The spending review is the three-year Government strategy written by the Treasury. It takes the Government to the end of its second term and will help determine whether it gets re-elected.

Public spending increases from 39 per cent of national income to 41 per cent in an attempt to improve public services. The review confirms a 5.8 per cent increase in education spending in real terms but does not reveal how the money will be divided between schools, colleges and universities. That will not be announced until November.

The spending review process has evolved since 1998 and is a key part of Treasury control over Government departments. In return for extra money, the Treasury dictates targets, audits and the action it wants to deal with failure. Government targets have been criticised and satirised but they are the key to the spending review process. The targets drive the budget because they release Treasury funds and determine behaviour in Government departments.

Targets have now evolved over three spending reviews to cover most areas of post-16 education and training. Back in 1998, the only post-16 target was an aspiration to get 85 per cent of 19-year-olds to level 2 (GCSE equivalent). With a rising population of teenagers and the failings of secondary schools, this has remained a distant goal.

Subsequent reviews have been more modest. The 2002 target is for 3 per cent increases every two years. This may power England past the Czech Republic but serious money and effort will be needed to achieve the target. Education maintenance allowances will be implemented nationwide from September 2004 and will be worth up to pound;1,500 per student. Parents have not lost out in this change because post-16 Child Benefit remains in place.

The basic skills and higher education targets were added to the workload of the Department for Education and Skills in 2000. These committed the department to improving the basic skills of 750,000 adults and to getting 50 per cent of the under-30 cohort into university. Both these targets remain in place in 2002 but the basic skills plan is now 1.5 million by 2007.

Two new targets join the three established targets in 2002. The Treasury has agreed a Modern Apprenticeship target and an adult qualification target. The Modern Apprenticeship target is taken from last year’s Cassells report and sets the goal that 28 per cent of young people should have entered an apprenticeship by the age of 22. This target is already driving the work-based learning budget because it has been adopted by the Learning and Skills Council.

The adult qualification target aims to reduce the number of adults with low skills and to help one million working adults achieve level 2 qualifications between 2003 and 2006. It’s a long way off the Kennedy report dream that all adults should achieve level 3 but it’s a challenging target nonetheless. Achieving it may involve bringing individual learning accounts back from the dead. Alternatively, one of the six employer training pilots may become a national scheme. This target is one of the innovations in 2002 and follows the work of the Performance and Innovation Unit last year. Unlike other post-16 targets, it is the only one that addresses those over 30. The majority of those without level 2 qualifications are in the pre-GCSE generation.

Other innovations in the current spending review are the plans for delivering change. Local LSCs have been promised three-year budgets and the ability to carry forward underspends, with effect from April 2003. Some local LSCs will also be expected to pool their adult learning budgets with their Regional Development Agency. How this fits with a national funding formula and what it means for college budgets remains to be seen.

Colleges have also been singled out for a new form of carrot. If they sign up to a challenging set of targets, they are promised 1 per cent growth in real terms in their unit funding.

In 1998, all colleges faced the stick of 1 per cent efficiency gains. Four years on, some get prizes for doing the right thing. The range of these college-level targets is unclear but may include engagement with employers. At the other end of the scale, colleges without floor targets will lose funding and are threatened by merger - supported by more money from the spending review. All this adds up to a new set of challenges for anyone in the publicly funded post-16 sector.

The three-year spending review cycle also fits into a four-month political cycle. It follows the budget in March and is followed by the pre-budget report in November, when the Treasury will introduce a further target for young people, covering their vocational achievements. There is a relentless series of budget changes and announcements. The power of central government to determine post-16 policy is as strong as ever and the power of the Treasury within Government secured.

Julian Gravatt is finance director of the City Literary Institute.

KEY POINTS POST-16

1 per cent annual growth in real terms for colleges in return for better performance against tough new targets.

* All post-16 students to be offered pound;1,500 a year means-tested Educational Maintenance Allowances from September 2004.

* At least 28 per cent of young people to start a modern apprenticeship by 2004.

* Improve basic skills of 1.5 million adults by 2007.

* Cut by 40 per cent the number of adults in workforce lacking NVQ level 2 by 2010.

* New incentives for further education to respond to local employer needs.

* New vocational target for young people to be announced.

* Fundamental review of funding for adult learning (pooling some LSC and RDA budgets for partnerships).