges

The Universities UK call for a national debate on the future of higher education funding has, worryingly, failed to ignite the media and electorate – suggesting that post-18 education is not a high priority for voters.

Despite that, there has been considerable activity behind the scenes as various individuals and institutions have signalled their preferred approach to these issues in the future.

The issues and options currently being considered by these different groups include the following:

  • The likely financial consequences of the introduction of the new Plan 5 system – with 40 year repayment and lower interest rates – in England, Scotland and Wales.
  • Ameliorating the regressive consequences of the Plan 5 arrangements in England and Wales by having higher earners repay more and by not penalising women and others who take a care or career break – the so-called STEP model.
  • Proposals for introducing maintenance grants in England.
  • A graduate tax and/or employer focused graduate levy.
  • The possible introduction of student number controls.

All of these proposals share three things in common.

First, they look solely at one part of the post-18 education and skills landscape by ignoring the financial position of other learners over the age of 18 whether they are studying in further education colleges, completing an intermediate or advanced apprenticeship or other form of adult education and skills provision.

Second, they attempt to maintain the principal features of the current higher education student income contingent loan arrangements and the institutional funding this enables.

Third, they maintain an approach driven by almost exclusively individual student demand – without addressing the needs of communities and employers.

The other 50 per cent

The Augar report (published nearly four years ago in May 2019) highlighted the almost total lack of focus in England on adults that do not participate in HE in the opening paragraph:

Post-18 (or ‘tertiary’) education in England is a story of both care and neglect, depending on whether students are amongst the 50 per cent of young people who participate in higher education (HE) or the rest. The panel believes that this disparity simply has to be addressed. Doing so is a matter of fairness and equity and is likely to bring considerable social and economic benefits to individuals and the country at large. It is our core message.”

That core message from the Augar panel has been supported in subsequent reports which have made clear that these differences play themselves out through the deepening of established social and economic disadvantage in the most deprived parts of the UK.

To begin the process of dealing with these issues, Augar recommended:

  1. A reduction in the level of the maximum student tuition fee from £9,250 to £7,500,
  2. The extension of the repayment period to 40 years,
  3. A universal learner entitlement to a full level 3 qualification, and
  4. The introduction of a Lifelong Loan Allowance for short courses and full degrees which could be studied at points of the learner’s choosing throughout their lives.

These four recommendations have been implemented in part. The first by stealth through inflation eroding the real value of the student fee closer to the G7 average level of funding for tertiary education. The second and third through action announced two years later to accompany the publication of the government’s response to the Augar Report. The fourth through legislation currently passing through the Houses of Parliament.

Among the other 49 recommendations contained within the Augar Review, some have been partially implemented and others have not, including:

  • Investment in the salaries and development of the further education workforce.
  • Increases in the funding rates for economically valuable adult education.
  • A capital budget of £1bn per year for further education colleges.
  • Bursaries for students on level 2 and 3 courses.
  • Maintenance grants of up to £3k for undergraduate students.

The central consequence of this inaction is that whilst investment in the “two halves” of post-18 education is not only wildly imbalanced, it is worse than that because it has become even more unfair since 2019.

The Learning and Work Institute has reported that investment in adult skills in 2025 will be £1bn lower than in 2010, whilst HE funding continues to grow as uncapped student numbers allow, unlike in FE at Level 3 and below where cash budgets limit numbers (and aspirations and opportunities).

There are no simple figures on this published by DfE, but our estimate is that in 2022/23 £23.3bn has provided by the government for HE (including maintenance), some of which will be repaid by students – and around £3.3bn spent on all the rest (Level 3 and below in FE and apprenticeships).

Meanwhile, employers in the UK spend half as much as their European competitors on education and training, and the National Audit Office reported in 2022 that an astonishing 39 per cent of employers did not provide their staff with any training in the preceding 12 months.

Unsurprisingly, this all impacts on life and work chances as opportunities to learn have been lost year on year. The Institute for Fiscal Studies has demonstrated there are two million fewer people undertaking adult education and skills courses now than there were 13 years ago.

This shortfall in adult education and skills provision is holding back improvements in productivity and improvements in wage levels as well as overall economic growth. This is before we even begin to consider issues of fairness and the negative impacts on income and wealth inequality within and between regions and between the younger and older.

No magic money tree

Tackling this is not straightforward. Any incoming government after the next general election will face tight finances, with little prospect of a simple and rapid levelling up of FE funding to where it should be.

Meanwhile, we are likely to see growing numbers of young people applying to HE simply because of cohort growth on top of the cultural issue that “going to university” is what you do if you’ve been successful at Level 3 in your teens.

Sadly, as yet there is no public nor political outrage at the wasted talent we spurn every year by abandoning so many other teenagers who have not got to Level 3.

So without a magic money tree solution, we need three things to happen.

First we need a truly tertiary system to be developed, with a post-18 education and skills strategy setting out how every adult will be supported to attain and maintain the skills they will need throughout their lives.

A strategy which will set national priorities for sectors where most change will happen – green skills, construction, engineering, digital, health and care – and show how Government investment will encourage employer investment.

That strategy will set the framework for the newly-emerging Local Skills Improvement Plans in a more consistent way. It will also show how the system can be fair to all adults at all levels of learning, across their lives, with bursaries and maintenance provided in a variety of ways and not just to level 4+ learning.

We called time and again for a strategy to be developed during the passage of the Skills Act in 2021, but ministers kept refusing our ask. It was puzzling at the time, but I concluded that their main reluctance was because they didn’t want to be held to account for not delivering when they knew there is simply not enough investment – from government and from employers.

If that is correct, then we desperately need to have a strategy to set out both the cost of investing enough, and, of course, the cost of not investing enough. A strategy would make the case for investment in HE and FE, in universities and colleges, not in one against the other; that’s why we need the university sector and the college sector to come together on this, both confidently as vital parts of a tertiary system.

The second area for action is in the leadership, management, funding, quality assurance and regulation of the tertiary system. It is a dysfunctional mess which serves nobody well.

There is a need to consider the post-16 (or post-18) education system, nationally and regionally/locally. A review is needed of the current roles of the Education and Skills Funding Agency (ESFA), Institute for Apprenticeships and Technical Education (IfATE), Office for Students (OfS), Student Loan Company (SLC) and Mayoral Combined Authorities (MCAs) with the aim of a more streamlined system which can ensure that adults and employers get the outcomes they want and need. Too much time and resource is wasted in serving the current systems rather than on meeting the needs of people, communities, employers, and the labour market.

Thirdly, we need to recognise that as well as more public investment, the tertiary system needs more employer funding. At our recent “Future Skills Coalition” event at Portcullis House, there was agreement between Lord Blunkett and Lord Johnson that this should come from extending the apprenticeship levy to bring in more funding and to include adult skills as well as apprenticeships.

To support this, we can look to Northern Ireland, Scotland and Wales where the apprenticeship levy is used on a national and regional basis to prioritise areas where there are skills gaps and shortages and not just spent on apprenticeships.

This approach should be adopted in England as well with the current and planned future Mayoral Combined Authorities being charged to work with employer representative bodies, colleges and universities to target this funding where it will work best – for the labour market, productivity, economic growth as well as for inclusion and fair outcomes.

Apprenticeships work well in many employers, but not in the majority, so a more thought-through approach would support adults where an apprenticeship is not going to happen, to get the skills they need in a rapidly-changing labour market.

The devolution of increased funding for adult skills would help to support investment in colleges – their workforces, buildings, equipment, course development, outreach, advice to SMEs, innovation – to meet the demands from the labour market.

MCAs would be able to invest what is needed to increase learner numbers in economically valuable courses, but to do so inclusively with fair access at the heart of the plans through providing funds for bursaries and grants in priority areas. This funding could also be leveraged by increasing MCA access to bonds and loans to fund and steer capital investment.

A truly tertiary system for England might seem like a pipe-dream, and it would not simply solve all of the shortcomings – but it would help focus in on the need for a response to a changing world in which lifelong learning will become more and more important for every citizen.

8 responses to “How to create a truly tertiary funding model in England (and beyond)

  1. You mention the devolution of funding to MCA’s as a potential fix.
    This would be ideal apart from the all but impossible, Herculean task of creating the systems that underpin the process.
    As I speak only 1 MCA has managed to resolve this successfully, at a monumental financial cost.
    Others tried to create these bespoke systems and 5 years later are still floundering in the mud.
    As you mention earlier in the article there are no quick fixes, the MCA responsibility is a potential one but it won’t be cheap and it won’t be quick.

  2. Agree that there would be need for a capacity-building process for MCAs to take on new responsibilities, but surely that should not stop it happening if we think it would work better than the current system? Apprenticeship levy has been a disaster for fairness, regional inequalities, young people and lower level apprenticeships. Taking time to devolve it carefully, to give impetus to local/regional economic growth with inclusive approach is what we need. No quick fix, for sure, but we need long term and stable consensus, not flashy, short-term fads.

  3. There’s a bit of rewriting of history on the Augar recommendations on tuition fees. They were that:

    3.2 The cap on the fee chargeable to HE students should be reduced to £7,500 per year. We consider that this could be introduced by 2021/22.

    3.3 Government should replace in full the lost fee income by increasing the teaching grant, leaving the average unit of funding unchanged at sector level in cash terms.

    3.4 The fee cap should be frozen until 2022/23, then increased in line with inflation
    from 2023/24

    When Augar was published, its recommendations equated to a 11% cut in the real-terms unit of resource between 2018/19 and 2024/25 (page 92). Based on the latest forecasts the real-terms cut will instead be 31%. The Augar Panel said that “on current evidence we believe that attempts to generate further savings over this proposed funding freeze [the 11% cut in the real-terms unit of resource] would jeopardise the quality of provision” (though it seems Philip Augar has changed his mind on that based on his recent appearance at Committee for the Lifelong Learning Bill).

    I strongly suspect the shift to non-academic HE is coming via the introduction of tough Minimum Entry Requirements once HTQs are properly established at a scale that makes them a viable alternative route for people who find themselves barred from degree courses (as implicitly recommended by Augar).

  4. This is absolutely the right debate to be having and I fully support the David Hughes/Andy Westwood call for a properly integrated Tertiary Education policy & strategy, which is long overdue & urgently needed. There are three interrelated problems to solve:(1) how to significantly raise the overall level of investment in Tertiary Education, (2) how to distribute public funding between FE, HE & Adult Education in a fair and equitable way, and (3) how to re-design the funding system to incentivise students and institutions to prioritise uptake of subjects essential for future economic success. As David rightly says, there are no easy answers, but we at least need to be asking the right questions!

  5. An important issue is the length of courses in higher education. This consumes the funding, including driving huge spending on residential maintenance costs. It would be a backward step to use minimum entry requirements to channel some students to 3+ year degrees and others to 1-2 year Higher Technical Qualifications. Among the many issues would be to stigmatise technical routes as for ‘less bright’ students. You would think we’d have learned our lessons about that. A common tertiary framework where almost everyone starts with shorter certificate and diploma courses and then tops up over a working lifetime, preferably with employer contributions, would be much more fit for our times. It would not be based on the spurious dichotomy of ‘academic’ and ‘technical’ learning and, to the extent that there is such a distinction, encourage both types of learning. The Lifelong Loan Entitlement, complemented with grant and regulatory levers, has I think the potential to move the system in this direction.

  6. Excellent overview and agenda. The £23bn vs £3bn figures should be widely broadcast, esp in the likely GE debate over tuition fees. Or perhaps not so much broadcast as channelled directly to the Lab Pty.

    1. I agree with Tom Andy et al that this is an impressive paper David and that addressing the agenda is of key importance for future policy. However there is a parallel need to convince employers of the benefit of developing staff, and equally critically a need to engage adults with negative prior experience to engage with learning and development. Tim Blackman is right too to warn against voc/non voc division. Learning leaks – what you learn in one context you apply in others.

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