A radical proposal to transfer control of the entire skills budget to a local level, made by Lord Heseltine, has been rejected by the government in order to protect national funding of apprenticeships.
Some of the remaining pound;2.2 billion of adult FE funding could still be transferred to local enterprise partnerships (LEPs), which were created in 2011 to bring local authorities and business together for economic development and job creation across the country.
But the government's response to the Heseltine review said that it will continue to hand control of funding to employers and individuals, using direct employer funding and the loans system currently available for over- 24s on level 3 courses.
"The government is reforming the skills system, looking at ways to put more control in the hands of employers and trainees rather than providers, such as through the Employer Ownership (of Skills) Pilot, Advanced Learning Loans and the response to the Richard review," the report said, referring to entrepreneur Doug Richard's recommendation that apprenticeships should be funded through employer tax credits. "It is important to continue the focus on transferring control to employers and maintain a nationally funded apprenticeship system."
Ministers had originally proposed that the Employer Ownership of Skills programme, which will direct pound;340 million to business bidders, would move from the control of the UK Commission for Employment and Skills to LEPs. But the response to the review by Lord Heseltine suggests that the government now sees direct employer funding as separate from local funding.
However, it said LEPs should be given "an element" of skills funding, which is likely to include pound;173 million of European Social Fund money, to help them influence provision, particularly for small and medium businesses.
From 2015, the money would go into a single local growth fund to be spent as each partnership required, and it would not be ring-fenced for skills.
The future of the Skills Funding Agency will be determined in the spending review this summer, when the Treasury announces how much of its budget is to be devolved.
Julian Gravatt, assistant chief executive of the Association of Colleges, said colleges and training providers will still be able to benefit from all the funding that is being devolved to LEPs, employers and individuals through loans. But he acknowledged that colleges will have even less certainty over their budgets than before if funding increasingly becomes a matter of tendering for contracts from employers and LEPs, and recruiting loan-funded learners.
"Could it be any more unstable than it is currently? I think it is a risk," he said. "There are definitely worries about the lack of ring- fencing. We are going to need to make a case for skills against other parties."
A report by Ofsted last week cast doubt on the ability of LEPs to take responsibility for large amounts of the skills budget, however. It found that fewer than half the areas inspected had partnerships that were well- established and had a demonstrable impact on local provision. Only a third of LEPs had an FE representative on their boards.
"The majority of LEPs were not sufficiently well informed about learning and skills provision in their area, or the role of local colleges in reducing unemployment and supporting economic growth," inspectors said.
Neil McLean, chairman of the Leeds City Region LEP and also of Leeds City College, acknowledged the variable progress of the partnerships and said that LEPs need to be "realistic" about how much they can do at this stage. "LEPs like ours are only two years old," he said. "The ability and capacity to take over large budgets in a short period of time is necessarily limited. I would guess that we are more advanced in this than some LEPs, but even we don't think that on Day 1 we should simply be handed wholesale control of some of these budgets."
Mr McLean added that he hoped LEPs would be able to increase their influence on how the FE budget is spent over time.
Adult education body Niace said that the new system should make colleges and training providers more accountable to their local communities. But it said that learners themselves should be given an opportunity to contribute to decisions about how funding is used, along with employers, local authorities and education providers represented in the partnerships.
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