A plan for an adult skills and lifelong learning revolution Contents

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4Funding for adult education

The Adult Education Budget

28.The main source of funding for adult learning is through the Adult Education Budget (AEB), although there are multiple, different streams and pots on top of this. The Association of Colleges told us that adult education and skills funding is “fragmented”, and suggested that the AEB, the National Skills Fund and the UK Shared Prosperity Fund should be bought together into a coherent post-18 fund.65 However, Simon Parkinson, Chief Executive of the Workers’ Educational Association, warned that a simplified funding landscape might not meet “the diversity of need that we all feel is important.”66

29.The AEB has been held constant at £1.34 billion from 2016–17.67 A 2018 report by the Institute for Fiscal Studies found that total funding for adult education and apprenticeships fell by 45% in real terms between 2009–10 and 2017–18.68 The Augar Review notably identified this figure as “one of the most important statistics” in its report, and one that “cannot be justified in terms of either economics or social equity”.69 The decline in funding, together with factors including the introduction of funding restrictions for level 2 entitlements, and the move towards a more loan-based system of funding at levels 3–6, have led to a fall in participation.70 When we asked the Minister about the fall in adult education funding, the Minister suggested that the 45% figure “does slightly miss the point that at the same time we had a big rise in apprenticeships.”71 We further questioned the Minister on whether the Department would be making the case to the Exchequer for further increases to adult education funding at the next Spending Review. The Minister told us that the Department’s Spending Review bid is “focused around supporting the FE reform and that White Paper making sure that we focus on technical education”.72 The Minister did not elaborate on whether the Department would be asking the Treasury for a real terms increase in the Adult Education Budget.

The need for a long-term funding settlement

30.This year’s Spending Review was only a one-year review, covering expenditure for 2021–22. Ahead of next year’s Spending Review, the Department must focus on adult education and make the case for an ambitious, long-term funding settlement. The Social Market Foundation’s recent report on adult education concluded that measures to revitalise adult education are “unlikely to succeed without a significant increase in resources.”73 Their report called for a “substantial increase in adult education funding of at least £1.3 billion per annum” to offset the decline in funding.74 While the new £2.5 billion National Skills Fund is a significant additional injection of cash for adult skills, the Institute for Fiscal Studies identified that this would only “reverse about one fifth of the cuts to total spending on adult education and apprenticeships since 2010”.75 In the 2019 Spending Round, the Exchequer confirmed a three-year funding settlement for schools,76 and we are persuaded of the need for a commitment of similar ambition for adult education.

31.Further work will be needed to ascertain what level of funding increase is necessary. We heard that levels of AEB funding are not linked to the cost of delivery. Dr Pember, policy director for HOLEX, told us that the community learning strand of the Adult Education Budget “has been capped at an arbitrary level for 10 years”, and “funding allocation is based solely on programmes and does not reflect the actual cost of delivery”.77 The Association of Colleges similarly agreed that funding rates for adult courses in colleges are not linked to the cost of delivery, and indeed suggested that their initial research has indicated that funding levels “were not viable in terms of covering full costs”.78

32.Adult skills funding has fallen by 45% in real terms between 2009–10 and 2017–18. The consequence of this decline is that the nation’s adult skills and lifelong learning system is in poor shape to tackle the pressing challenges of the Fourth Industrial Revolution, an ageing workforce, skills gaps and the aftermath of the Covid-19 pandemic.

33.For its 2021 Spending Review bid, the Department must properly cost what level of Adult Education Budget increase is needed to meet the urgent and overdue reforms we set out in this report. An ambitious, long-term strategy for adult education will require an ambitious funding settlement. The Department must prepare a case for a three-year funding settlement for adult education.

34.The Department must review funding for adult skills and lifelong learning to see how the various funding streams can be consolidated and made more streamlined and less bureaucratic for providers.

Individual Learning Accounts

35.Even before the Covid-19 pandemic struck, the effects of an ageing population, automation and the Fourth Industrial Revolution were already starting to significantly shake up jobs and skills. The growth of new sectors, such as green energy, will spur demand for new skills, making it vital for adults to be able to reskill and upskill throughout their working lives. Yet we also know that adults face barriers to lifelong learning, with research commissioned by the Department reporting cost as a barrier identified by 42% of respondents.79 We therefore took evidence on Individual Learning Accounts (ILAs). Different forms of learning accounts have been developed in various countries, but essentially they provide a means of devolving choice and funding to the individual through a virtual account or a voucher to spend on accredited education or training.80 The introduction of the new £2.5 billion National Skills Fund offers a significant opportunity to implement ambitious lifelong learning policies and has reinvigorated discussions on learning accounts.81

The spectre of the failure of the 2000–1 Individual Learning Accounts (ILA) Scheme continues to appear every time learning accounts are mentioned. This is not without good reason, and the short-lived 2000–01 ILA scheme is an example of an ambitious policy that was sunk by the Department’s poor planning and inadequate risk management.82 The National Audit Office’s Individual Learning Accounts report provides a comprehensive examination of the Department’s failures, which resulted in a small number of training providers abusing their access to a system to open accounts and appropriate funds.83 The then Education and Skills Select Committee found that the ILA scheme had collapsed amid two main issues: “its rapid growth had outstripped its expected cost to public funds; and there were suspicions fraud had become so endemic that it could not be eradicated without killing the scheme.”84 The scheme had a budget of £199 million but actual expenditure exceeded £290 million.85 The failures of this scheme have meant that ILAs remain political kryptonite for English policymaking. Yet twenty years on, particularly with advances in technology and digital security, this need no longer be the case.

36.Written evidence highlighted that ILAs could stimulate participation in lifelong learning by lowering cost-barriers and encouraging individuals to take ownership over their skills and learning development.86 Baroness Wolf told us that:

you have to put far more of the power and decision-making in the hands of the individual and that you get better skills for the economy not by asking a Government Department to organise courses for people that they are sent on but by giving them far greater ability to learn skills when they think they want to.87

The Chartered Institute of Personnel Development suggested that learning accounts could offer scope for individual and employer co-investment.88 Similarly, Iain Murray, senior policy officer at the Trades Union Congress, told us:

One of the things we have been considering with the development of the lifelong learning account is that it functions as a wrapper. It makes people aware of their entitlements to funding coming through the state, but it also would facilitate other innovative kinds of funding, for example, employers agreeing to put in some money if an employee puts in some money. There are innovative ways of using lifelong learning accounts to empower people to take up boosted Government funding and also funding from other sources.89

37.As the Organisation for Economic Co-operation and Development’s (OECD) 2019 report sets out, various countries have adopted forms of learning accounts to boost adult skills and training.90 Close to home, versions of learning accounts have been introduced in Scotland and in Wales and there are likely to be lessons that could usefully be learned from their implementation.91 In 2019, Wales introduced a pilot Personal Learning Accounts (PLAs) scheme targeted at priority groups, such as adults in employment earning under £26,000. Under the PLA scheme, eligible adults receive full funding for college courses in skill shortage areas.92 Scotland has a system of Individual Training Accounts, which offer a grant of up to £200 for training courses for individuals who are looking for work or looking to progress in work.93 During the 2018/19 financial year, Scotland had spent £3.7 million on almost 19,000 accounts, and expected over 22,000 individuals to benefit from an account by the end of that year.94 Further afield, Singapore has a system of learning accounts that was highlighted in several written submissions as a gold-standard model.95 Unlike the versions in Wales and Scotland, Singapore’s ‘SkillsFuture Credit’ is a universal scheme for all adults over 25. It initially provides adults with S$500 (approximately £280) to spend on training, which is topped up at intervals. Adults over 40 receive an additional S$500 credit specifically aimed at mid-career support.96

38.We believe that there is a place for a rigorously designed and independently overseen Individual Learning Accounts scheme funded through the new National Skills Fund. This would put purchasing power into the hands of the individual, enabling adults to take control over their learning and skills pathways. The pilot or first iteration of the scheme should be targeted at groups who have historically low engagement rates with lifelong learning, such as those on low incomes. Ultimately, however, we would like to see the scheme take on a truly lifelong emphasis, moving beyond a one-off grant, to a system where adults receive 2–3 further top-up investments throughout their working lives to revitalise training and upskilling.

39.We recommend that the Government develop Individual Learning Accounts, drawing on the lessons learnt previously. These should be funded through the National Skills Fund, and initially should be aimed at unemployed adults and adults in work earning a low wage.

Statutory Entitlements funded through the Adult Education Budget

40.Adults who leave full time education with low or no qualifications are entitled to full or part-funding for certain courses funded through the Adult Education Budget. Further education colleges play a key role in delivering these entitlements—the Department’s budget for statutory entitlements is £1.3 billion, of which around £850 million is spent in colleges.97 The Department’s evidence sets out the suite of entitlements:

The AEB fully funds or co-funds (approximate 50% government contribution for co-funding) skills provision for eligible adults aged 19+ from pre-entry to level 3 […]The AEB supports four legal entitlements to full funding for eligible adult learners aged 19+ without the equivalent of a GCSE pass in English and/or maths and young people aged 19–23 without a first full Level 2 or first full Level 3 and a legal entitlement enabling eligible learners aged 19+ to be fully funded for essential digital skills qualifications at Entry Level and Level 1.98

Digital skills

41.Nine million adults in the UK lack basic digital skills.99 Digital skills are more necessary than ever before and are vital for employability and productivity. From August 2020, the Department introduced a new digital skills entitlement enabling adults with low or no digital skills to undertake a fully funded course.100 While it is right that this entitlement has been introduced, evidence criticised the introduction of the entitlement without an expansion to the overall Adult Education Budget.101 HOLEX told us that providers already fully spend their Adult Education Budget allocation on existing entitlements and support for learners, and stated that while the new entitlement is “a positive and welcome change, it will mean that the available adult skills funding is likely to reach fewer individuals than need the learning and training on offer.”102 The Association of Colleges also reported “delays in getting information out to the sector regarding the funding and curriculum offer”.103 The sector was also critical of the Department’s lack of modelling or analysis around participation which would have enabled providers to better forecast financial impact.104 In a letter to the Committee, the Minister confirmed that the Department did not have an estimated figure for the number of adults expected to take up the new digital entitlement in 2020/21.105

42.The Department should provide additional funding for the digital skills entitlement, and should ensure that any future statutory entitlements coming out of the Adult Education Budget are properly costed and funded. This should be clearly linked to forecast participation levels.

Learning at level 2

43.Over six million working adults are not qualified to level 2 (equivalent to GCSE level).106 Evidence from the Association of Colleges highlights that only 60% of 19 year-olds have reached level 3, while 15% of 19 year-olds have not achieved level 2.107 Without proficiency in important basic skills, this group is likely be to economically marginalised and frozen out of higher qualifications and higher pay. But adult participation in level 2 learning is in a dire state—the Augar Review found that the number of adult learners undertaking full108 level 2 qualifications declined by an astonishing 87% between 2012–13 and 2017–18.109

44.The net return on investment for vocational level 2 qualifications is £16.17 per £1 invested, compared to £20.70 per £1 invested for vocational level 3 qualifications.110 The evidence we received suggested that level 2 qualifications are a key stepping-stone for progression. The Association of Employment and Learning Providers (AELP) told us that it is “vital to maintain sufficient opportunities at level 2” so that adults who leave school without GCSE or equivalent education have a second chance at learning.111

45.Prior to 2012–13, the Department offered full funding for all adults to take their first full level 2 qualification. The funding rules then changed, and an age cap was introduced. Full funding was still available for adults aged 19–23, but employed adults aged 24 and over were required to pay half of their tuition costs, which the Augar Review calculated as around £500.112 The significant decline in numbers of adult level 2 learners suggests that for too many adults, this has posed an insurmountable cost-barrier. Adults who leave school or college without a full level 2 are likely to have had a poor prior experience of formal education, and may lack confidence in their own abilities, which may further deter them from spending their money on more education.113 As we examined in chapter 3, lack of awareness of entitlements presents a significant informational barrier to widening participation. We heard from Dr Pember that “One of the main problems we have is that we have free entitlements for people now, whether it be to do basic skills or a level 2, but they do not know about them.”114

46.Adult enrolments on full level 2 courses have fallen by 87% between 2012–13 and 2017–18. Over six million working adults do not have a level 2 qualification. Without the foundation provided by level 2 qualifications, higher level skills and higher pay will be out of reach for many.

47.The Department should remove funding restrictions for first full level 2 qualifications, restoring funding for adults who are over 24 and employed. The Department must fund a promotional campaign to ensure no adult remains unaware of what qualifications and funding they are entitled to.

Learning at level 3

48.The Government has announced that as part of its “Lifetime Skills Guarantee”, from April 2021, all adults without a level 3 qualification (A-level or equivalent) will be entitled to full funding for one. Only certain level 3 courses are eligible; the list has been confirmed by the Department and includes 379 different vocational and academic courses.115 While these courses align with national skills priorities, the list does not necessarily reflect local, sub-regional and regional labour market needs and priorities. This runs the risk that the scheme will not deliver for local employers and will be poorly regarded by them. This could also limit the impact the scheme might have in terms of improving the employment prospects of unemployed or low-paid adults. Previously the entitlement to a fully funded level 3 was capped at age 23, so this new announcement removes that age cap. There are economic benefits associated with level 3 learning, and the Department’s written evidence reports that adults over 25 with a full level 3 qualification benefit from a 10% increase in earnings, and a 2 percentage points increase in the probability of being employed.116

49.Limiting the Lifetime Skills Guarantee to adults who have not yet achieved a ‘full’ level 3 qualification does not address the need to kickstart retraining among adults who already have a level 3 or higher qualification. This includes graduates who are unemployed, and many in the labour market who already have a level 3 qualification or above who may need to retrain due to adverse conditions in their local labour market or industry that they have previously been employed in. It is a poor use of taxpayers’ money for them to be unproductive in the labour market but around 4% of graduates are not in work.117A further pressing issue is that poor take-up of the new level 3 offer could undermine the scheme’s ambitions. Qualifications at level 3 tend to be two-year study programmes. Unemployed adults need a journey back into the workplace that is as short as possible, not least because, with some exceptions, Universal Credit is not usually available to adults over 21 studying full-time.118 Enticing skilled lecturers to teach technical level 3 courses could be a further barrier to the success of the Lifetime Skills Guarantee. The median pay for further education lecturers is over £7,000 lower than their counterparts teaching in schools.119 Colleges can face difficulties recruiting staff with industry experience in specialist skills sectors, as this group tend to have higher salary expectations than colleges can meet.120 The Department will need to consider how it will ensure the extended level 3 offer is delivered by high-quality teaching staff. Innovative thinking about how to achieve this may be necessary, for example the Department might explore a scheme between employers and education providers whereby industry-based staff are ‘loaned’ to colleges to teach sections of courses.

50.Before 2013, the government covered full fees for a first level 3 qualification for adult learners who did not already have one. From 2013–14, adults aged 19–23 remained eligible, but full funding was removed for adults over 24 who had to self-fund or take out a loan. Advanced Learner Loans (ALLs) were introduced for adults studying at levels 3–6, who did not meet eligibility criteria for full funding. A number of submissions were critical of the introduction of ALLs, arguing that the shift to a loan-based system acted as a barrier to participation for low paid, low skilled adults that runs counter to social mobility.121 Written evidence from the Mayor of Greater Manchester argued that “For courses at level 3 and beyond, the assumption of loan-funded learning is simply not an option for the most disadvantaged individuals and families who might benefit most from improving their skills-qualification levels”.122 The Association of Colleges told us:

Numbers of those accessing Advanced Learner Loans have risen only slightly after a year-on-year fall for the previous three years and are a barrier to adults accessing education and training. After COVID-19 this situation is likely to deteriorate as adults will be more concerned about unemployment, debt and providing for their families.123

Low take-up of ALLs has resulted in 50% of funding allocated for ALLs going unspent between 2014 and 2019, and the University and College Union further noted that the unspent loan facility is evidence that ALLs “have been unsuccessful in bridging the gap between demand for learning and the requirement to pay fees.”124

51.Qualifications at level 3 have economic and labour market benefits for adults. Level 3 qualifications are also a key stepping-stone to higher level study. We are pleased that the Department has announced an expansion to the level 3 entitlement, so that from April, adults of any age without a level 3 will be fully funded to study certain courses. But, given that unemployment is expected to rise to a peak of 2.6 million people by the second quarter of 2021, we do not believe this commitment goes far enough. Limiting the guarantee to adults who have not yet achieved a level 3 qualification does not fully address the retraining issue.

52.The Department should extend the entitlement to a free level 3 qualification further, so that unemployed adults who already have a level 3 are fully funded to retrain at level 3 in priority skills sectors.

53.Local enterprise partnerships, working with local and combined authorities, should be able to add to the Department’s list of fully funded level 3 qualifications, where that qualification meets local or regional labour market needs. The range of adult education courses should take into account local and regional adult education needs and the regional industrial strategy, where it exists.

54.We are concerned that the ambition of the Lifetime Skills Guarantee could be thwarted if take-up of the expanded level 3 entitlement is poor.

55.We recommend the Department fund a national promotional campaign to ensure all eligible adults are aware of the free learning they are entitled to. The Department should work with the sector to identify innovative ways to support adults to take up the new entitlement, such as incorporating accreditation of prior learning, or developing shorter qualifications that can be achieved over one academic year. The Department should work with the Department for Work and Pensions (DWP) to ensure the DWP are providing appropriate guidance and support for unemployed adults to take up advanced skills qualifications, including the expanded level 3 entitlement.